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.