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|subject=Kirtland Safety Society | |subject=Kirtland Safety Society |
Answers portal |
Joseph Smith, Jr. |
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Some attack Joseph Smith over the Kirtland Safety Society (KSS) on multiple grounds:
To see citations to the critical sources for these claims, [[../CriticalSources|click here]]
The Kirtland Safety Society was an unwise venture that was probably illegal, though legal counsel was divided on that matter at the time. The intent of Church leaders does not seem to have been to break the law, but to solve a vexing problem which thousands of others also faced. The failure of the bank was not due to mismanagement or a desire to enrich individuals, but due to the relatively fragile nature of the time’s financial infrastructure, and the economic conditions of 1837. The lack of a charter was the KSS's biggest weakness and the most ill-advised decision connected with it. Arguably, even had the bank possessed a charter, the outcome would have been little different, save that the Church leaders would have suffered fewer legal problems and harassment.
The Kirtland Safety Society is an excellent example of why Latter-day Saints do not put their trust in men, but in God. It also demonstrates that the Saints will continue to support fallible men as prophets of God.
Summary: Critics attack Joseph Smith over the Kirtland Safety Society (KSS) on multiple grounds: 1) they claim the KSS was a "wildcat bank," 2) they claim that the bank was illegal, and that the Church broke the law by founding it, 3) they claim it was a money-making scheme for Joseph, and 4) they claim its failure proves Joseph was not a prophet
The Kirtland Safety Society Anti-Banking Company is an important part of our church history, having, as it did, a significant role in the Kirtland apostasy. Yet, to date, it has received much more attention from anti-Mormons, or “the other guys”, than from our own scholars and apologists. As a result, there are a large number of myths about the Safety Society that the other guys use to criticize Joseph Smith and destroy faith.Today, I’m going to lay the episode wide open. We’ll see the myths that have sprung from the creative minds of interested parties, the facts will be laid bare, and in doing so, we’ll see why the Prophet deserves a good name.
After presenting a timeline of events associated with the KSS, this article will discuss:
The criticisms will then be addressed.
In the early days of the Church, the finances of Joseph Smith and the institutional Church were enmeshed. This was not unusual, as the idea of religious groups functioning as corporations and holding property was frowned on in Jacksonian America.
In 1836, the Church was centered at Kirtland, and was undergoing substantial growth. The Saints were constructing the Kirtland temple, at considerable cost, as well as financing property and business acquisitions, the immigration of poor members to Ohio, and missionary work.
To finance this explosive growth, loans were sought. Joseph Smith and the Church had extensive loans; some loans were for Joseph, some for Kirtland, and some for the Church. In some instances, Joseph was the only borrower, in other cases he was one among many who were liable for a given debt.
Banks do not loan money to those they consider poor risks, and so to his contemporaries, Joseph clearly appeared to have the ability to meet his obligations. The amount of the loans seems to have been less than the total value of the lands, businesses, and goods which Joseph and the Church owned. However, these assets were difficult to liquefy—the loans were often short-term (from a few weeks to around 180 days) and so cash flow problems beset Joseph continually.[3]
This sort of situation is difficult for a modern reader to appreciate: we have easy world-wide banking, debit cards, credit cards, mortgages, and lines of credit. Kirtland was not alone in this struggle—hundreds of frontier communities tried to set up banks in the late 1830s.
As one author remarked:
The Saints were land rich but cash poor. Credit was scarce on the frontier, and even specie was in short supply. The Saints could not easily convert their considerable land wealth into cash to pay for purchases. (One cannot, for example, pay someone 1/10 of an acre of land for a barrel of nails!)
There were no national banks, and many Democrats were strongly anti-bank. Those on the frontier needed help desperately to keep their economies moving:
The failure of the Kirtland bank was not unusual, especially for rural banks—fully half of the banks formed in the 1830s had failed by 1845. This was due in large part to the economic realities of the time:
Given that banking was in its infancy, the Saints were not sophisticated in their understanding of how a bank worked. Even Brigham Young, an astute businessman, was confused. Brigham deposited a note with his mark on it.[7] He was shocked to receive the same note in payment from someone else a few days later! It seems that Brigham thought that the bank kept his note for him, and did not allow it to circulate. He thought of a 'bank' as something more like a safe deposit box—one puts their valuables in, and the bank keeps those same valuables safe, does not lend them out, and returns the exact same items back when asked. Brigham did not understand that a bank keeps a record of money deposited, but uses the funds deposited to make loans and investments, and to pay other creditors.[8]
In principle, the KSS was to use land and specie to back its notes. The notes would then circulate and function as “money,” which would allow the cash-strapped Kirtland economy to function.
After failing to receive a charter for a bank, the KSS was hastily reconfigured as "a joint stock association, with limited power to issues notes" called the "Kirtland Safety Society Anti-Banking Company."[9] This so-called "quasi-bank" style of operation permitted a commercial enterprise to effectively function as a bank without a bank charter. Other such quasi-banks were already organized in Ohio before the KSS, and even after the bank failures of 1837 (when Joseph Smith and others were prosecuted for operating an illegal bank), Ohio did little to act against other quasi-banks until 1873.[10] Significantly, though, the KSS also had no corporate charter that could be "interpreted loosely" to allow for banking activities, and some authors regard this as the single biggest reason for its failure,[11] although others have argued that the KSS was not unique, since "[t]here were other unauthorized banks in Ohio during this period and some encouragement was received from anti-Democratic newspapers to establish such institutions."[12]
On 2 January 1837, Joseph also obtained a loan of $3,000 from the Bank of Geauga, a clear sign that non-Mormon bankers did not regard Joseph has over-extended or carrying too much debt.[13]
There is no evidence that the KSS was a “wildcat bank.” It was located in Kirtland, a large and thriving town in Ohio. The bank did not decline to exchange scrip for specie. In fact, this willingness to honor its notes created trouble for the bank early on, since they had insufficient funds to honor their notes after only about two weeks.
Starting operations without a charter was clearly an unwise decision. It is doubtful that Joseph and associates had time to receive detailed legal advice between the time their first charter application was denied and the beginning of banking operations,[14] but the documents creating the KSS clearly bear the marks of being drafted by legal counsel.[15] There are also marked differences between the documents prepared for a bank with a charter, and for the subsequent "anti-banking society," suggesting that Church leaders did not simply "rewrite" the original legal documents:
While the legal advice they received was probably poor, this is a professional failing on the lawyer's part. Furthermore, there was considerable debate as to whether the anti-banking laws were even constitutional.
A second charter application was made with the support of Joseph Smith’s non-LDS lawyer, Benjamin Bissell, and other non-Mormons. The bank’s supporters probably hoped that they could eventually get a charter when the political circumstances were more favorable, and the support of legal and political personalities probably encouraged them in their course of action.
Clearly, Joseph and his supporters did not simply set out to be reckless; they had both political and legal perspectives which gave them cause for optimism.
However, even with a charter, the bank would not have survived the financial crisis of 1837:
In short, the KSS was found by a jury to be an illegal bank. The leaders of the Church made a sincere effort to solve the pressing financial problems which beset them, and were probably hasty and somewhat naïve about the undertaking. There does not seem to have been a willful effort to deceive or extort. And, the legal issues are not entirely clear, even in retrospect:
In any case, the financial crisis of 1837 likely could not have been averted even if all the legalities had been observed.
Joseph did not profit personally from the bank, and withdrew his support before the failure. Joseph probably suffered more legal repercussions than anyone from the event. There is no evidence that Joseph was “getting rich,” or attempting to do so, from the bank. He paid more for his stock in the bank than 85% of the subscribers, and he put more of his own money into the bank than anyone else, save one person.[19]
In June 1837, Kirtland land values had increased by 800% in just one year, so the idea of backing the bank with land does not seem unreasonable.
Furthermore, the bank's weakness became a drain on Joseph, and he expended considerable resources trying to save it—including obtaining three new loans—which only worsened his position in the end.[20]
Joseph was left with debts of $100,000. He had that value in goods and land, but it was difficult to convert these to cash. (Ironically, it was this very issue which had led to the bank's formation in the first place.)
Joseph fled for fear of his life, but also left creditors behind. Admirably, even as late as 1843, he continued to work to settle his Kirtland debts, even though he was far away in Nauvoo and effectively beyond the reach of his creditors.[21] In a 23 June 1874 speech, Brigham Young indicated that "some of his [Joseph's] debts had to be settled afterwards; and I am thankful to say that they were settled up."[22]
Joseph did not record or claim a revelation on the formation of the Kirtland Safety Society. It seems, rather, to have been his attempt to solve a complex and serious problem that probably had no good solution given the financial tools available to him. His anxiety to solve the Church’s financial problems led to difficulty, but Joseph was not alone: hundreds of thousands of frontier settlers had to resort to similar tactics:
Joseph insisted that a prophet was only a prophet when he was acting as such. The Kirtland Bank episode is a good example of fallible men doing their best to solve an intractable problem. (Joseph also emphasized that there was no expectation of success if members did not follow his counsel--which they did not.)
Brigham Young described an incident from his own life that speaks to the KSS period:
Thus, Brigham did not deny the error, or insist that it could not happen. But, he did not allow himself to be distracted by it.
== Notes ==
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