The Kirtland Safety Society

R. McKay White
August 6, 2009

The Kirtland Safety Society

[Editor’s Note:A longer version of this presentation, in PDF format, is available: The Kirtland Safety Society: The Myths, the Facts, and the Prophet’s Good Name.]

There is a lot of material and analysis necessary to fully present an answer to criticisms against the Church regarding the Kirtland Safety Society. There is not time to cover it all in this presentation. I therefore refer you to FAIR’s website, where a paper I’ve written will be posted. This paper contains everything in this presentation and more, and provides a full answer to the criticisms.

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.

I’m indebted to these faithful LDS scholars for their work on the Safety Society. They’ve provided invaluable information and insight. Sampson and Wimmer gave an informative analysis of the Safety Society’s stock ledger book. Dale Adams examined the Safety Society’s lack of a bank charter, and drew some conclusions from that. Scott Partridge explored the historical context of the Safety Society, with emphasis on the social and economic environment. Hill, Rooker, and Wimmer address some criticisms stemming from the Safety Society. Their focus was on whether Kirtland’s economy was viable.

These works are important, but there are still some substantial holes in explaining the Safety Society and protecting the good names of Joseph Smith and the Church. In particular, further explanation is needed to justify the formation of the Safety Society in the first place and to explain Joseph Smith’s involvement in the enterprise. The issue of legality needs to be addressed head on, and the possible causes of the Safety Society’s failure need a more thorough treatment. These issues need to be treated comprehensively, in one work. These issues are based in economics and in the law. I am a lawyer and an economist. With this background, and the assistance of material previously unpublished, I will explode the criticisms stemming from the Safety Society and put these issues to rest, once and for all. The Safety Society can no longer be an excuse for antagonism against the Church.

It was a dark and stormy night; January 12, 1838. Joseph Smith and Sidney Rigdon saddled up their horses and fled Kirtland in the cover of darkness toward the state border, their saddlebags bursting with gold and silver. Though pursued 200 miles by an armed posse, the convicted outlaws escaped capture with their untold plunder. And thus was born the Legend of Joe Smith and the Wildcat Bank.

Wildcat Bank! That’s what Joseph Smith and Sidney Rigdon were fleeing from—the Kirtland Safety Society Wildcat Bank.

You may be wondering—what is a wildcat bank? That’s okay. We don’t really have any anymore. All you need to know about wildcat banks is that they’re very picky about their choice of real estate. For example, you might find one here….

Now, you may be asking yourself—wouldn’t that be rather difficult to find? Well, you’re right! But that’s actually the whole idea. You see, once people give us their gold, silver, and copper coins, and we give them our bank notes, the only place they can redeem those notes for gold, silver, and copper is at the bank. So if they can’t find the bank, we get to keep the gold and all that!

There’s just one problem with ol’ Joe Smith’s wildcat bank—he wasn’t very picky about real estate. In fact, he located his bank pretty close to a rather prominent building. Not only that, but he lived only a block away, and the house of his co-conspirator, Sidney Rigdon, was across the street. Thus begins, and thus ends, the myth of the wildcat bank.

Now, that one was pretty easy, so you can bet the other guys don’t stop there.

Didn’t you know? The Safety Society was illegal! When Oliver Cowdery went to Philadelphia to get plates for printing bank notes, Orson Hyde was sent to the Ohio legislature to get a bank charter.

At the time, the hard money guys were in power, meaning they didn’t like banks. As a result, Orson Hyde’s application for a charter was rejected. Undeterred, the Mormons went ahead and formed one anyway, though they called it an “anti-bank”, or joint-stock association. But that was illegal, wasn’t it? Well, according to an 1816 Act it was.

I’m showing, for the first time, the actual statute under which Joseph Smith and Sidney Rigdon were prosecuted and convicted. They appealed it, but the appeal was never heard because Joseph and Sidney were forced to leave the state.

Doesn’t the conviction prove the Safety Society was illegal? The other guys like to say so, but by so doing they prove either they haven’t actually researched the legal issue, or they have and are hiding it.

My Dad is a trial lawyer, and he has a good business arguing decisions like this one in the court of appeal and having them overturned. The court that convicted Joseph Smith and Sidney Rigdon got it wrong. How do I know? Well, I’m going to show you some more material that’s never been published before.

This first is an extract from the Painesville Republican, January 19, 1837:

“It is doubted, however, by good judges, whether the [1816 Act] is now in force, or if in force, whether it is not unconstitutional, and therefore not binding upon the people.”

This second is also from the Painesville Republican, February 16, 1837:

“The law of 1816 … has long since become obsolete and inoperative….

“The law of ’16 against private banking … was rejected by the committee and was not republished by the legislature.”

Now, this is just some of the evidence that the 1816 Act wasn’t in force in 1837. To show I’m not going out on a limb, I’ll show you some more.

Here are some other organizations that operated as banks around the same time as the Safety Society.

  • Various insurance companies…
  • And savings institutions.
  • The not-so-insignificant Ohio Railroad Company.
  • The Granville Alexandrian Literary Society, which even paid taxes levied by the state on banks.

The remarkable thing is that none of these organizations were prosecuted.

Why weren’t they, when Joseph Smith and Sidney Rigdon were? It couldn’t be because of religious persecution. Well, it was. It was intended to get Joseph out of town, and it worked.

For decades, now, the other guys have presented the Safety Society as illegal, when it wasn’t. That’s strike two. But those other guys don’t give up yet. They’ve got another claim.

The failure of the Safety Society proves Joseph Smith wasn’t a prophet! Do you know why? Because Joseph Smith had a revelation that the Safety Society would stand until time immemorial, and it didn’t!

If there is such a revelation in favour of the Safety Society, no one’s ever seen it except for one guy who claims he heard it once somewhere—Warren Parrish. We’ll hear later about Warren Parrish and his bowie knife.

But there was a revelation by Joseph Smith about the Safety Society. Remember, Joseph Smith left the Safety Society in June of 1837 due to dishonesty on the part of other bank officers. In a conference on September 3, 1837, he said…

“I had always said that unless the institution was conducted on righteous principles it would not stand.”

That prophecy came to pass when the Safety Society failed two months later.

Well, the other guys have one last chance to make something of all this. Are you ready for it? When Joseph Smith left, he filled his pockets with gold and silver coins!

First, if that were true you’d think he’d have had something to show for it. But that answer isn’t quite good enough. What we need to do is get into why Joseph Smith established a bank in the first place.

At this point in the discussion we get into the risk of indulging in presentism. We can’t do that. 1837 does not equal 2009 without cars and electricity. We need to remember that as we get into banks and money and their mysteries.

In your next High Priests group meeting, hold up a twenty dollar bill and ask why it’s worth twenty dollars. If anybody gets the right answer, it’ll be a lucky guess. Money has a very significant role in society, yet few every think about that. To see what we have money for, let’s look at where we’d be without it.

Without money, we’d be stuck in a barter economy. In a barter economy, you can’t buy and sell because you don’t have any money to do that with. You can only trade one good for another.

The trouble is, you have to have something worth trading. And even if you do, you have to find someone who wants what you’ve got, and that someone has to have something you want. Think of the poor soul who gets the ceramic chicken at the white elephant gift party. No chance of trading that one. Trade can be a long and costly process, and, frankly, there’s a better way.

It took a long time, but eventually the ancient Sumerians figured out that if you gave a chunk of metal a unit of value, you could buy things with it. Thus began the idea that an object could represent a unit of value. It didn’t have to be metal. The object could also be rocks, sea shells, or paper.

In 1837, they used gold, silver, and copper coins called specie, or hard money.

There were a lot of people in favour of hard money and nothing else, like those who rejected Orson Hyde’s charter application.

But an economy with only specie runs into some serious problems. While you wouldn’t get a banking crisis, your economy can grow only as fast as you can mine gold, silver, and copper. And specie gets rid of barter only so long as there’s enough specie to go around.

Consider a farmer just outside Kirtland. He needs some new equipment for his farm, so he hitches up his wagon and rides into town to the Newell K. Whitney Store. He and Brother Whitney work out what the equipment will cost. The farmer doesn’t have enough specie. At that time, most farm families saw no more than $100 specie over the course of a year.

So, the farmer signs a promissory note—an agreement to pay… In 30 days. The farmer has no problem with that, because he’ll be selling some grain in 25 days.

But when that day comes, the buyer doesn’t have enough specie. So the buyer signs a promissory note.

The farmer goes back to Bro. Whitney and tries to give the grain buyer’s note as payment for the equipment. But Bro. Whitney needs specie in order to pay his supplier in Cincinnati. Now the farmer is stuck, unable to pay what he owes to Bro. Whitney; and Bro. Whitney is stuck, unable to pay what he owes to his supplier. The shortage of specie causes a cash flow problem. Buying and selling becomes very difficult.

There were other problems, too.

Suppose you’re a farmer, newly baptized and move to Kirtland. As a farmer, you need to buy some land. A speculator is more than happy to sell, with payment due sometime in the future. You keep that due date in mind and work hard, putting in a good crop and making significant improvements to the land. You have a great crop, and are able to sell it for more than enough to pay the speculator. Your buyers can only give promissory notes, but that’s not a problem. Most business on the frontier was done with promissory notes.

The speculator comes knocking and you proudly present him with your pile of promissory notes. But the speculator demands specie. He doesn’t want to have to collect on all those notes. You don’t have any specie, so the speculator kicks you off of his farm. And he keeps all the improvements you made. This is how Joseph Smith Sr. lost his farm.

The people in Kirtland weren’t poor. It was just that they held only long-term assets, like land. They couldn’t buy anything unless they could get someone to accept their promissory note. What they really needed was some way to transform their long-term assets… Into money.

Banks solved these problems with the introduction of bank notes. Banks enabled farmers to borrow based on their long-term assets to meet their short-term obligations.

They also increased the money supply, to get rid of the need to do business by promissory notes.

Suppose that in the Kirtland area there’s a total of $10,000 in specie. A bank opens. People decide that bank notes are a lot more convenient to carry around than metal coins, so they deposit their specie and get bank notes in return. The bank issues a bunch more notes, too… Let’s say $80,000 worth. These are put into circulation by loans, mortgages, buying promissory notes, and investing in local businesses. The money supply has increased by 8-fold. The money shortage is gone.

This is great! A bank sounds like a good idea, if you need one. Was there a money shortage in Kirtland? There was. Did Kirtland need a bank? It did. Here’s why. First, Kirtland’s economy was rapidly growing. The Kirtland area produced…

  • Dairy products
  • Sheep
  • Maple sugar
  • Grain
  • Cattle
  • Iron castings
  • Ash
  • Tanned hides
  • And brick.

It also enjoyed wide trade via the Ohio canal. When the canal’s extension to Cleveland was completed in 1833, Kirtland’s trade in wheat and flour increased ten-fold.

A growing economy needs a bank. A bank provides money for expanding businesses and starting new ones.

Kirtland also needed a bank to increase the money supply to meet growing money demand. The supply of specie grows very slowly—you have to mine a bunch of gold, silver, and copper, turn it into coins, and figure out a way to put it in circulation without it costing too much.

The demand for money was increasing, due to an increasing population, increasing incomes, and rising prices.

Was this a problem in Kirtland? Yes.

Here, again, is some previously unpublished material:

“It is said they have a large amount of specie on hand and have the means of obtaining much more, if necessary. If these facts be so, its circulation in some shape would be beneficial to the community, and sensibly relieve the pressure in the market so much complained of.”

People had noticed the money shortage, and didn’t like it. They welcomed an increase in the money supply.

Well, that’s all fine and good. But we still have what the other guys say: “Joseph Smith used the Safety Society as a money making scheme! Do you know why? Because he was recklessly in debt! Joseph Smith wanted to print a bunch of worthless notes and use them to pay off his debts!”

Well, here are the facts about Joseph Smith’s debts.

  • First, his assets were more than sufficient to meet his debts. The only trouble was that his assets were long-term.
  • Second, his debts weren’t backroom deals. He couldn’t have gotten the loans if his creditors didn’t believe he could repay.
  • Third, most of his debts had co-signers.
  • Fourth, Joseph Smith was only secondarily liable for a lot of it.
  • Finally, he paid all his debts. When he left Kirtland, he left Oliver Granger in charge of his affairs, to settle all outstanding claims.

Ah, but Joseph Smith was crafty. He may not have been recklessly in debt, but he wanted to print a bunch of money to get himself rich!

Well, let’s see just how rich the Safety Society made Joseph Smith.

  • Joseph Smith was, along with three others, the largest shareholder of the Safety Society. All else equal, he would stand to lose the most if the Safety Society failed.
  • He also paid more per share than 85% of the shareholders. So he invested more money than probably everyone else. He really would lose the most in the event of failure.
  • If he was in it for money, he would have gotten out at the first signs of trouble. Instead, while the Safety Society was really struggling, he increased his subscription in order to try to help the Safety Society succeed.
  • That wasn’t all. He also took out three loans on behalf of the Safety Society to give some added liquidity.
  • Finally, he also sold personal property for $5000 in order to give more help to the Safety Society.

So Joseph Smith actually lost a lot of money from the Safety Society.

But, that was just bad luck and bad investment sense. His intent was still to scam people out of their money. We know this because the Safety Society was clearly infeasible. No honest person would have even tried it. After all, Joseph Smith and his co-conspirators had no idea how to run a bank.

Well, let’s step aside from presentism and look at it from frontier America in 1837. It was actually very common for banks to be started with little knowledge of how to run it, for the simple reason that anyone who did know how was already running one. The financial sector was still in its infancy, and they didn’t have a nationwide network of universities churning out MBA grads every year.

No one starting a bank in Kirtland, 1837, would have had any more knowledge of how to do it than Joseph Smith and Sidney Rigdon.

So what they did was a common undertaking for the time, and shouldn’t be considered in whether it was feasible.

As argued previously, Kirtland’s economy was booming. With all its economic activity, a bank was easily supportable.

Market pressures were creating demand for bank services. If the demand for a bank is present, then a bank is feasible.

Finally, the Safety Society had significant assets. True, most of it was land. But this was true of all banks at the time. There weren’t many alternatives. They didn’t have a stock market like we do today, or global trade in commodities. They had land.

So really, the Safety Society was as feasible as any other bank start-up. So, then why did it fail?

Joseph Smith and Sidney Rigdon bungled it all up! They kept printing more and more notes until the Safety Society simply collapsed under them!

Let’s look at the evidence:

Under Joseph Smith’s management, the Safety Society printed about $100,000 in notes. It had a reserve of $21,000. This meant a reserve ratio of… a measly 21%. Pfft. Pretty low!

Let’s look at Canada’s largest bank. In 2008, it had a reserve ratio of 3%. And this was during a time of severe economic uncertainty, which, I might add, the Royal Bank has weathered very well.

Now, banks today are very different than banks in 1837. A 3% reserve ratio would not have been feasible in 1837. But 21% was very reasonable.

So no—Joseph Smith did not print an unreasonable amount of bank notes.

There are other ideas of why the Safety Society failed.

One is the 1837 banking panic and depression. The banking panic started in the eastern states in May of 1837, and swept west across the nation. While it did have a significant effect in Kirtland, the Safety Society’s troubles started in January, well before the banking panic arrived. So that can’t be the cause.

Another common idea is that it failed because it didn’t have a bank charter. But there were many other organizations operating successfully as banks without a bank charter. So that can’t be the cause, either.

I propose two causes.

The first was a good old-fashioned bank run. When the Safety Society opened its doors, antagonists began collecting as many of its notes as they could. Then they took them in to the bank to redeem them for specie. The antagonists basically had the Safety Society at gunpoint. If it continued to redeem the notes for specie, they’d drain all the reserves and the Safety Society would fail. If it stopped redeeming notes, confidence in the Safety Society would plummet. As a result, its notes started trading at a steep discount. Enemies of the Church set out to make the Safety Society fail, and they were very effective.

The second blow was Warren Parrish. You’ll recall I mentioned him earlier. Warren Parrish was an officer of the Safety Society. Joseph Smith started noticing that money went missing when only Parrish had access to it. Evidence seemed clear the money was being kept in Parrish’s trunk. But before Joseph Smith could get a warrant to search it, the trunk disappeared. As Heber C. Kimball records, Parrish later admitted to embezzling $20,000. That’s the equivalent of $475,000 today.

Let’s get some perspective on this: Parrish embezzled $20,000. The Safety Society had a reserve of $21,000 in specie and notes from other banks. With that $20,000, Parrish could completely wipe out the Safety Society’s liquid assets. That would ruin the Safety Society.

Do not take this as exaggeration. If you think it couldn’t happen, think about these corporations, which had a significant portion of their liquid assets wiped out. And that wasn’t by fraud, but by sheer bad management. Billions of dollars are now being injected to pay back what a modern-day Parrish stole. If they weren’t, the banking sector would have collapsed, the same as the Safety Society.

And lest there be any doubt Parrish would do it, this is the same guy, who, in the middle of a meeting in the temple, stood with a group of other thugs, armed with pistols and bowie knives, and drove the Saints out of the temple in an effort to take it over.

So did Joseph Smith ruin the Safety Society? No. It was a coordinated attack by Church enemies, and fraud by the apostate Warren Parrish.

And that’s it. The myths are gone. Poof. There’s nothing to cover up, nothing to hide, nothing to be embarrassed about.

The Safety Society was in no way a wildcat bank. Everyone knew where the bank was and who its officers were. It was also legal.

Joseph Smith was a true prophet. The only revelation he had about the Safety Society was fulfilled—that it could not succeed unless managed based on the principles of righteousness.

The Safety Society was an honest endeavour for which Joseph Smith sacrificed greatly to help it succeed.

It was not bungled up or mismanaged by Joseph Smith and Sidney Rigdon; they were prudent in what they did. Its failure was the work of antagonists and an apostate.

And those are the facts about the Safety Society.

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