From the beginning of my research for a centennial history of the Bank of North Dakota, the question has been, how can a state so conservative -- and so very deeply red -- establish, sustain and grow a state-owned bank?
It’s a complicated question.
Certainly it’s not because North Dakotans rushed off to embrace socialism, as the publisher of the Herald warned at the time – and ideologues and historians still sometimes suggest.
State ownership is the definition of socialism, and the Bank is owned by the state. The idea of the Bank may have come from activists who were familiar with socialist ideology. These included Arthur C. Townley, who founded the Nonpartisan League, the farmers movement that swept to power in 1916, and shortly thereafter established what it called “the industrial program.” The phrase has a Soviet smell to it, but the League presented it as an economic development plan.
Townley himself had been a Socialist Party organizer, but the party and the man were not loyal to one another. When Townley began organizing the League, the Socialist Party expelled him. A number of League insiders were socialists, but League leaders rejected their ideas about governing the state-owned businesses.
Nor were North Dakota voters attracted to the Socialist Party. Its best showing in a statewide election was 8 percent of the vote for president in 1912.
Townley was undoubtedly sincere in his desire to make change; he made sacrifices for the League, but he is better understood as a disgruntled entrepreneur than as an ideological socialist. He took the organizing job after his flax farm failed, and as a League leader, he invested its funds in a number of schemes that had little to do with its program. One of his enterprises, the U.S. Sisal Trust, is examined in detail in the current issue of North Dakota History.
Other Leaguers also had business interests. William Lemke, who wrote the legislation creating the Bank, had invested heavily in land in Mexico. He involved a number of others in the scheme, including William Langer, initially the League’s attorney general but later a vocal foe of the early League. In 1928 he resurrected the League as a personal political machine, but by that time, the League was less interested in economic development than it was in farm relief. Langer’s reputation stems from that era, not from his career with the initial NPL government.
One real “socialist” among the Leaguers was Henry Martinson, star of a film about the League’s rise called “Northern Lights.” Martinson served as assistant state labor commissioner for many years, and he never abandoned his faith in “the revolution.”
The North Dakotans who voted for the League were interested in practical solutions to pressing problems, and the League provided one in a state-owned bank. This wasn’t an original idea. The fledgling American republic had a national bank and in the 20th century, the Federal Reserve system was established. A number of states experimented with state-owned banks. These failed for various reasons. The idea of public banking was in the air, and in North Dakota, the idea took root.
Conditions favored the North Dakota Bank. The Bank responded to a real need for capitol in a developing state, and its mission statement emphasized economic development. That hasn’t changed. Almost a fourth of North Dakotans were immigrants when the League came to power, and many of them were familiar with cooperatives, credit unions and even public banks. Some of its statewide candidates were UND graduates who came in contact with progressive ideas on campus. The adoption of initiative and referendum aided the League, just as recall brought an end to its power in the state – though not to the institutions it developed. In the 1921 recall election, voters approved the Bank but removed the League officials. The winning gubernatorial candidate vowed to continue the Bank.
The real catalyst, however, was a dysfunctional private banking system. The state had far too many privately owned banks, more than 800 of them in 1920. Many of them were seriously undercapitalized and all of them were dependent on Twin Cities banks. At the same time, milling and transportation interests preyed on the state’s farmers. A long effort to establish a state-owned terminal elevator failed, and frustrated farmers took matters in their own hands, accepting a program to develop the state’s economy by using the state’s own financial resources.
Thus, the Bank was born, and it has survived election challenges and court cases to reach its 100th anniversary. The Bank opened for business on July 28, 1919; a celebration will take place in Bismarck on Monday, July 29.
If you want to know more, a book about the Bank, “The Bank of North Dakota: From Surviving to Thriving,” is available at the Grand Forks County Historical Society and on the Bank’s website.
A point of personal privilege: Duane Mutch of Larimore died last week at age 94. He served 47 years in the North Dakota Senate. Although he wasn’t around when the Bank was born, he probably would have opposed it. Mutch was a thoughtful and consistent conservative. He was also a very funny man always ready with a quick retort. And he never held a grudge.
Wrong again: Jeff Holm’s named was misspelled in last week’s column. He is UND’s vice provost for online education and strategic planning.
Mike Jacobs is a former editor and publisher of the Herald.