The Washington critic. [volume] (Washington, D.C.) 1885-1888, 1885-12-18
RICHARD II. SYLVESTER, Editor.
wAsHINGToN. d. o. pEO. Is. 1ss5
BUILDING SOCIETIES AND THEIR
MANAGEMENT.

MANAGEMENT.
While the failure Of one building associ-
alton in West Washington Is not cause
for panic as to the condition Of build nc
societies in general, It suggests some relec-
tions which may be Of use to the officers Of
such societies and to persons who think of
joining one OF them. II It be true that the
society which has just failed provided in its
constitution or bylaws for the payment Of
eight per cent. interest on mouey With
drawn for shares surrendered 20 the society,
its failure is not matter OF surprise. IL is
true that building society profits have
in general been large enough TO encourage
the organizers of new societies in the making
Of liberal provisions upon this point. But
as the number Of lending members increases
that is, the number Of those who enter
building societies with Il view to the profits
to be made by the investment Of theirmoney
in shares and not with the intention Of bor-
rowing-tho tendency is for profits to fall
to what we may call the lair and normal
rate.
II Is wcll-known TO those acquainted
with building society affairs that the pre-
MUM paid on advances, or, as it would be
expressed in common parlance, the interest
on loans is now much smaller than II used
TO be. The change Is n healthy one, since
IL is in the direction of a fdircr relation be-
tween borrower and lender, and Is the natu-
raj result of increased competition in lend
ing as compared with the competition in
borrowing. But while this Is the case, It is
q change that has to be borne in mind In
making provision as to the rate of interest
TO be paid on Withdrawals Moreover, If the
tendency OF profits is downward, the rate
Of interest, which seems justified by past
experience at the time when a society is
organized, may cease to be justified before
the time of its maturity, and II provisions
for fixed rate have been made In It's con
stitution that rate may consequently prove
higher than the results of its own busines
will warrant, and in such n case the result,
which have followed in the case of tn,
Georgetown society are precisely what
might be expected.
more iudlcious arrangement, and one
far more in accordance with sound business
principles, would be to make the rate of In
terost on Withdrawals dependent on the
earnings of the society, as declared in its
quarterly financial statements, and TO make
1t s5melchat lower than the earnings might
seem to justify, In order to afford margin
for insurance against risks. 1t should,
moreover, be remembered that, while build
ing societies afford an excellent means of
saving money, they are not savings banks,
still less ordinary banks Of deposit, and
that the expectation Of being able to put
money into them and draw It out on call,
or after a short notice, without fail is not
reasonable one. The nature OF their bust
ness generally renders it practicable
to take up the shares of member wishing
TO retire, and pay him their par value with
fair interest, but 1t should be distinctly
understood that he has no absolute right to
this accommodation; and the organizers of
building societies, who hold out positive
promises upon this point, commit, in our
opinion, an error which is liable to prove
serious.
A purchase of building society shares is
not n deposit Of money, but an iareSiDttm of
it, and the most that society can safely
promise to do for retiring members is to
take up their shares and pay them back
their money with moderate interest, so far
as may be found practicable. The fact
that 1t almost invariably is found practica-
lie to do this may afford the investor n
strong encouragem ent that he will be able
TO get his money on call, but, under the
conditions of building society business, no
positive pledge that he shall have the right
to do so can safely be made.
The excessive rate Of interest paid by the
Georgetown society is an exception to the
general rule. Some of the societies pay
only four per cent, 1t may also be remarked
that hitherto the number OF failures of such
associations has been comparatively small.
We doubt II half dozen could be men
TONED that have failed in this District, while
some idea of the number OF societies that
have been operated here may be forme
from the fact that at local convention of
building society officers, held about dozen
years ago, no less than seventy-1ve societies
in existence in the District at that time
we Q represented,
Hence, while the difficulties ofthe George.
town society may suggest no cause for gen,
eral alarm or distrust, it may be regarded a:
an admonition to the officers Of such associa
tions to exercise due precaution and t,
intending investors to carefully inform
themselves in advance ms to methods OF
man leement pursued, the security prof
fered and the returns to be reasonably ex,
pected upon their Investment.
1HE PRESIDENTIAL SUCCESSION