To many people, the collapse of the Kirtland Safety Society is a “deal breaker” for Joseph Smith’s Prophetic calling. After all, wouldn’t God make sure a bank set up and run by a Prophet won’t fail? Not necessarily. God uses things (and people!) to accomplish His purposes, and, when His purposes are accomplished, those things (and people) must necessarily wane from the spotlight. When John the Baptist’s job as harbinger for the Saviour was complete, God didn’t even spare his life. Why should He then spare a bank when its job of financing the Kirtland Temple was complete?
But that isn’t what makes the Kirtland Safety Society significant. After all, there are many under-capitalized businesses of any sort that go bankrupt. Before the Federal Reserve System negotiated buyouts of failing banks and FDIC insured deposits, failed institutions usually ended up paying depositors pennies on the dollar (Milton and Rose Friedman (1980), in their book, Free to Choose, said that banks generally had only 12% of their deposits in cash [NY: HBJ, 73].). What made the Kirtland Safety Society unique among failed financial institutions is that it repaid its debts–dollar for dollar [See Marvin Hill, Keith Rooker and Larry Wimmer’s BYU Studies (1977) article, The Kirtland Economy Revisited, 391-475 at: http://byustudies.byu.edu/shop/pdfSRC/17.4HillRooker.pdf].
The closest parallel I could find is the collapse of the Bank of the United States in 1930, where depositors were repaid 92.5 cents on the dollar. Say the Friedmans (1980), “There is little doubt that if it had been able to weather the immediate crisis, no depositor would have lost a cent” [82]. Moreover, other banks refrained from saving these financial institutions for the same reason: bias. The KSS’s neighbors hated the Latter-day Saints, and the BUS’s neighbors were anti-Semites [Ibid.].
All this seems to indicate that, far from being a scam, the KSS had sufficient assets to repay creditors, but was undermined by a cash crunch caused by a deflationary US government.
UPDATE: RoastedTomatoes, you’re right; a hat-tip to you! I did use the wrong source, though that article by Brother Hill, et alii, is a good source. HC 3:174, and 6:429 are the correct source. There may be others.
Good points, Steven.
My understanding (and I admit I haven’t read as much on this issue as I should have) is that the KSS relied mostly on real estate for its capital, and when land prices plummeted they were unable to liquidate their holdings to pay depositors.
This same crash took down many other banks in Ohio and throughout the United States.
Here’s a good place to start reading: http://en.fairlatterdaysaints.org/Kirtland_Safety_Society
Yeah and most banks fill boxes with sand, put coins on top, to fool investors. (I have read the source material – you will no doubt judge them unconvincing)
Aren’t we forgetting that Joseph fled after charges of bank fraud?
Nice try on spinning the KSS into something faith promoting though.
How exactly, does repaying investors dollar for dollar show evidence of intent to defraud? Seems like the smart choice would be to avoid paying them while safely away in Nauvoo under its habeus corpus protection, if one was out to defraud.
What’s the source material of the old “sand with the money on top” story. I’ve seen it in various 19th century anti-Mormon publications (Ettie V. Smith, Ann Eliza Young, John Hyde, Jr.) but those are hardly primary sources, since none were around (or even born) in Kirtland in the mid-1830s.
tiredmormon:
“Yeah and most banks fill boxes with sand, put coins on top, to fool investors. (I have read the source material – you will no doubt judge them unconvincing)”
What source material!? One of Michael Moore’s books? I usually find anonymous source material unconvincing.
No, most banks DON’T fill boxes with sand to fool investors. Even before there were regulatory agencies, those that did went broke–and did not pay anywhere near dollar for dollar.
“Aren’t we forgetting that Joseph fled after charges of bank fraud?”
Actually, he stood trial, and appealed the conviction (The appeal was never acted on.). As Greg pointed out, repaying dollar-for dollar is usually NOT a sign of fraud. And moving but standing trial is NOT “fleeing”
I can easily point to the case of Michael Milken, who was convicted of fraud back in 1989, and sentenced to ten years in prison, yet his conviction was only for errors in reporting–NOBODY was actually defrauded [See: http://en.wikipedia.org/wiki/Michael_Milken%5D. Similarly, Smith and Rigdon’s conviction was for a technical violation of Ohio’s legal banking monopoly. And the fine (though it is steep) indicates that the “crime” is only a misdemeanor. Even if you have felony convictions, if you have a traffic ticket, you, too are a “criminal.” Shall we ignore you, too?
“Nice try on spinning the KSS into something faith promoting though.”
And nice try by you in dodging actually looking at the evidence!
As I understand it, the trial in Kirtland was a civil suit and not a criminal case.
Hi Keller!
The fact that Smith and Rigdon were fined rather than imprisoned does seem to imply a civil suit.
If they were Jews 1800 years ago, what would tiredmormon and other critics think of a Man Who was convicted of sedition and blasphemy and executed?
Double standards–What a concept! 😉
Keller and Steven, the Kirtland trial was a civil trial, but it involved a violation of state law. An 1816 Ohio statute prohibited any organization other than legally licensed banks from carrying on banking endeavors — and particularly from circulating bank notes, as the KSS did. The KSS was probably bad judgment and was quite probably illegal, whether or not it was fraud. Indeed, a $1000 fine was substantial at the time — Hill, Rooker, and Wimmer estimate that it was two years’ income for an average family of the time (pg. 435 in the article cited above), which would be a rough equivalent of an $80,000 fine in modern terms. That magnitude of a fine indicates that the violation in question was probably seen as a serious one.
I also don’t really understand the use of the Hill, Rooker, and Wimmer article in the main post above. It is said that the article claims that the KSS repaid its debts “dollar for dollar.” This seems not to fit with Hill, Rooker, and Wimmer’s analysis. I suppose this discussion depends to a great degree on the way one define’s the KSS’s “debts.” However, one aspect of the organization’s debt was certainly the promissory notes (which is what bank notes are) that it circulated. These, Hill, Rooker, and Wimmer argue, became “literally worthless” (pg. 455) and were certainly not repaid “dollar for dollar.” Indeed, Hill, Rooker, and Wimmer estimate the total (unrepaid) losses created by the bank’s default to be in the neighborhood of $100-$200 per Mormon family in Kirtland, which is to say one quarter to one half of a family’s annual income on the average (see, again, pg. 455).
Nor did Joseph Smith ever repay his total personal debt from the Kirtland period; indeed, he most probably owed tens of thousands of dollars related to debts from Kirtland at the time he died, as Hill, Rooker, and Wimmer discuss.
Overall, I don’t think that discussions of the KSS as fraudulent are helpful or particularly historically compelling. Yet this post’s argument seems equally unhelpful and probably less compelling. Rather than fraud, I think the KSS was doomed by inexperience, bad judgment, the decision to operate outside the law, and a major real estate bubble (a topic we ought to know a thing or two about in America today). But, motives notwithstanding, the KSS did fail and did cost a lot of people — investors, ordinary citizens, and so forth — a lot of money that was never paid back. To argue otherwise seems to be a bit misleading.
RT,
That is an interesting take. Perhaps it would be more helpful to admit that Mormons, and not just Joseph Smith suffered heavy losses from their participation in the KSS collapse.
I think you are right to complain about the remark about “dollar-for-dollar” as it would be impossible to put a price on everyone’s losses. Even so it seems to me to be difficult to single out the KSS as the sole cause of such losses. The aforementioned article shows that Smith left behind enough assets (but without enough liquidity) in Kirtland to cover his debts and was continuing to make arrangements to do in 1843 (p. 458-459). I think a moderate rewording of Steven’s claim would stand and would be helpful in understanding the history. I doubt very many failed institutions have even attempted to make amends like Joseph Smith did.
I agree with you that criticisms of fraud are unhelpful. I am surprised that you see efforts to address such criticism as equally unhelpful. In my opinion, there is little in the post above that needs to corrected, but there is a lot wrong with the accusations of fraud.
Keller, it seems to me that the post above has some fundamental historical confusions. For example, Joseph Smith did indeed make efforts to pay his personal debt. However, that personal debt is a different thing from the institutional debts of the KSS, which were not payed and indeed were enormous — including, as they legally did, the face value of every bank note circulated by the organization. So it’s wrong to say that the KSS tried to make amends. Joseph Smith tried to pay his personal debt, but the KSS — like most failed banks — simply abandoned its debts. So, it seems, the fundamental premise of the post’s argument is unfounded in the historical record. That’s why I think this post isn’t any more helpful than the accusations of fraud: just like them, it’s a poor historical interpretation.
That’s not a moral condemnation, of course. But I think some people who believe in the fraud approach don’t deserve moral condemnation, either, since there is some material in the historical record that makes an honest belief in that position possible. Although I think there are problems of bias that make the claim of fraud less than credible, that’s an interpretation, and other interpretations can be honest even if perhaps unhelpful.
RT,
Thanks for the clarification. I will take your advise and not morally condemn those that disagree with me on the fraud question. I would merely point them out to what I think are even handed treatments and let them draw their own conclusions. But we can’t entirely decouple morality from belief. As Givens remarks:
I think the question of redeeming face value of specie has little riding on it compared to the other issues. Some imperfect analogies would be whether lottery tickets should be redeemed if a holder doesn’t win or if people who lose money on their investments in a stock market crash should be given mulligans.
The KSS ceased to exist as institution, but its parent institution, the church, continued to provide economical blessings for those who stayed with the program.
Keller, on the questions of morality and belief, that’s another issue entirely. I don’t care for Givens’ approach on this, but the ideas and commitments involved are perhaps too complex for this kind of discussion.
Let me just quickly focus on the question of redeeming the bank notes at face value. A bank note is a promissory note, and as such a debt — not an investment. If the bank had repaid its debts, that would have involved redeeming the notes. You might think that would have been a bad idea, and that seems reasonable. It was impossible in any case. But our agreement that the bank didn’t redeem its notes or repay its investors fundamentally contradicts the central factual claim of the original post, which was that the bank did indeed pay these back. It just didn’t.
RoastedTomatoes, thanks for the heads-up for the mis-cite! It is corrected, I hope, by the UPDATE.
You are also right that promissory notes are promises to pay, and should be done if possible.
There IS a notion that I think I need to correct: That repayment of all debts would mean that nobody would take a loss. This may not be the case.
In real life, if a debtor (legitimately or not) is slower in repayment than the creditor would like, that creditor could “factor” that debt, by selling it to a third party–usually at a large discount. Even if the debt is repaid in full, the original creditor would lose money in the amount of the discount.
I hope this makes sense!
Sorry, this is late.
Despite your assertion, there was not enough to repay creditors, they did not get any where near dollar for dollar and JS did not come close to repayment of his personal obligations. You guys are outright lying. You also conveniently left out the “prophesy” that all other banks would be swallowed up. So not only was he heavily in debt, he did not repay his personal obligations, and his prophesy (like so many of his other prophesies) failed. Now explain that away. As M. Twain said, get your facts and then you can twist them.
“Thirteen suits were brought against him between June 1837 and April 1839, to collect sums totaling nearly $25,000. The damages asked amounted to almost $35,000. He was arrested seven times in four months, and his followers managed heroically to raise the $38,428 required for bail. Of the thirteen suits only six were settled out of court-about $12,000 out of the $25,000. In the other seven the creditors either were awarded damages or won them by default.
“Joseph had many additional debts that never resulted in court action. Some years later he compiled a list of still outstanding Kirtland loans, which amounted to more than $33,000. If one adds to these the two great loans of $30,000 and $60,000 borrowed in New York and Buffalo in 1836, it would seem that the Mormon leaders owed to non-Mormon individuals and firms well over $150,000.” No Man Knows My History, pp. 199
tiredmormon,
I forgive you for your late response.
It is a little counterproductive to quote outdated research when a superior study has already been cited in the original entry in this thread. From the Hill, Rooker, and Wimmer article:
Thanks Keller! You saved me the trouble of replying!
😉
The question was whether creditors were repaid “dollar for dollar” (as you wrote) and whether JS re-paid personal debts (a distinction you were later forced to make when called on the carpet). Brodie is clearly speculating by including claims not made to arrive at her figure (which undoubtedly must exist). The HRW article you cite is the bare minimum on what they could find in court/county records. The point is that the “bank” was in massive debt which was never repaid. Your “dollar for dollar” claims (either Bank debt or JS personal debt) may have happened for a select few, but not universally as you argue. So your primary assertion is patently false, using either study, and you should remove it.
For you all your presumptuous self-congratulating, you leave out a wealth of facts that break your faith-promoting pseudo-history. (and citing BYU Studies is about as
productive as citing FARMS … or FAIR for that matter)
The biggest problem of all, in my book, has not to do with the financial solvency of the bank, but rather the failed prophesy/revelation, which caused the whole mess in the first place.
That is what Brodie did: Speculate.
Speculation is not fact.
Brodie is famous for confusing the two.
Oh brother.
My sentiments exactly, tired!
😉