Battle Over Banking: Vermont Had a Public Bank?
ORIGINALLY PUBLISHED IN GREEN MOUNTAIN NOISE, 2VR’S E-ZINE PUBLICATION IN MAY 2014
A PUBLIC BANK FOR THE REPUBLIC OF VERMONT
By Jim Hogue, The Vermont Independent
(This article was first published in Green Mountain Noise, 2VR’s E-zine publication in May 2014)
In 1694, British Financiers formed the Bank of England and changed the world. Public money in the form of tally sticks ended. Villains had been practicing usury for centuries, “as loan oft loses both itself and friend, and borrowing dulls the edge of husbandry.” But “banking” made for the best of all possible worlds.
The English crown needed money to prosecute its wars. The owners of the Bank of England had it. From their reserves in gold, they created and then lent to the crown, at interest, whatever amount the crown wanted. The changed world would henceforth be on a “war footing.” The devastation, waste, and tragedies of war were eventually spun into “good for the economy.”
Usury was bad. Banking was good.
But many did not fall for it: Franklin, Jefferson and Paine to name three. The refusal of the founding patriots to pay tribute to the institution that extracted money from the colonies was the primary cause of the War of Independence. Their continued refusal helped cause the War of 1812.
Enter Vermont. A state since 1791, Vermont had minted her own coins during her 14 years of independence. From that time until 1806, the people of Vermont used a potpourri of currencies, many issued by private banks from neighboring states. The problems of usury, fraud, discounted notes, counterfeiting, bad debt, along with inefficient and unreliable means of buying and selling seemed unsolvable. Vermont did not have a bank, either public or private, and thereby hangs a tale.
PART I: THE VERMONT STATE BANK
In 1803 the Vermont legislature, Governor Tichenor, and his council took up the banking question. Though the legislature passed a bill 98-93 in favor of bank charters for Windsor and Burlington, the governor and council “non-concurred” and published arguments against banking and submitted them to the legislature. Read the story of the bank’s formation as described by George B. Reed in “Sketch of the Early History of Banking in Vermont.”
Among the 8 reasons for disallowing banks in Vermont, were
#3 “Banks, by facilitating enterprises both hazardous and unjustifiable, are a natural source of all that class of vices which arise from the gambling system and which cannot fail to act as sure and fatal, though slow, poisons to the republic in which they exist.”
#5 “Banks have a violent tendency, in their natural operation, to draw into the hands of the few a large proportion of the property at present fortunately diffused among the many. The tendency of banks seems to be to weaken the great pillars of a republican government, and at the same time to increase the forces employed for its overthrow.”
#6 “As banks will credit none but persons of affluence, those who are in greatest need of help cannot expect to be directly accommodated by them.”
In 1804, the Vermont legislature recommended that the arguments regarding banking be put before the people, and that a vote on a banking bill be held in 1805. This was done, and the proponents of banking made a good case that banks would solve the many problems that Vermonters faced, including counterfeiting, inefficiency, and the draining of capital by out-of-state (“foreign”) banks.
In 1805, supporters presented petitions for banks in Windsor and Burlington, and Titus Hutchinson backed a bill “establishing a State (public) Bank.” Though the legislature passed it, the governor and council did not concur. It was agreed “that the General Assembly should go into such a consideration of the subject as shall lead to a thorough investigation of its principles, practicability and policy.” This was done and sent to a committee of five, and then dismissed.
1806 proved the year. “Petitions to the legislature for bank charters were numerous.” The legislature voted on petitions for private banks, which lost by two votes, after which a bill was introduced to establish “The Vermont State Bank.” This bill “passed by a large majority, the governor and council concurring.” Branches were established in Woodstock and Middlebury. Section six of the bill insured a 100% reserve in specie up to “twenty five thousand dollars, after which they may put in circulation bills to three times that amount of such deposit, provided said deposit shall not exceed three hundred thousand dollars.” The charter insured that the officers of the bank adhere to sound and prudent policy, monitored by a committee from the legislature.
In 1807, the directors’ report concluded
“The obstacles that were inseparable from an institution established on principles hitherto unattempted in the banking system (emphasis mine) have been happily surmounted and the practicability of those principles established. The high credit and extensive circulation of our bills, we trust, are sufficient to inspire the public confidence, and to insure a continuance of their patronage. Under the fostering care of the legislature, we are induced to believe that this institution may become highly conducive to the convenience of the citizens, and a productive source of revenue to the state.”
Two more branches were added: Burlington and Westminster.
Profits of the Bank:
1808 – $11,171.44
1809 – $22,412.48
1810 – $33.066.19
1811 – $44,769.11
The banks proved successful despite the many impediments thrown at Vermont by neighboring states and their private banks.
In the words of Governor Galusha in 1809 in his message to the House:
“It will deserve your attention. The failure of several private banks in the vicinity of this state, the rejecting our bills by the law of one state and the policy and caprice of others, has embarrassed our mercantile intercourse with the adjoining states. . . .The manner to be pursued to meet or remove these impediments I leave to your consideration. It will be remembered by many that I was not amongst those that favoured the institution of country banks; but it is apparent that the establishment of a public bank in this state has saved many of our citizens from great losses, and probably some from total ruin – for it is obvious that but for this establishment, in lieu of our own Vermont bank bills, our citizens would on the late bankruptcies have been possessed of large sums of depreciated paper of the failing private banks. . . .”
The House reciprocated the Governor’s sentiments, and so it seemed that the state was well committed to the continuation of the bank and the well being of her citizens. The bank enriched the state of Vermont and her people for several years, but the pressures from outside influences caused the legislature eventually to cave in. In 1812, they took steps to dissolve the bank. The “Sketch” by George B. Read, from which I have quoted thus far, leaves the rest to speculation, implying that a majority of the legislators had lost both their backbones and their senses. Further research from other sources, in particular History of Woodstock Vermont 1761-1886 by Henry Swan Dana, provided a comprehensible account of the bank’s end, summarized in the paragraphs below.
Titus Hutchinson, representative from Woodstock and one of the originators of the idea of a Vermont Public Bank, valued the experiment thus:
“No monarch lurked beneath the folds of such a institution as the one proposed; for it would be in the hands not of a corporation of soulless individuals, but of the true friends of the people, who, moreover . . . would have the means at command to make more friends to themselves for the protection of the commonwealth. Then, as a further and more important consideration, the bank in its operations would be limited only by law. Out of reasons like these, to adduce no additional motives, grew The Vermont State Bank.”
Gold, copper and silver were deposited in exchange for the bills printed by the bank. Still, there was great fear that the bills were not backed up by a responsible entity. The private banks did not give this new invention a welcome, feel a common interest in it and afford to the circulation of its paper that facility which they impart to the notes of one another. Furthermore, the moneyed of Boston, who ruled the whole of Massachusetts, waged uncommon war against the country banks, and especially against the Vermont State Bank.
Counterfeiters re-emerged, like Stephen Burroughs in Canada who flooded the state with “Burroughs shags.” Private banks that failed owed them money. There was a lack of local produce on which to spend the money in state, so the bills were spent afar and then redeemed for specie at the bank by representatives (runners) of the “foreign” banks. Federal lawyers and merchants, it seems, borrowed large sums of money from the bank, conspired to discredit the bills, and, when the bills were discredited, they bought them at a large discount and then paid their debts, pocketing the extra money that they had bought up cheap. It’s possible, however, that the bank’s demise was due to excessive amounts of bills in circulation as a ratio to the reserves in the bank. So their value fell below par. People feared that the president and directors of the bank could be sued for breach of contract, and any judgment rendered against them would be paid by the state treasurer.
I would like to be able to point to a definitive event, such as the assassinations of Lincoln and Kennedy (ending government issuance of Green Backs and Silver Certificates, respectively) or the wars against Iraq and Libya (ending their independent state currencies), or the great fire in Parliament burning the tally sticks. But one can see from the events surrounding the demise of the Vermont State Bank that any of the several events cited in this article could have been the reason. If Titus Hutchinson had been clairvoyant, he might have predicted the extent of corruption involved in the control of the money supply. The struggle involved in money creation and the profits thereof (seigniorage) raged at the time and remained in open debate from colonial times through the early 1800s through Presidents Madison, Jackson, Lincoln, Wilson, and Kennedy. They all knew that money creation was a serious, deadly game.
“The money powers prey upon the nation in times of peace and conspire against it in times of adversity,” Lincoln noted. “They are more despotic than monarchy, more insolent than autocracy.”
Today, we see clearly the results of the victory of the money powers over all, and the arrogant corruption that is its essence. Rolling Stone journalist Matt Taibbi is the most recent of many observers – G. Edward Griffin, Smedley Butler, John Perkins, Greg Palast and Ellen Brown – to expose the collusion among the money powers and congress, the judiciary, and the presidency. It is neither quaint nor curious that the press at large cannot bring itself to follow the lead of those who have laid out these uncomfortable truths. It is treasonous. Woodrow Wilson said it after he signed the unconstitutional Federal Reserve Act of 1913 into law. With the signing into law of that act, the money powers gained control of the three branches of government. JFK trumped them when he issued Silver Certificates; but this development, for the money powers, was a mere bump in the road. The utter failure of congress, the judiciary, the executive, the constabulary, and the press to investigate and prosecute those responsible for the murder of JFK proved that the United States was ruled by an untouchable, unspeakable, higher power, as Presidents Lincoln and Wilson described.
PART II: PROBLEMS AND SOLUTIONS: THE NEXT VERMONT STATE BANK
I solicited opinions and facts for Part II of this article from those on record as being in favor of a state bank and also from those against a state bank. No negative replies were received. Tom Segouros, Michael Shuman, Gwen Hallsmith, Gary Murphy, Gary Flomenhoft, Ellen Brown, and Marc Armstrong voiced positive opinions. The statistics cited were found in studies conducted by the Gund Institute at UVM, the Demos Report (Jason Judd and Heather McGhee), The Joint Fiscal Office, The Center for State Innovation, Vermont Currency Commons, Vermonters for a New Economy, The Public Banking Institute, The “Capital Gaps” Study, “Collateralized Damage, Are Vermont Funds Deposited in TD Bank North Safe?” by Jim Hogue, and “North Dakota’s Economic Miracle, It’s Not Oil” by Ellen Brown.
The Vermont legislature (which has shown support for our efforts) asked “What problem are you addressing?” For starters, here is a list, by the numbers, of Vermont’s “Unmet Capital Needs” as laid out by Treasurer Beth Pearce:
Thermal Energy – $267,000,000
Renewable Energy – $28,7000,000,000
Homes – $1,340,000,000
Rental Housing – $398,400,000
Bridges – $2,200,000,000
Dams – $16,800,000
Water Systems – $750,000,000
Wastewater Treatment – $218,000,000
Roads – $6,450,000,000
Parks – $65,000,000
Schools – $326,000,000
From Hurricane Irene (still)
Housing – $24,900,000
Business – $22,200,000
Infrastructure – $6,491,328
VEDA – $16,551,357
Total – $40,768,239,971
This accounting does not include the debt service of over $72 million in 2012 for state obligations alone, not counting the combined general obligations of the municipalities nor the state agencies such as VEDA, VHFA and VSAC. The payments go to Wall Street. (A state bank could borrow money at the bank rate of about .592%, which can be as little as one eighth of the cost of money borrowed by bonding.)
This does not mention the risks of depositing our money in TD Bank North whose derivative exposure is 44 times the value of the company, and which invests Vermont’s money throughout the world. (This is “insane,” in the words of Michael Shuman.)
Speaking of which, consider 1) the loss of the multiplier effect when investments are made afar by out-of-state brokers at international financial institutions, 2) the hardships of our college students who are burdened with debt and interest for decades, and 3) the constipated delivery of emergency funds.
Why is a state bank the solution, and why do we need one if we are to solve our present and future economic woes?
There is no other mechanism in these times to create “legal tender” than banking. Political entities and citizens have created many highly successful alternative money creations. We have a few here in Vermont right now, the most successful of which is the mutual exchange system http://vbsrmarket.com/ run by Amy Kirschner in the Burlington area. Crypto-currencies such as Bitcoin have emerged as well. But none create “legal tender” that will be accepted as payment for taxes and fees, either by the state or by the towns.
Lincoln created the Green Backs and Kennedy the Silver Certificates, but those systems of money creation (seigniorage) were not on. That’s why we must have a bank to create money, as that is what banks do. The Vermont State Bank (based on its revenues) would put legal tender into Vermont’s money supply by making loans to Vermont Chartered Banks. No loans, no new money. We and our political creations such as school districts and towns continue to pay interest and principal on these loans. Those payments should remain in the state.
On the national front, the government also borrows money fro
m the banks, though that seems to be a secret. Few people know what the national debt is, or that the government has actually borrowed that money from the central banks, and that our tax dollars pay the interest to the central banks. (Hence the ratification of the 16th amendment and creation of form 1040 in 1913 for enforcement.) Dennis Kucinich had a plan to fix that. It went nowhere because your representative would much rather keep the bankers happy than serve the people.
So that is why we have banks and why banks have the sole privilege of creating money and collecting interest. The same rules apply worldwide. Find me a “villain” who didn’t have a national, public currency.
Let’s look at why states need to create public banks, as North Dakota did in 1919. The money powers were driving the farmers in North Dakota off their lands because they could only hang on to a fraction of their hard earned income. The tapeworm economy that they had correctly identified as the Wall Street banks was sucking them dry. The banks not only drained them directly, but they also manipulated prices and ran the railroads.
The solution was remarkably simple. The people drove the existing power structure out of office and elected the non-partisan league that created the Bank of North Dakota. The bank survived despite a lawsuit from the Federal Reserve Banks and became the partner of the many North Dakota banks, keeping them solvent, prosperous and free from the tape worm. Today, Wall Street gets only 14% of North Dakota’s financial market share, while it gets 65% of Vermont’s. (From the Gund Institute study, Exploring a Public Bank for Vermont)
Today, worldwide and in Vermont, we pay, on average, 40 cents out of every dollar to cover the interest on debt (calculated by German economist Margrit Kennedy ”Interest and Inflation Free Money: Creating an Exchange Medium That Works for Everybody and Protects the Earth”). It happened so gradually that we didn’t notice (as the colonists did notice in the 1770s). In North Dakota, the banks recycle interest back into the North Dakota economy via the small private banks’ umbilical connection the Bank of North Dakota. They have no general obligation debt. Municipalities may go to the bond market, but the purchasers seem to be in North Dakota. So bond interest is recycled to Dakotans, as well.
For those who think that Vermont could use some cash, and who also think that higher and more taxes are not the way to go, then the state bank is the only solution. The numbers are in. Keeping in mind the capital gaps and the need we have here for energy efficiency and investments in local energy sources, businesses and agriculture, let’s look at the projections from Gary Flomenhoft’s Gund Institute study.
“Based on the state of Vermont’s 2013 unrestricted cash funds, we estimate a public bank:
1) could make loans equal to 66% of the state funds on deposits, or $236.2 million in credit for economic development in the state. . . .
2) This new credit would be at low cost to the state because a public bank does not have to borrow money first by selling bonds. . . . Interest would return to the state both on deposits and on loans. The treasurer’s office would receive interest on its bank balance as they do now, and the bank would receive interest on loans.”
3) The study predicts that such moneys passing through VEDA and VHFA “could result in 2,535 new jobs $192 million in value added (to Gross State Product) and $342 million in in-state output.
4) If used to finance capital expenditures, funding through a public bank could save close to $100 million in interest costs on FY 2012-13 capital spending due to most interest payments no longer leaving the state.
5) In the case of state capital expenditures, financing through a public bank could create over 1000 jobs in the first two years without the loss of 100-200 jobs per year thereafter.”
Note that people who have jobs pay taxes and shop.
By my calculations, the state coffers of North Dakota, with a similar population to Vermont’s, pull in about $100 million more per year than Vermont, as Dakotans avoid the $72 million in debt service, and reap the benefits of its own bank. And that doesn’t count the multiplier effect from a stimulated local economy, nor the pride of belonging to a strong, productive, emancipated community.
As this article goes to press, Vermont state senator Anthony Pollina has a new bill, S 204 advocating a public bank role for the Vermont Economic Development Authority (VEDA). Gwen Hallsmith and Gary Flomenhoft with help from the Donella Meadows Foundation (www.donellameadows.org) are forging ahead with a public information campaign, and with studies that investigate the merits of a Vermont State Bank. Petitions for getting the issue of a public bank on town meeting warnings, and a list of Frequently Asked Questions, are circulating. Our monetary committee is preparing for meetings with the executives of Vermont’s small banks. Gubernatorial Candidate Emily Peyton has made it part of her platform.
This article focused on the financial aspects of a state bank. It hardly mentioned the philosophical, spiritual, and moral issues associated with freedom, liberty and emancipation: issues that have always been dear to our hearts since Vermont created herself as an independent republic in 1777. These ideals are antithetical to the present monetary system. But despite what we profess, we are supporting what is deeply corrupt. Divestiture from Wall Street and the Federal Reserve is the moral high ground if we want to take it. The fact that a state bank would also be profitable should make it a no-brainer. We well know that our public servants have a strong aversion to risk, but, in the words of Gary Murphy, “It is just too bad they don’t have a strong aversion to doing business with financial institutions like JPMorgan Chase, Citigroup, Wells Fargo et al that are ripping us off and that will take all our money when the next crash comes. We have plenty of evidence that demonstrates the extreme riskiness of doing business with these institutions.”
In short, if a 21st century Vermont is to become truly independent, it must create a public bank. The time is now.
 The passage appears in a letter from Lincoln to Col. William F. Elkins, Nov. 21, 1864, Hertz II, 954, in Archer H. Shaw, The Lincoln Encyclopedia (New York: Macmillan, 1950), p. 40. The money powers prey upon the nation in times of peace and conspire against it in times of adversity. The banking powers are more despotic than a monarchy, more insolent than autocracy, more selfish than bureaucracy. They denounce as public enemies all whoquestion their methods or throw light upon their crimes. I have two great enemies, the Southern Army in front of me and the bankers in the rear. Of the two, the one at my rear is my greatest foe.Abraham Lincoln
 “I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world; no longer a Government of free opinion, no longer a Government by conviction and the vote of the majority, but by the opinion and duress of a small group of dominant men.”
 Radio interview, WGDR. Michael Shuman is a “Community Economist” and author. His website is www.locatopia.wordpress.com
Jim Hogue is a member of non-violent secessionist group in Vermont. It is his fervent belief that the people of Vermont must secede from the US if they want to survive.