The easiest way to defeat the Nonpartisan League was to associate it with socialism and communism, or to accuse it of unpatriotic behavior or to deride the farmer citizens of North Dakota as rubes. The Dayton Press in Washington state wrote, “No wonder that the Nonpartisan bunk became so popular in North Dakota. The census taker found only five bathtubs in four counties. Uncleanliness and ignorance are ever companions, instance the Bolsheviki in Russia and the Bolsheviki hoboes of the I.W.W. and other unclean classes in the United States.”
Opposition to the League was fierce. NPLers were accused of being socialists, communists, anarchists and losers who preferred to seek government handouts rather than do the hard work of succeeding at farming. League supporters, especially political candidates, were subject to intense commercial discrimination in their hometowns.
The U.S. Supreme Court Challenge
On April 19, 1920, the nine justices of the United States Supreme Court heard appeals from Scott v. Frazier and Green v. Frazier challenging the constitutionality of North Dakota’s state-owned enterprises, including the Bank of North Dakota. The justices had a hard time understanding why the enterprises should be regarded as an infringement of the Fourteenth Amendment rights of North Dakotans.
Court (Justice James Clark McReynolds): “Why shouldn’t the state operate a bank?”
N.C. Young (representing the taxpayers): “It might properly do so for bona fide banking purposes of its treasury, but this bank is started merely to finance these industries.”
Court: “Well, and why should not the state go into business?”
Young: “Why, that is taking money from the taxpayer without due process.”
Court: “That is merely words. We are interested in reasons.”
On June 1, 1920, the Supreme Court ruled in favor of the League enterprises in both cases.
Associate Justice William R. Day delivered the opinion of the Court. He declared: “If the State sees fit to enter upon such enterprises as are here involved, with the sanction of its constitution, its legislature, and its people, we are not prepared to say that it is within the authority of this Court, in enforcing the observance of the Fourteenth Amendment, to set aside such actions by judicial decision.”
Day said, “With the wisdom of such legislation, and the soundness of the economic policy involved we are not concerned. Whether it will result in ultimate good or harm it is not within our province to inquire.”
What mattered was that the Bank of North Dakota and the North Dakota Mill and Elevator were legal institutions.
As the Cincinnati Post put it, “the decision merely permits the people of a State to do what the majority wants done, and which is not in conflict with the Federal Constitution.”
The Independent Voters Association maneuvers
In North Dakota, the opposition formed the Independent Voters Association (IVA), but in neighboring Minnesota the opposition took on a more formidable name: Commission of Public Safety.
The IVA did not oppose the entire League program as enacted in 1919, but it did oppose two League programs with all its rhetorical force:
First, the Bank of North Dakota.
Second, the new Industrial Commission.
North Dakota historian D. Jerome Tweton wrote, “Nothing upset IVAers more than the thought of the state going into the banking business. The Independent [the IVA newspaper] dwelled on the failures of state banking businesses in American history and on the un-American and undemocratic philosophy upon which the Bank of North Dakota was founded. Especially distasteful to the paper and to the IVA was the requirement that all public funds be deposited with the bank and that control rest in the hands of the Nonpartisan League-controlled Industrial Commission.”
If the bank must exist, the IVA insisted that it be controlled not by politicians (the elected Industrial Commission), but by nonpolitical administrators.
The IVA tried to destroy the new state industries by way of hostile audits, and by cooperating with eastern financial interests to boycott the Bank or to purchase North Dakota bonds only if the state severely chastened its industrial enterprises. They worked hard in 1921 to reduce the Bank of North Dakota to a farm loan agency.
The showdown came on October 28, 1921, when League opponents recalled the three members of the Industrial Commission, including Governor Lynn J. Frazier, Agricultural Commissioner John Hagan and Attorney General William Lemke.
It was a dark day for the Nonpartisan League. The citizens of North Dakota had become convinced that the League leadership was incompetent and—according to some—corrupt. The recall was successful—all three League members of the Industrial Commission were recalled and replaced—but the opposition’s attempt to dismantle the League’s economic and Industrial Program through a series of initiated measures failed. By a margin of 4,238 votes, the people of North Dakota rejected a measure that would have abolished the state-owned Bank.
The most shocking decision was the recall of Lynn J. Frazier, the mild-mannered and thoroughly decent farmer-governor from Hoople, ND. Frazier was the first sitting governor to be recalled in the history of the United States. The next successful gubernatorial recall did not occur until 2003 when Gray Davis was replaced in California by Arnold Schwarzenegger.
The irony of Frazier’s recall is palpable. It was the Nonpartisan League that enacted recall, in the famous 1919 legislative session, to permit the people of North Dakota to engage, when necessary, in direct democracy. The people used their newfound power just two years later—to put an end to League management of the state industries created in 1919.
When the dust cleared, the people of North Dakota had determined to continue the economic experiment, but to put it into the hands of a different, more conservative, group of men.
The man who replaced Frazier as governor, R.A. Nestos, decided to manage the Bank in “a sane and conservative way” rather than attempt to destroy it. He agreed to give BND a chance to succeed. “It seems to me that it is but right and just and wise to give it a full, fair, and honest trial,” Nestos wrote.
All these maneuvers hurt the Bank both in credibility and in its attractiveness to outside investors, but none of the gambits was able to destroy the Bank or fundamentally emasculate its charter. The people of North Dakota wanted a state bank. They wanted it to be cautious, well-managed, humble and minimally profitable.
The Bank of North Dakota was fortunate to survive its birth pangs and initial growing pains. The provision requiring all local subdivisions (school boards, municipalities, county governments) to deposit their funds in the Bank of North Dakota brought on furious reaction and might, in itself, have caused the people of North Dakota to shut the Bank. The difficulty of selling the necessary bonds was worsened by the collapse of the private Scandinavian American Bank of Fargo, and by the lawsuits brought against the League’s Industrial Program—suits finally settled in the League’s favor by the US Supreme Court in June 1920. The bond boycott promoted by League enemies exacerbated the crisis. A certain amount of favoritism, cronyism and mismanagement in the early days of the Bank’s existence contributed to the view that commercial financial institutions—not state government—should manage the money supply of North Dakota. After an initiated measure freed local subdivisions of the necessity of depositing their funds with the Bank of North Dakota, the cash flow problem worsened.
Banking in Crisis Mode
The difficulties of BND in its first years were just one facet of a larger bank crisis on the northern Great Plains. After North Dakota’s political subdivisions were released from the obligation to deposit their funds in BND in November 1920, the Bank could only remain solvent by calling in funds it had redeposited in commercial banks throughout the state. Many of those banks were unable to meet those demands. The Bank had no choice but to press for repayment, which would lead to the collapse of a number of marginal commercial banks.
Between 1921 (the date of the recall election) and 1924, North Dakota lost almost a third of its commercial banks. Their failure put enormous strain on the state bank. By the end of 1924, BND had more than $1.5 million tied up in closed banks, with little or no hope of recovery. The problems, particular to North Dakota agricultural life, were now compounded by a regional and even national credit crisis.
Defending the Bank of North Dakota
In the face of withering criticism that the Nonpartisan League leaders were dangerous radicals espousing a Bolshevik revolution on the Great Plains, NPL leaders argued that the Bank of North Dakota had been created by legal means (in the state Legislature and at the ballot box) and had successfully withstood court challenges and referenda. If creating a state-owned bank was un-American, what about Alexander Hamilton’s Bank of the United States? Other states had created public corporations: Louisiana owned and operated the Port of New Orleans; King County in the state of Washington owned and operated the Port of Seattle.
The most forceful of the attacks on the NPL were that it was the vanguard of a socialist movement designed to imitate in America the goals and methods of the Bolshevik Revolution in Russia; and the charge of disloyalty at a time of international emergency during World War I. The NPL actually endorsed America’s war effort but reserved the right to question both specific actions and the larger war aims of the United States. President Woodrow Wilson met with A.C. Townley, shared many of the League’s concerns about industrial profiteering during war, and encouraged the ND experiment up to a point.
Although the League at different moments imagined a fairly wide number of state-owned economic enterprises, some of them that today seem frivolous, it never intended or suggested a socialist revolution. Bank of North Dakota is one “socialist” legacy of the NPL movement. Important to note however, the farmers of North Dakota were pragmatists, not socialists, and they embraced whatever they thought would actually improve conditions in the farm economy.
Governor Nestos saves the Bank
The new governor Ragnvald Anderson Nestos accepted the voice of the people. They had voted to retire the entire League Industrial Commission, but keep the state enterprises, including the Bank of North Dakota. Governor Nestos hearkened to the voice of the people of North Dakota (keep the bank, manage it better). He therefore determined to administer the Bank “in a sane and conservative way.” He agreed to give the Bank and other state enterprises “a full, fair and honest trial.” To dissolve the state’s hard-won industrial experiment “without a trial…does not seem good sense,” Nestos said.
It was an extraordinary moment for North Dakota. The limited socialist experiment would get its chance to improve economic conditions, but in a chastened, more conservative manner with a more reliable and less “visionary” set of administrators.
Not for the last time, a conservative approach to a radically-born institution probably saved the Bank of North Dakota.
Ragnvald Anderson Nestos was born in Voss, Norway in 1877. One of ten children, he spoke no English when his family immigrated to the United States. Raised by relatives in Buxton, ND, he completed his studies at Mayville State College and the University of North Dakota while homesteading in Pierce County. He established a law office at Minot in 1904.
Hearkening to the voice of the voters of North Dakota, Nestos took an intense personal interest in rehabilitating the Bank of North Dakota. He examined its financial situation and its lending practices and replaced Bank manager F.W. Cathro with C.R. Green of Cavalier, ND. Green was well-respected in North Dakota banking circles.
Nestos was alarmed when he studied the state of the Bank of North Dakota. Perhaps most important, it had been operating at a loss. It had provided loans to farms that could not survive. There had been some favoritism and even cronyism in the loan protocols. Accounting procedures were not sufficiently rigorous.
He discovered that 191 of the 755 farm loans that had been made under League management should never have been approved. Examiners found that “appraisals had been carelessly made and political favoritism had been shown.” Some of the loans had been made in excessive amounts. Some loans had been made to individuals who were not farmers. To make things right, the North Dakota Legislature established a collection branch. Through firmness, patience, and careful use of foreclosure, the Bank was able to recover a substantial amount that had been unwisely distributed.
Under Nestos’ supervision and Green’s conservative management, the Bank now tightened up its farm loan program, and attempted to apply a uniform conservative standard to its loan decisions.
At the same time, the Bank worked carefully with the troubled or failed banks of North Dakota to ease them through a time of great difficulty—in part to serve the people and institutions of the state, in part to recoup money owed to the Bank by small commercial banks across the state.
$2 million in bonds needed to be sold to fund the Bank.
The Bank of North Dakota had a difficult time selling bonds for state industries, partly because banks in Chicago and elsewhere were unsure of the sustainability of the North Dakota enterprises, and partly because of a gathering recession.
On January 7, 1921, the North Dakota Bankers Association offered to help sell North Dakota bonds to eastern financiers, but only with the following conditions:
- That the Bank of North Dakota’s operations be limited to state, state institutions, state industry, farm loans, and farm loan bonds.
- That a new law be passed making commercial banks a legal public depository for the funds of local governments.
- That the ND industrial experiment be limited to the Bank of North Dakota, the experimental mill in Drake, the Grand Forks mill and elevator.
- That the Industrial Commission work with attorneys for the bond purchasers to secure legislation and procedures that would make the bond sales more palatable to out of state investors.
The Industrial Commission rejected the offer. The North Dakota Bankers Association had not made the offer in the spirit of altruism. A severe regional and national commercial bank crisis was wreaking havoc on North Dakota economic life. The association understood that a strong central Bank in North Dakota might be able to shore up faltering commercial banks throughout North Dakota.
Governor Nestos was no shrinking violet. He traveled east in 1923 to sell North Dakota bonds. Before the Chamber of Commerce of the State of New York, Nestos said, “Many of your leaders in industry, commerce and finance seem to have formed the opinion that the farmers of Minnesota and the Dakotas are Socialists, Bolshevists, Communists and Red Radicals politically, ignorant barbarians socially and on the way to the poor house financially, and this opinion is reflected in much of what is being said and printed in your city about the Northwest. The farmers of the Northwest naturally resent the misinterpretation of their political attitude as much as you gentlemen, I am sure, resent the opinion concerning the business men of New York, held in some parts of the West, where a large proportion of the people honestly believe that you are a band of crooks, high binders and financial pirates who operate through Wall Street to deprive the laborers and farmers of the country of that which is their just due.”
Point taken! Nestos’ argument might have come from the pen of William Jennings Bryan as readily as from a conservative Governor of North Dakota.
Governor Sorlie insists on Bank profits.
Governor A.G. Sorlie, elected in 1924, supported the Bank. “Our state bank is an instrument of great potency and value in the establishment of our financial independence as a state. I consider it the greatest step forward of the decade along politico-economic lines.”
Sorlie insisted that the BND show a profit.
“The Bank should stand for much more…. When times of financial stress come to us, such as we are now passing through, the State Bank should stand in much closer relation to the people than that of a mere money-making agency.”
“So far as I am aware, as at presented operated,“ Sorlie wrote, “our State Bank is a mere money-making institution. If that is all it stands for there is no excuse for its existence.”
That was perhaps the most important statement ever uttered about the Bank of North Dakota. North Dakota does not need a state-owned bank that is indistinguishable in mission or financial practices from the many commercial banks of the state. The Bank of North Dakota must have a social and economic mission that provides unique commonwealth value to the citizens of North Dakota.
At the same time, as Governor Sorlie perfectly understood, the Bank must be a sustainable, viable institution operated on sound economic principles and practices, so that it can be sustained over generations and justify its existence to skeptical taxpayers and legislators.
Moreover, its social goals must not be wild-eyed or utopian. The work of the Bank must resonate with the prevailing spirit of the people of North Dakota. That spirit changes over time; the Bank must adjust itself to the mood of the people of North Dakota, and their perceived needs.
In some sense, the Bank of North Dakota is “socialist” in only a very limited sense. At its most conservative the Bank is essentially a commercial bank operating as a state-owned institution. At its most innovative, the Bank is a laboratory for innovative funding of ideas and projects that would be harder to justify from a merely commercial point of view. It has served both functions in its century of operations.
Sorlie died in office in 1928.
The Nonpartisan League Fails
The League failed for a number of reasons. It over-reached both geographically and in mission-creep. There was only one A.C. Townley; nobody has his ability to create enthusiasm.
The forces of reaction in the business community, once they understood the insurrection, proved to be clever and ruthless. And, perhaps most significant of all, World War I changed the whole dynamic of life on the Great Plains. Even those who sympathized with the League’s program were distracted by calls for national unity during the War. The Red Scare that swept the nation was the most severe test of the Bill of Rights in American history.
Against the waves of nationalism, hyper-patriotism, and jingoism that rolled over the continent between 1917-1920, the NPL could not flourish. In 1918, the Bismarck Tribune wrote, “Vote as You Would Shoot! There is only one issue in North Dakota. That issue is LOYALTY.”
The Cataclysm of World War I
Once the United States entered World War I, NPL supporters were accused of stirring domestic waters at a time of international emergency; of impeding recruitment in the US Army; of treason; and of being un-American. The world war probably had more to do with the stalling of the League’s success than any other single factor.
The world war put the Nonpartisan League on the defensive in three distinct ways. First, it sucked the oxygen out of the League’s mission. As the United States mobilized for war, the concerns of “a bunch of disgruntled farmers” in North Dakota were made to seem selfish and parochial. The urgencies of world war were such, League critics argued, that domestic concerns, even legitimate ones, should be postponed until after the successful prosecution of the war. An agrarian uprising during a time of national and international emergency was regarded as disloyal.
Second, although the League’s response to the war was nuanced and never actually disloyal, it was easy enough for the League’s detractors to emphasize every statement by Townley, Lemke, and Joseph Gilbert that was not 100% patriotic and jingoistic, and to quote League leaders out of context to impugn their loyalty. William Lemke was offended by the anti-German pronouncements of men like former President Theodore Roosevelt but, once the United States entered the war, he committed himself unhesitatingly to America’s position. Still, as historian Edward Blackorby writes, “As did many others, he found it easier to feel and express loyalty to the United States than to convince others that he was loyal.” If this was true of Lemke, it was truer still of A.C. Townley. The Bank of North Dakota suffered by association.
Finally, the Nonpartisan League may have collapsed no matter what, but the coming of the war brought boom years to American agriculture. Born of economic desperation, the League ceased to be so attractive when prices rose to historic levels, permitting North Dakota’s farmers to set aside their anger at exploitation by outside interests.
Historian Edward C. Blackorby, who wrote biographies of William Lemke and Usher Burdick, believed that if World War I had not interrupted the movement, the Nonpartisan League would have become a serious national party. At one point, League leader William Lemke began to prepare the League’s farmer-candidate Lynn J. Frazier for the possibility that he might eventually run for the presidency of the United States.
The legacy of the Nonpartisan League.
- North Dakota has the nation’s only state-owned bank, the Bank of North Dakota, located on the east bank of the Missouri River in Bismarck.
- North Dakota has a state mill and elevator in Grand Forks.
- The three-member Industrial Commission was created in the 1919 legislative session to “manage, operate, control and govern all utilities, industries, enterprises and business projects, now or hereafter established, owned, undertaken administered or operated by the State of North Dakota.” The Industrial Commission still exists.
- No matter what politics the commercial or establishment entities of North Dakota pursue, there is always the sense that in the people of North Dakota there is a streak of populist distrust of entities that do not originate in and cannot be controlled by the people of North Dakota.