Tuesday, July 17, 2012

The First Populist Republic

By Adrian Kuzminski

(Originally published in the Vermont Commons, #28, Mud Season, 2009

Few Americans are aware that Vermont, the fourteenth state admitted to the Union in 1791, was not a colony like the others; it was a pre-existing independent republic spontaneously created by its residents who rejected the authority of neighboring colonies, particularly New York which had the strongest claim to its territory. In its fourteen years of formal independence, beginning in 1777, it very nearly fulfilled the textbook image of a society created voluntarily by free persons living in the state of nature -- a favorite motif of seventeeth and eighteenth century social contract political philosophers.

In the United States, Texas, California, and Hawaii also enjoyed periods as independent republics, but Vermont's example reflects a greater equality of persons and resources. In the case of Vermont, in the face of a trend toward oligarchy in America --evident even in the eighteenth century -- an egalitarian democratic community for a time found almost complete realization.

It's a story worth telling. New York had a claim to what became Vermont based on a 1664 British royal charter granting it the lands to the west of the Connecticut river north of Massachusetts. The same British royal government, however, subsequently recognized some authority over the lands of Vermont by the New England colonies of Connecticut, Massachusetts, and New Hampshire. In the 1740s the Governor of New Hampshire, Benning Wentworth, began to sell land in what is now Vermont to settlers mostly from New England. Wentworth's ‘New Hampshire Grants’ were sold cheaply, partly because they lay in disputed territory. New York's titles to the same lands were monopolized by absentee speculators, while Wentworth's cheap titles went mostly to actual residents who moved in and cleared the forests and started farms and towns. With Native American populations drastically depleted, the settlers confronted a wilderness amenable to settlement; for them, it was a virgin land rich enough to guarantee ownership to anyone able to homestead it. Rarely in history have free resources been available to those willing to labor on them, without external obligations as they were in early Vermont.

Content with having sold the Grants at a profit, Wentworth and New Hampshire showed little further interest in the lands west of the Connecticut river. New York, however, rejected the claims of those holding Wentworth's titles, insisting that its own title-holders were the true owners of the land. In 1770 Vermont settler Ethan Allen, having witnessed the validity of New Hampshire grants denied in a New York court, organized an independent militia to defend the claims of those holding New Hampshire Grants: the Green Mountain Boys. This militia, which later fought in the Revolutionary War against the British -- capturing Fort Ticonderoga under Allen's leadership -- did so not as part of the colonial union under the Continental Congress, but as an independent ally of the American colonists. Allen’s resistance to New York proved, in the end, the vehicle of Vermont independence, which was formally declared at the Westminster Convention in 1777, after the Green Mountain Boys drove off invading New Yorker posses and sheriffs in a series of small hit-and-run battles near Bennington, Vermont.

What is relevant to us in this story, in addition to the opportunity for ownership of land free of external state or corporate power, is the radical democracy of the Vermont settlers. Indeed, the former informed the latter. They achieved, albeit briefly, a startling decentralization of political and economic power seldom seen in human history. Unlike the neighboring American colonies, with their links to Europe and their increasing hierarchical power structures rooted in the commercial seaport centers like Boston and New York, Vermonters in their hills were able to achieve wide-spread ownership of land as independent farmers and artisans without reckoning with an established wealthy elite in control of most resources, especially financial ones, as well as of the government. Vermont came into existence from the ground up, wholly on the local level, farm by farm, and town by town -- as clear a case I can find of a free society founded in a state of nature.

Without any superstructure of preestablished authority controlling land grants, Vermonters were able to realize very largely the populist vision, which seeks to reconcile political freedom and personal private property in locally-rooted radical democracy. The essence of populism is the recognition that private property widely distributed (not concentrated in few hands) is the precondition of genuine democracy. Nearly all settlers were, or soon became, land owners, controlling enough land to be more or less self-sufficient. The economy operated on barter and personal credit, enforced by local courts presided over by locally elected judges and constituted by juries of local citizens. Real property functioned as reserve wealth, backing a state currency (some Vermont coins were minted in the 1780s).

The center of life and the ultimate sovereign authority in Vermont was the town meeting, open to all resident adult males, where all aspects of public life were debated and decided. As in ancient Athens, meetings were lively and sometimes contentious; officials seldom held office for more than a term. Official positions of authority were discounted; and the officers of the local militia were elected. Such radical democracy obviated the need for the traditional separation of powers. Separation of powers as we know it is designed to check each of the major branches of government -- legislative, executive, and judicial -- by providing recourse to any one of them against the others. It was developed by Madison and other founders as a way of controlling the abuses of oligarchy (which it has not done) while avoiding democracy. It also has the less noticed effect of confirming a considerable amount of unaccountable authority in each branch of government (and its divisions), thereby actually concentrating rather than disbursing power.

By contrast, a decentralized system of local democracies provides for another kind of separation of power: its breakup into numerous local governments. The basis of Vermont democracy, reflected in the works of Ethan Allen, is the doctrine of natural rights (not revealed religion or state authority). The essential natural rights for Allen are the rights of each individual to freedom AND property. This early populist world was a pragmatic world, not one driven by ideology or religion.

What is crucial is the recognition by the first Vermont republic not only that democracy must be established in face-to-face local assemblies, or town meetings, but that these assemblies can maintain their freedom only by being confederated together in a broader representative body directly and wholly accountable to those assemblies. Direct democracy at the grassroots was characteristic of much of colonial America, but most colonial governments, with their royal governors, councils, etc., were not the unalloyed representatives of the grassroots, as Vermont was, but subject to varying degrees of control from above, a pattern which continued after the Revolution and intensified after the Civil War. The unicameral legislature of the first Vermont republic was composed of representatives chosen by local communities to represent those communities. This is conspicuously not how modern legislatures work. They do not represent communities, they are not accountable to them, and their members are not chosen in face-to-face assemblies.

Instead state legislators as well as members of Congress are chosen invariably in mass elections by dispersed and atomized voters, in which largely preselected candidates are presented to a passive and manipulated public. Communities and their interests are by-passed in favor of largely symbolic and impersonal relationship -- defined by mass propaganda and big money rather than personal experience -- between the candidate and the voter. The private voting booth -- often cited as the essence of democracy -- is in fact its negation. Instead of casting a secret ballot in a town meeting for representatives personally known to me and my community on the basis of the problems facing my community, I am asked instead to vote in isolation for one or another media image on the basis of inane slogans concocted by power brokers and special interests. Large electoral districts lump together many communities, and allow representatives to play off one against the other. Pork spending for local politicians who cooperate; neglect for those who don’t. The result is oligarchy, not democracy.

The first Vermont republic was different; it was a true confederal democracy. As Michael A. Bellesiles puts it in his remarkable work Revolutionary Outlaws: Ethan Allen and the Struggle for Independence on the Early American Frontier,
Vermont's constitution [of 1777] demands attention for the way it lived up to its theoretical assertions, creating the most democratic structure of its time. . . . The state's voters controlled every branch of government, electing the state's executive officers and judges, as well as representatives to the unicameral legislature. The governor and council of Vermont could not veto legislation . . . To maintain civic participation, the constitution required public legislative sessions and forbade the passage of any bill into law the same year it was proposed, mandating its printing for the public's information. . . . A septennial Council of Censors was to review all legislative and executive acts to ensure that the constitution was being fulfilled . . . The Council of Censors could amend the constitution by calling a popularly elected convention allowing “posterity the same privileges of choosing how they would be governed” without resort to “revolution or bloodshed.”

Bellesiles then adds the crucial point:
Vermont's leadership did not seek the approval of the people as an undifferentiated mass. Sovereignty lay in the distinct townships, which held the “unalienable and indefeasible right to reform, alter, or abolish government, in such manner as shall be, by that community, judged most conducive to the public weal.” Finally, Vermont's Declaration of Rights proclaimed “'that private Property ought to be subservient to public uses.” As Bellesiles nicely puts it: “The people of Vermont interacted with their state government through their community, not as isolated individuals.”

Each community or town in Vermont with less than eighty free citizens got one representative to the unicameral state legislature, or General Assembly, and towns over eighty got two representatives (the largest town had less than 2000 in population). The Windsor Convention, which ratified the existence of Vermont, had fifty delegates from thirty-one towns. Vermont may be the only modern example of a system, at least in the United States, of direct representation grafted onto local assemblies, namely, the combination of direct local democracy with accountable representative bodies, something Jefferson envisioned in his "ward republics" as the completion of the American Revolution, and Tom Paine thought actually happened, or would happen, throughout the United States. It has not yet happened, but our current economic and ecological crises beg us more than ever to revisit our largely lost but more relevant than ever populist tradition.

Vermont, we should not be surprised, was unable to maintain the radical degree of democracy she developed in relative isolation. If she had supported Shays’s Rebellion in Massachusetts in the 1780s, she might have sparked a second American revolution, this time directed not against the economic elites of London but those of the American coastal cities. And she might have preserved her own confederal democracy. In return, however, for considering an offer of statehood from the United States, the Vermont legislators by a narrow vote rejected Shays’s overtures and Allen, who had been offered command of a revolutionary army by Shays, elected to stay in retirement at his farm.

Under pressure, Vermont caved in, and gained recognition from the top down in 1791 as the fourteenth state from a national government and federal constitution seriously in conflict with the principles of her democracy. She conceded that her experiment in democracy would henceforth be limited, and no threat to the larger monied interests of the land in their increasingly successful attempts to disassociate free individuals from their property. Still, Vermont has retained a degree of democratic spirit absent in most other states of the union, a spirit reflected in its election to the United States Congress in recent years of its only independent member, and in a number of environmental, civil, and other reforms, as well as in a continued strong tradition of town meetings. And not least, the example of the first Vermont republic remains an important model for any future reform of our political system.

Money and Liberty

By Adrian Kuzminski

(First published in the Vermont Commons, #16, Autumn, 2006)

The U.S. monetary system has been a scandal for a long time; whether it can continue much longer without intolerable social, political, and ecological consequences is an open question. Yet most Americans don't have a clue about it. "It is well enough that people of the nation do not understand our banking and monetary system," Henry Ford said, "for if they did, I believe there would be a revolution before tomorrow morning."

Our current monetary system, to be blunt, is an unjustified monopoly granted to private interests to create public money for their private profit. For this they charge the public usurious (extortionary) rates of interest, creating an economic system which unnecessarily transfers wealth from debtors to creditors as it forces often needless and wasteful economic “growth.”

The idea that a national currency should be a debt incurred by governments (and therefore taxpayers) to private interests for their profit was first institutionalized with the Bank of England at the end of the 17th century, and subsequently developed in the United States by Alexander Hamilton and his successors. Under this scheme, the power to “create” money is granted as a monopoly to a central bank, like the Federal Reserve, which then lends the money so created back to the government at interest in return for government bonds. These bonds are then sold to commercial banks, where they form the collateral for loans to the public, at additional rates of interest. As the agent of the major private banks, the Federal Reserve not only regulates the economy by raising and lowering interest rates to control the money supply and to protect creditors, but also guarantees the private banks' monopoly over the further creation of money through fractional reserve lending.

This system, now triumphant worldwide under the rubric of “globalization,” with the dollar as the world's reserve currency, has made possible, perhaps more than any other factor, the relentless concentration of wealth into fewer and fewer hands. Yet this money system is mostly ignored by social critics. Crucial to this system is the power given to the central banks and the banking system in general to vary interest rates freely and without limit. Interest charged beyond administrative and risk insurance costs is usurious. Such usurious interest constitutes the income of the banking system, the profit from which goes to the private investors in that system, not to the public. This institutionalization of usury allows the banking system to skim off what is essentially a private tax in return for providing what should be a free public service. It creates a system in which money is scarce and available only at a steep price.

Most Americans believe the Federal Reserve is accountable to the public interest, but nothing could be further from the truth. Although the Governors of the Federal Reserve are presidential appointees confirmed by Congress, when we consider their long 14 year terms, the byzantine and secretive traditions of the Fed, its lack of any other public accountability (apart from the Chairman's reports to Congress), and the strong Fed role played by commercial banks (who sit both on the Federal Open Market Committee which sets interest rates, and on the boards of regional Fed branches), it is hardly surprising that the Fed has been able to enjoy a gloss of public accountability while evading public control.

Economic inequality is rooted in a maldistribution of capital. The only access to capital today for those without is to borrow money at interest. Anyone with a mortgage, a car loan, a student loan, or a credit card, is paying a hefty private tax to the banking and financial system for the right to use capital, which, as a public resource, should be freely and fairly available to the public. Being forced to borrow money at interest, individuals and businesses must pay off significant interest charges as well as the principal before they can see any of the fruits of their use of that money. Why should the banking system be allowed the monopolistic privilege not only of creating money, but of charging excessive interest for the right to do so? Should not the creation of money, essential to the public welfare, be a proper matter for government, assuming democratic, publically accountable governments (which we currently do not have)?

This burden of usurious interest is the real engine behind economic “growth.” Since borrowers must repay interest on top of principal before realizing any benefit from a loan, they are forced to additional labor and production. Money borrowed at 6 percent, compounded annually, will accumulate interest equal to the principal in only twelve years. This is insignificant at small amounts, but if I borrow $100,000 at 6 percent, it means I must pay my creditor a total of $200,000 within 12 years, which amounts to $16,666 a year. By contrast, at a nominal 1 percent interest rate, it would take 70 years before the interest burden equaled the principal, and it would cost only $2857 a year over that period to repay the $100,000 loan.

There is no reason that interest must be charged for the creation of money. There is no need to “rent” money from private bankers when we could just as easily create it ourselves at nominal cost. To do so would constitute a political revolution of the first magnitude. Traditional attempts to meet the challenges of social and ecological exploitation (socialism, communism, environmentalism) have failed insofar as they have not understood the underlying usurious monetary system which drives “growth.” By contrast, non-usurious monetary policies in the hands of democratically accountably governments serving the public interest would be able, for the first time, to correlate the use of money with social needs.

The Constitution prohibits the states not only from coining money, but from emitting Bills of Credit or making "anything but gold and silver Coin a Tender in Payment of Debts." (Article I, Sec. 10) Given the failure of Federal monetary policy, its ruinous effects in exploiting persons and nature, and its key role in creating great relative wealth for a few and great relative poverty for many, it is incumbent to insist upon a devolution of monetary policy to the local level, whether this occur through reform of Federal monetary policy, through Constitutional Amendment returning monetary policy to the various states, or through the secession of various states from the Union. It is essential to this end to understand how a non-usurious, publically accountable currency might work.

The most thorough-going and ingenious system of such a currency was thought out before the Civil War by Edward Kellogg (1790-1858), and is perhaps stated best in his posthumous work, A New Monetary System (1861, reprint 1970). Kellogg was a forerunner of free bankers and populists who mostly missed, however, his central idea of a decentralized non (or nominal) interest currency. He proposed to establish local public credit banks, one in each county. These banks, Federally mandated but locally run, would offer nominal (one percent) interest loans to resident citizens. Kellogg envisioned land as collateral, but credit worthiness could be based, as it is today, on one's potential earning power. Once lent out, Kellogg's public credit dollars would flow into circulation, providing the basis of a new currency, backed by the productive labor power of individual borrowers. Individuals and private banks would be free to re-loan public credit money at higher rates of interest, but the availability of nominal one percent loans would undercut their ability to charge usurious rates.

The beauty of Kellogg's system is its decentralized self-regulating nature. Instead of credit issued on a top-down basis from a central bank to national banks, and then to regional and local banks, all charging usurious rates of interest for the privilege of borrowing money they create without effort, credit would be issued by local banks directly to local citizens without interest on the basis of the economic prospects of those citizens. These prospects would vary considerably from place to place, with some areas needing and creating more currency than others. But whatever currency is created would be equivalent to any other. The solvency of local public credit banks would be guaranteed by adequate reserve requirements, and the money supply would be stabilized by repayment of loans as they came due. The interchangeability of public credit bank notes would ensure a wide circulation for the new money.

Kellogg's public credit banks are a form of free banking, but done as an interest-free public service rather than as a private for-profit enterprise. Capital would become cheaply and widely available at local public credit banks to anyone minimally credit-worthy. Students, for instance, could take out public credit loans instead of student loans. Public credit banks could offer no-interest credit cards. Homebuyers could take out public credit loans instead of mortgages. Small business (sole proprietorships and partnerships) could take out public credit loans instead of borrowing money from commercial banks. Corporations, however, would not be able to borrow from public credit banks, whose purpose is to serve the interest of flesh-and-blood citizens, not corporate entities. The latter would have to borrow on the secondary debt markets, at necessarily higher but still reasonable interest rates. No public credit currency would be issued at any other than the local level. National standards would determine uniform rules of credit-worthiness, minimum reserve requirements, local public management, and a fixed nominal (one percent) rate of interest. A local public credit bank issuing too many bad loans, or refusing loans to otherwise credit-worthy citizens, would be subject to legal penalties, including closure and reorganization.

Notice the profound implications of Kellogg's money system. There would be NO controlling central bank, no centrally controlled issuance of currency. The banking system would be set on its head. A bottom-up system of capital creation would replace the old top-down system. Most fundamentally, credit would be made available to the general public at a nominal (one percent) interest rate, instead of being made available selectively to large commercial banks at high rates, who in turn lend it to others at even higher or usurious rates. With interest eliminated as a factor in monetary policy, the principle engine of wasteful and compulsive economic growth would be eliminated. There would be no need to labor frenetically to overcome the interest burden. Economic investment would be possible on the merits of the situation, not on an abnormally forced rate of return. A sustainable economics would become possible, perhaps for the first time. And, not least, the widespread availability of capital to individuals (unknown since the closing of the Western frontier in America in 1890) would do much to overcome the vast and growing discrepancies of wealth which exist because of usurious interest rates.

Kellogg's model of a decentralized but democratically regulated monetary system is worth pondering not only for financial and economic reasons, but for political ones as well. Democracy is necessarily a decentralized, face-to-face affair, and it cannot be successful unless its citizens personally enjoy relative economic independence in a relatively decentralized economy. For only then can they come together as equals in a free community. Most citizens today, however, are economic dependents, having been forced into debt peonage by usurious interest rates for most of the necessities of life (education, housing, transportation, etc.). Not being free economic agents, they cannot oppose the harsh and destructive economic system which oppresses them. A key step in developing such opposition is the realization that a decentralized, self-regulating, non-interest monetary system, of the sort outlined by Kellogg, can provide the basis for widespread economic independence.