Battle Over Banking: A Public Bank for the Republic of Vermont by Jim Hogue

Battle Over Banking: A Public Bank for the Republic of Vermont by Jim Hogue

This article was first published in Green Mountain Noise, 2VR’s E-zine publication

Introduction
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 devastations, 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.”[1]
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 cheep. 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.”[2]
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.[3] 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.

More to Read:
http://2vr.org/2014/05/26/battle-over-banking-a-public-bank-for-the-republic-of-vermont-by-jim-hogue/