Kirtland Safety Society
Encyclopedia
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
organized in 1836 (and reorganized on January 2, 1837) by leaders and followers of the Church of the Latter Day Saints. According to KSS's 1837 "Articles of Agreement", it was intended to serve the banking needs of the growing Mormon
Mormon
The term Mormon most commonly denotes an adherent, practitioner, follower, or constituent of Mormonism, which is the largest branch of the Latter Day Saint movement in restorationist Christianity...
community in Kirtland, Ohio
Kirtland, Ohio
Kirtland is a city in Lake County, Ohio, USA. The population was 6,670 at the 2000 census. Kirtland is famous for being the early headquarters of the Latter Day Saint movement.-Origins of Kirtland:...
. Its preamble stated it was:
- ...for the promotion of our temporal interests, and for the better management of our different occupations, which consist in agriculture, mechanical arts, and merchandising.
However, by November 1837, KSS failed and its business closed. In the aftermath, Mormon leader Joseph Smith
Joseph Smith
Joseph Smith was founder of what later became known as the Latter Day Saint movement or Mormons.Joseph Smith may also refer to:-Latter Day Saints:* Joseph Smith, Sr. , father of Joseph Smith...
was fined for running an illegal bank, many bankrupted Mormons left the church because they believed Smith had established the bank in order to enrich himself and the Mormon leadership.
Economy in Kirtland
By late 1836 many recent LDS converts had gathered in MissouriMissouri
Missouri is a US state located in the Midwestern United States, bordered by Iowa, Illinois, Kentucky, Tennessee, Arkansas, Oklahoma, Kansas and Nebraska. With a 2010 population of 5,988,927, Missouri is the 18th most populous state in the nation and the fifth most populous in the Midwest. It...
and Kirtland, Ohio
Kirtland, Ohio
Kirtland is a city in Lake County, Ohio, USA. The population was 6,670 at the 2000 census. Kirtland is famous for being the early headquarters of the Latter Day Saint movement.-Origins of Kirtland:...
. The city of Kirtland experienced a significant population increase, growing from approximately 1,000 people in 1830 to 3,000 in 1836, with a similar increase in surrounding agricultural areas. The population growth was at least partially responsible for a rapid increase in land prices between 1832 and 1837. The average price per acre of land sold in Kirtland rose from approximately $7 in 1832 to $44 in 1837, only to fall back to $17.50 in 1839.(Ludlow, p. 283) Generalized inflation during the period accounted for between 25 and 40 percent of the price increase. Although the LDS church held considerable real estate, estimated at approximately $60,000 in equity by historian Larry T. Wimmer
Larry T. Wimmer
Larry Turley Wimmer is the Warren and Wilson Dusenberry University Professor at Brigham Young University . He is a professor of economics who specializes in American economic history and the economics of aging.-Biography:...
, it also needed liquidity to repay outstanding loans. The credit needs of the church, growing population and ongoing land transactions required a local bank.
KSS organization
After some discussion by the leadership of the Church, LDS apostle Orson HydeOrson Hyde
Orson Hyde was a leader in the early Latter Day Saint movement and an original member of the Quorum of the Twelve Apostles...
went to the Ohio legislature to request a bank charter while Oliver Cowdery
Oliver Cowdery
Oliver H. P. Cowdery was, with Joseph Smith, Jr., an important participant in the formative period of the Latter Day Saint movement between 1829 and 1836, becoming one of the Three Witnesses of the Book of Mormon's golden plates, one of the first Latter Day Saint apostles, and the Second Elder of...
went to Philadelphia and acquired plates to print notes for the proposed Kirtland Safety Society bank. On January 2, Hyde returned to Kirtland emptyhanded. He had been unable to persuade any legislator to sponsor a bill giving KSS a bank charter. LDS church president and prophet
Prophet
In religion, a prophet, from the Greek word προφήτης profitis meaning "foreteller", is an individual who is claimed to have been contacted by the supernatural or the divine, and serves as an intermediary with humanity, delivering this newfound knowledge from the supernatural entity to other people...
Joseph Smith, Jr. attributed the lack of sponsorship to discrimination against the Mormons.
Hyde returned to the Ohio legislature in February with a petition, joined by several non-Mormons, for a bank based on far less capital stock. This time Hyde secured legislative sponsors, and the request was added as an amendment to another bill. However, the bill was defeated by the Ohio legislature. Grandison Newell, a professed antagonist to the LDS church in general and its president in particular, instigated several lawsuits against the Mormons in Ohio. Newell was close to three legislators who had taken the LDS charter requests under consideration and used his influence to dissuade them.
Although this rejection has been attributed to both political and religious differences, this Ohio legislature was much more restrictive in issuing bank charters than the previous legislative body. The legislature was now dominated by the hard money wing of the Democratic party, the "Jacksonian Democrats". Due to their influence, the legislature refused all applications for bank charters but one during 1836 and 1837, in part because of endemic nationwide problems with land speculation, wildcat banking
Wildcat banking
Wildcat banking refers to the unusual practices of banks chartered under state law during the periods of non-federally regulated state banking between 1816 and 1863 in the United States, also known as the Free Banking Era...
and counterfeiting.
Under the advice of non-Mormon legal counsel, the Kirtland Safety Society Anti-Banking Company (KSSABC) was formed under revised articles on January 2, 1837 as a joint stock company
Joint stock company
A joint-stock company is a type of corporation or partnership involving two or more individuals that own shares of stock in the company...
to serve as a quasi-banking institution. Quasi-banks operated as banks (sometimes in conjunction with other business activities) although they had no formal bank charter. These corporate institutions were not uncommon in Ohio at the time as banking regulations were limited. Whigs went so far as to encourage businesses to operate as quasi-banks. Even after the national bank failure in 1837, there was no widespread opposition to quasi-banks in Ohio until 1873.
"Anti" and "ing" were engraved before and after "Bank" --in smaller typeface
Typeface
In typography, a typeface is the artistic representation or interpretation of characters; it is the way the type looks. Each type is designed and there are thousands of different typefaces in existence, with new ones being developed constantly....
-- on the printing plates Cowdery had previously purchased in Philadelphia. Subscribers and organizers of the KSSABC were members of the Kirtland community (merchants, farmers, etc.), many of whom became shareholders of the company. Sidney Rigdon
Sidney Rigdon
Sidney Rigdon was a leader during the early history of the Latter Day Saint movement.-Baptist background:...
served as the KSSABC' chairman and president, Warren Parrish
Warren Parrish
Warren Parrish was a leader in the early Latter Day Saint or Mormonism movement. Parrish held a number of positions of responsibility, including that of scribe to church president Joseph Smith Jr. Parrish and other leaders became disillusioned with Smith after the failure of the Kirtland Safety...
as signatory, secretary and teller; Joseph Smith was cashier. Supporters hoped that they would eventually be able to secure a formal banking charter. In the interim, the KSSABC began issuing notes as a quasi-bank in early January 1837.
The proposed capitalization of the "anti-bank" greatly exceeded the resources that were available from its backers, as noted by historian, Robert Kent Fielding:
As it was projected, there was never the slightest chance that the Kirtland Safety Society anti-Bank-ing Company could succeed. Even though their economy was in jeopardy, it could scarcely have suffered such a devastating blow as that which they were themselves preparing to administer to it. ... The Safety Society proposed no modest project befitting its relative worth and ability to pay. Its organizers launched, instead, a gigantic company capitalized at four million dollars, when the entire capitalization of all the banks in the state of Ohio was only nine and one third million. Such presumption could not have escaped the notice of bankers who would have been led to examine its capital structure more closely. ... according to the articles of incorporation capital stock was to be paid in by subscription but that the amount of payments were left to the discretion of the company managers. Furthermore, total issuance of notes was not prescribed, nor was the relation of notes to capital and assets. The members, to be sure, pledged themselves to redeem the notes and bound themselves individually by their agreement under the penal sum of one hundred thousand dollars. But there was no transfer of property deeds, no power of attorney, no legal pains and penalties. To a banker, the articles fairly shouted: 'this is a wildcat, beware!'
National bank crisis
The KSS failure, although unique in some ways, was part of a national bank crisis known as the Panic of 1837Panic of 1837
The Panic of 1837 was a financial crisis or market correction in the United States built on a speculative fever. The end of the Second Bank of the United States had produced a period of runaway inflation, but on May 10, 1837 in New York City, every bank began to accept payment only in specie ,...
that began in May of that year. Underlying causes of the nationwide financial panic included speculative and inflationary selling of public lands in western states like Michigan
Michigan
Michigan is a U.S. state located in the Great Lakes Region of the United States of America. The name Michigan is the French form of the Ojibwa word mishigamaa, meaning "large water" or "large lake"....
, Ohio
Ohio
Ohio is a Midwestern state in the United States. The 34th largest state by area in the U.S.,it is the 7th‑most populous with over 11.5 million residents, containing several major American cities and seven metropolitan areas with populations of 500,000 or more.The state's capital is Columbus...
and Missouri
Missouri
Missouri is a US state located in the Midwestern United States, bordered by Iowa, Illinois, Kentucky, Tennessee, Arkansas, Oklahoma, Kansas and Nebraska. With a 2010 population of 5,988,927, Missouri is the 18th most populous state in the nation and the fifth most populous in the Midwest. It...
. The economic policies of the previous President Andrew Jackson
Andrew Jackson
Andrew Jackson was the seventh President of the United States . Based in frontier Tennessee, Jackson was a politician and army general who defeated the Creek Indians at the Battle of Horseshoe Bend , and the British at the Battle of New Orleans...
, including the Specie Circular
Specie Circular
The Specie Circular was an executive order issued by U.S. President Andrew Jackson in 1836 and carried out by President Martin Van Buren. It required payment for government land to be in gold and silver.-History:...
and the withdrawal of government funds from the Second Bank of the United States
Second Bank of the United States
The Second Bank of the United States was chartered in 1816, five years after the First Bank of the United States lost its own charter. The Second Bank of the United States was initially headquartered in Carpenters' Hall, Philadelphia, the same as the First Bank, and had branches throughout the...
, also contributed to the crisis.
On May 10, 1837 in New York, every chartered bank stopped payment in specie (gold and silver coinage), leaving banks and local institutions like the KSS holding notes without adequate liquid assets. Within two months the failures in New York alone aggregated nearly $100,000,000 in value. "Out of eight hundred and fifty banks in the United States, three hundred and forty-three closed entirely, sixty-two failed partially, and the system of State banks received a shock from which it never fully recovered." Smaller, privately held financial institutions, like the KSS, also failed in droves. The Panic was followed by a five-year depression, characterized by ongoing failures of bank
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
s and financial institutions and record unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
levels.
Opposition and failure
In February 1837, at the behest of Newell, Samuel D. Rounds swore a writ against Smith and Rigdon for illegal banking and issuing unauthorized bank paper. At a hearing in March, this trial was postponed until autumn. Eventually Rounds voluntarily dropped all of the cases in his suit except those against Smith and Rigdon. Although Smith's only official capacity for KSSABC was cashier, other officers and parties with equal or greater responsibility were absolved from the suit. KSSABC continued issuing notes through June, but eventually failed due to insolvency, as most of the KSSABC reserves were tied up in land rather than liquid silver as some erroneously believed.Smith transferred all of his holdings to Oliver Granger and J. Carter in June and resigned from the KSSABC in July. Parrish and Frederick G. Williams
Frederick G. Williams
Frederick Granger Williams was a leader in the early Latter Day Saint movement and served in the First Presidency as Second Counselor to church president Joseph Smith, Jr. from 1833 to 1837...
assumed management of the KSSABC until the institution closed its doors in November with about $100,000 in unresolved debt. Smith appointed Granger as his agent to clear up his Kirtland affairs, as Smith was named in seventeen lawsuits with claims totalling $30,206.44 over debts incurred in the failure of the KSSABC According to LDS scholars, "Four of these suits were settled; three were voluntarily discontinued by the plaintiffs; and ten resulted in judgments against Joseph Smith and others. Of these ten judgments, three were satisfied in full, three were satisfied in part, and only four were wholly unsatisfied." The LDS church also raised and put up $38,000 in bail money for Smith at the Geauga County Court which was to be held to satisfy any judgment that might be rendered against Smith.
On July 28, Smith, Rigdon and Thomas B. Marsh
Thomas B. Marsh
Thomas Baldwin Marsh was an early leader in the Latter Day Saint movement and an original member of the Quorum of the Twelve Apostles. He served as the first President of the Quorum of the Twelve Apostles of the Church of Jesus Christ of Latter Day Saints from 1835 to 1839...
headed to Upper Canada
Upper Canada
The Province of Upper Canada was a political division in British Canada established in 1791 by the British Empire to govern the central third of the lands in British North America and to accommodate Loyalist refugees from the United States of America after the American Revolution...
on church business and returned in late August. On September 27, Smith and Rigdon departed Kirtland for Missouri. They arrived about one month later, spent about two weeks in Missouri on Church business and returned to Kirtland on December 10. In their absence, in October, they were fined $1,000 for operating an illegal bank. According to Dale W. Adams, professor of agricultural economics at Ohio State University, other, larger quasi-banks had been operating in Ohio longer than KSSABC and were not being prosecuted.
Among KSSABC's misfortunes, Smith also accused Parrish of embezzling $25,000 from KSSABC In June. Smith sought, but was denied, a search warrant to confirm his suspicions against Parrish.
Response in the LDS community
Many LDS members (including Church leaders) became disillusioned with Smith and disaffected with the Church in the wake of KSSABC's failure and left the Church or were disfellowshipped or excommunicated. In May 1837, disgruntled LDS members (including Church leaders) and non-members alike began to publicly blame Smith for their losses. Some LDS, like Parley P. PrattParley P. Pratt
Parley Parker Pratt, Sr. was a leader in the Latter Day Saint movement and an original member of Quorum of the Twelve Apostles from 1835 until his murder in 1857. He served in the Quorum with his younger brother, Orson Pratt...
and Cowdery were later reconciled to Smith and the Church.
Smith warned the community against speculation and counterfeiting. Shortly after his resignation from the KSSABC in July he stated in the August 1837 Messenger and Advocate:
- "I am disposed to say a word relative to the bills of the Kirtland Safety Society Bank. I hereby warn them to beware of speculators, renegades and gamblers, who are duping the unsuspecting and the unwary, by palming upon them, those bills, which are of no worth, here. I discountenance and disapprove of any and all such practices. I know them to be detrimental to the best interests of society, as well as to the principles of religion."
Shortly before his resignation, Smith also took out a $1,225 loan from a separate bank to help keep KSSABC solvent. Smith publicly denied claims that the KSSABC was created for the purpose of surreptitiously enriching the LDS leadership, but many disaffected members felt otherwise even though Smith risked losing as much or perhaps more than anyone else due to KSSABC's failure.
Regardless of the reasons for the KSSABC's failure, much of the blame was laid upon Smith. Half of The Quorum of Twelve Apostles accused Smith of improprieties in the banking scandal, and LDS Apostle Heber C. Kimball
Heber C. Kimball
Heber Chase Kimball was a leader in the early Latter Day Saint movement. He served as one of the original twelve apostles in the early Latter Day Saint church, and as first counselor to Brigham Young in the First Presidency of The Church of Jesus Christ of Latter-day Saints from 1847 until his...
later said that the bank's failure was so shattering that afterwards "there were not twenty persons on earth that would declare that Joseph Smith was a prophet of God." Warren Parrish, a KSSABC officer who later left the LDS church, claimed that Smith had prophesied that KSSABC "shall become the greatest of all institutions on EARTH." 1837.) Wilford Woodruff's diary sheds light on this detail. Woodruff records that Smith had a revelation on the topic, but declined to share it, saying only that "if we would give heed to the commandments the Lord had given this morning all would be well." Then Woodruff expresses his own hopes that the KSSABC will "become the greatest of all institutions on EARTH."
On January 12, 1838, faced with a warrant for his arrest on a charge of illegal banking, Smith fled with Rigdon to Clay County, Missouri just ahead of an armed group out to capture and hold Smith for trial. Smith and Rigdon were both acquainted with not only conflict and violent mobbing they experienced together in Pennsylvania and New York, but with fleeing from the law. According to Smith, they left "to escape mob violence, which was about to burst upon us under the color of legal process to cover the hellish designs of our enemies." Brigham Young
Brigham Young
Brigham Young was an American leader in the Latter Day Saint movement and a settler of the Western United States. He was the President of The Church of Jesus Christ of Latter-day Saints from 1847 until his death in 1877, he founded Salt Lake City, and he served as the first governor of the Utah...
left Kirtland for Missouri weeks earlier on December 22 to avoid the dissidents who were angry with Young and threatened him because of his persistent public defense of Smith's innocence. Most of those who remained committed to the church moved to join the main body of the LDS in Missouri.