The history of the credit union is a fascinating one, as the concept of the credit union as we know it today came about due to the powerful political, economic and social changes that swept through Europe after the fall of the feudal system, the blossoming of the Renaissance and the advent of the Early Modern Period. Although the first active credit union did not spring up on the American side of the ocean until the early twentieth century, the concepts that helped to shape those that formed much earlier in Europe had been developing for centuries.
The concept of a credit union is a fairly simple one, remaining pretty much unchanged from the earliest organizations of this type. Essentially, the members of a credit union function as a fiscal collective, coming together to create a non-profit financial institution. Members deposit funds for saving and the credit union also makes loans available to its members. Credit unions tend to be made up of members with some sort of similarity, such as by profession, as with a teachers’ credit union. Each of these characteristics can be traced back into the history of the culture that created those early European credit unions.
During the Middle Ages, the crumbling of the feudal system was an important factor in the developing of a larger merchant class and the growth of guilds in power and function, including both merchant and craft guilds. In the Medieval Era, guilds performed a variety of important tasks, including religious observances and services on behalf of the whole, as well as individual members. These organizations, typically centered around professions and crafts, were responsible for creating and maintaining standards for members to abide by, such as quality control for products and price controls for merchants. Guilds also contributed to the support of member widows and provided loans to members.
The Renaissance brought intellectual and technological advancements that helped to strengthen the financial aspects of the guild system. That is because those changes were an important part of what allowed urban life and the merchant and professional classes to flourish. As new knowledge and ideas were applied, the production of food and goods increased, trade broadened with easier and safer traveling. This allowed for a growth of wealth and capital in the merchant class and for other professional classes, as well, paving the way for the eventual development of a middle class.
In Europe and Great Britain, the guild system was tightly entwined with the Catholic Church and with politics. Thus, as Martin Luther’s Reformation movement gained momentum during the Early Modern Era, both in the religious and the political arenas, the power, influence and function of the guilds were eroded. As the Protestant Church arose, diminishing and often supplanting the Catholic influence on government, the function of the guilds became increasingly secularized, as they were no longer allowed to perform functions relating to Catholicism, as they had for centuries.
By the late 1700’s, the era of the guild as a powerful force was over. While there remained a few guilds that still functioned, in many nations, the government took an active role in reducing their power, and even outright outlawing them. France, for example, did so during the French Revolution, which took place in 1791.
However, the basic concepts of the rudimentary credit union that developed within the guild system did not die. With the changes that the Industrial Revolution brought to Great Britain and Europe during the 18th and 19th centuries, came great social change and upheaval. Machines and industrialization increased production while reducing man-hours. The growth of wealth and capital concentrated power in certain segments of the population, while reducing economic power in others.
This power shift inspired thinkers and philosophers critical of the changes wrought upon society, culture and the common man to consider alternatives to raw, unrestrained capitalism. The works of Karl Marx and Friedrich Engels came during this period of time, as well as those of many others dissatisfied with the living conditions of those who were workers in the capitalist economic system. The ideas and concepts of these individuals led to the exploration of collectivism in many forms, directly leading to the development of cooperative financial institutions that we would recognize today as credit unions.
While there was some experimentation with the concept of a credit union during the mid-1800’s in Great Britain and Germany, it wasn’t really refined to its modern form until 1864, by Friedrich Wilhelm Raiffeisen in Germany. By the year 1900, the credit union concept traveled across the ocean and into North America, with Canada hosting the first official credit union on the continent.
The United States was a bit slower to adopt this form of fiscal institution, perhaps because the collectivist concepts behind the credit union lacked appeal to a nation with a history of striving for independence and a cultural attraction to the power of the individual and the spirit of the pioneer. However, from its slow start in 1909, the credit union began to really flourish during the 1920’s and has continued to progress, growing in strength and popularity right through the present. Today, the credit union is an important part of the financial landscape of modern America.
The modern credit union has centuries of history behind it. One of the most fascinating aspects of the history of credit unions is the fact the essential form and function of a modern credit union, assisted by the technological advances of the day, has changed remarkably little from those first credit unions that formed hundreds of years ago. Now, as they did then, credit unions have a lot to offer their members.
- What is a credit union? Defines a credit union and offers advice about how to choose and join one.
- CUNA: The Credit Union National Association