Who are banks for?
As crisis stalks the financial system, that question is again a pressing one. And the history of how previous generations answered it points us to an unlikely place: North Dakota, where, in 1919, an upstart farmer movement called the Nonpartisan League (NPL) established the United States’ most successful state-owned bank.
The politics of banking was a widely discussed subject among working people in the early twentieth century. Financial panics throughout the 1800s had taught farmers and laborers to see banks and bankers as enemies of both a stable economy and ordinary people’s prosperity. Despite financiers’ fierce resistance, popular movements successfully pushed for postal savings, credit unions, and farm credit. Political opposition to banking as usual thrived in large cities and remote rural precincts alike.
During the 1910s, hard-pressed wheat farmers in North Dakota faced predatory practices in the grain economy. Few imagined that the state’s farmers — including Ukrainians, Germans, Irish, Icelanders, Norwegians, Danes, Hungarians, Estonians, Dutch, Swedes, Czechs, Syrians, Germans from Russia, and African Americans and other native-born Americans — could transcend their differences and improve their situation.
But for all their ethnic and religious differences, small farmers faced similar conditions. They shipped grain to Minneapolis for processing and saw little of the profit that their wheat produced. Crop values, controlled by milling and trading companies, were low. Transportation costs, set by railroad companies, were high. Mortgages from local bankers — held in trust by big-city banks — were larded with exorbitant interest rates.
Nor could farmers look to their state government for succor. Dominated by out-of-state corporations, North Dakota was reduced to a kind of colonial hinterland of the Twin Cities. As one failed farmer put it: “There are only two ways of making a living in North Dakota. One way is to dig the wealth out of the ground. And the other way is to dig it out of the hide of the fellow who digs it out of the ground.”
First turning to cooperatives in the early 1900s, North Dakota’s agrarians soon realized that the political reach of out-of-state companies was too powerful. So, in 1915, farmers created something new: a co-op for electoral politics. Their membership-based, candidate-endorsing political organization, the Nonpartisan League, used the state’s direct primary election law to bypass political parties altogether. Members of the NPL simply supported candidates in any party who backed their populist platform.
While the NPL platform included a range of demands, one key plank was setting up public alternatives to big business: a state-run bank, a state-owned grain elevator, and a state-owned flour mill. The League drew on agrarians’ deep commitment to a moral economy, one in which fairness and an equal chance to succeed mattered most. Squeezed between the volatility of weather and markets, these farmers also distrusted the small-town bankers on whom they depended for credit. After all, access to credit determined land ownership, economic success, and even one’s standing in the community.
The NPL took off. In the 1916 state elections, the League shocked the nation by electing a governor, an attorney general, and gaining control of North Dakota’s House of Representatives. Organizers capitalized on the national attention, fanning out into Minnesota, Wisconsin, Iowa, South Dakota, Montana, Idaho, Washington State, Colorado, and Nebraska as well as Saskatchewan and Alberta. The NPL signed up farmers by the hundreds.
Existing political parties and establishment politicians responded with force. The open persecution of NPL members in many states intensified after US entry into World War I. But defeats elsewhere could not keep the League from taking over North Dakota’s government in 1918.
In the 1919 legislative session, the NPL established state-owned industries and a public bank: the Bank of North Dakota. The former sidestepped predatory commodity traders and flour millers. The latter provided relief from “financial pirates.” The economic democracy desired by so many agrarians depended on creating these public options in the profit-dominated marketplace.
State banks were not new. In the nineteenth-century, seven states established such entities (though none survived into the 1910s). The NPL also drew from foreign examples of land banks and farm-loan associations as well as the closer-to-home Federal Reserve banking system. Nonetheless, a state bank created by a bottom-up movement to provide financial services for “the people,” as they put it, broke new ground.
Charged with “encouraging and promoting agriculture, commerce, and industry” in the public interest, the Bank of North Dakota launched in mid-1919. A shaky start — instigated by Wall Street, which refused to interact with the new public entity — led to legal challenges. One went all the way to the US Supreme Court. On June 1, 1920, the court ruled that North Dakota’s state bank was thoroughly constitutional.
Despite the legal victory, other hurdles soon emerged. Farmers across the state faced foreclosure during the post–World War I agricultural depression. Crop prices plummeted due to changes in global markets, triggering a rash of bank failures on the Northern Plains. Finally, funding the new state-owned flour mill and grain elevator — which financiers refused to support — put enormous stress on the state bank’s resources. Ultimately, it took a national campaign (which included appeals to organized labor) to save North Dakota’s state bank.
In 1921, satisfied by the establishment of state industries but troubled by the NPL’s mismanagement, North Dakota voters recalled the League governor and attorney general. The NPL’s enemies took over state government. Respecting the popularity of the League’s program, however, they doubled down on the state industries and state bank. Careful administration, as well as the flow of capital from out-of-state banks (which welcomed the state’s rejection of the League), gradually put the Bank of North Dakota on firmer ground.
During the Great Depression, millions of dollars in low-interest loans to the state’s farmers kept them afloat. After World War II, the Bank of North Dakota began turning over profits to the state’s general fund, often covering budget shortfalls.
In 1959, the bank ceased issuing farm loans. But 1967 saw the bank launch its wildly popular student loan program, which made low-cost credit for college available to North Dakotans. During the 1980s farm crisis, the state bank funded community development programs to bolster small-town economies. In 1997, disaster relief funds for communities facing destructive floods in the Red River Valley buoyed North Dakotans at an especially difficult moment.
Critics of the state bank, especially on the Right, persist. And in what is now a firmly Republican state, the Bank of North Dakota’s intensive support of private, for-profit banking pushes definitions of public interest to the limit. In 2016–17, the state bank went so far as to provide emergency loans to help pay for law enforcement’s massive show of force during the Dakota Access Pipeline protests.
Yet as we watch the banking system stagger toward disaster once more, we should look to North Dakota and the democratic model that its century-old state bank provides. Banking for and by the people is not just desirable. It is proven.