Hey guys! So in this episode, we’re going to talk about a very dark time in the history of The Church of Jesus Christ of Latter-day Saints. It was a period of major apostasy that largely came about because of the failure of the financial institution known as the Kirtland Safety Society.
So, as Latter-day Saints congregated in Kirtland, Ohio, in the 1830s they ran into some economic challenges. Inflation caused the price of land and food to skyrocket. After the Saints completed the Kirtland Temple in 1833, the Church was deeply in debt. Physical money was in short supply, and the closest bank was controlled by critics of the Church in Painesville. So Joseph Smith and other leaders got together and were like: “Here’s an idea: Let’s start our own bank!”
So they did, and got it up and running by January 1837. There were stockholders, the bank printed banknotes to be used as currency, it issued loans and hoped to turn a profit from the interest on those loans. It was a good idea that quickly hit a few snags. For example, they were unable to obtain a banking charter from the State Legislature, which meant the Kirtland Safety Society could not be an official bank.
That wasn’t a huge deal—there were other unofficial companies that operated like banks without a charter in Ohio at that time, so Joseph reorganized the bank into a joint-stock company and called it the Kirtland Safety Society Antibanking Company. So they temporarily dodged that boomerang, but the bank soon had bigger fish to fry.
One of those fish was a guy named Grandison Newell. This guy was really excited to see the Safety Society fail. He and others went around buying up as many of the Safety Society banknotes as they could, and then they’d go in to redeem all of those notes for cash, trying to drain the Safety Society of their reserve funds, hoping to force a shutdown, which is just a really lame thing to do.
So after only being open for a few weeks, Sidney Rigdon stops redeeming the banknotes and temporarily closes the bank, which in turn causes the value of those notes to plummet, which in turn enables Grandison Newell to buy even more of them.
Grandison Newell was also the mastermind of a lawsuit against Joseph Smith and Sidney Rigdon for operating a bank without a charter and issuing unauthorized paper currency. Joseph and Sidney lost in court and had to pay a fine. Now, this begs a very important question: Was the bank operating illegally?
Well, the court said that the Safety Society broke a law passed in 1816. The problem with that is that there was a law passed in 1824 that called into question whether or not the 1816 law was still in force because it certainly wasn’t being enforced against many other institutions similar to the Kirtland Safety Society. In that same year the Painesville Republican even published:
“It would be more in accordance with our notions of justice … that even the Mormons should have a fair and impartial hearing before condemnation. The law of 1816, under which these suits are instituted, has long since become obsolete and inoperative.”
And to top it all off, a later Ohio court did rule that while the 1824 act was in force, the 1816 act was suspended.
So, was it illegal? The court ruled that it was. The law suggests the court was probably wrong. And the decision was appealed but was never pursued. In any case, the Saints did their homework and had good reason to believe that the Safety Society was legal. As one researcher put it, “Although the organizers of this company used available legal counsel and followed accepted business practices, the venture was met with overwhelming difficulties and challenges on several fronts…that were beyond their control.”
One of those difficulties beyond their control was the Panic of 1837, which was a nation-wide financial crisis which caused banks all over the country to fail. Anyway, for many reasons, the Safety Society failed, people (especially Joseph Smith) lost a ton of money. But even more devastating than the loss of money was the loss of faith in the Prophet Joseph Smith.
Kirtland fell into a serious apostasy. An estimated one-third of church leadership fell away from the Church. Trusted friends were turning on Joseph left and right. While Joseph was out of town there was a riot in the temple! The failure of the bank really challenged the Saints’ paradigm of what a prophet of God should look like. People loved Joseph’s spiritual direction, but some people were offended by Joseph extending his influence into temporal matters. And some people had a hard time differentiating between what was coming from God and what was coming from Joseph.
For example, at a conference held in September 1837, John Boynton said that “he understood the bank was instituted by the will of God, and he had been told that it should never fail…” Joseph Smith’s response is instructive:
“President Smith then arose and stated that if this had been declared no one had authority from him for so doing, for he had always said that unless the institution was conducted on righteous principles it would not stand.”
There’s no recorded revelation where God commands Joseph to start the bank, and if he did receive revelatory promises they were conditioned upon the conduct of the people, which was not great (and you can read more about that in the description). The bank appears to just be a practical idea they tried out, and it failed. Latter-day Saints today understand that prophets are totally capable of making these kinds of mistakes, so we don’t consider the failure of the Kirtland Safety Society a huge issue.
Now, there’s a lot of stuff on this topic we didn’t cover, some of it quite controversial! So if you want to know more, check out the links and notes in the description, and have a great day.
- Most in-depth research I’ve seen on this subject: https://bit.ly/2JbsUKG
- Timeline of KSS events: https://bit.ly/3biLQmK
- Another good summary of this topic (BYU): https://bit.ly/2UBmARV
- Latter-day Saint Q & A video on this subject: https://bit.ly/2JdV4oh
- Was the Kirtland Safety Society Antibanking Company legal?: https://bit.ly/2UgCwtL
- Dispelling myths about the Safety Society & Joseph Smith: https://bit.ly/2UMnRWz
- The Church’s “gospel topics” essay on this subject: https://bit.ly/33Kpw2P
- The Kirtland Safety Society and the Fraud of Grandison Newell: A Legal Examination: https://bit.ly/3akkr3Q
- An awesome 28-minute video from the Church on this subject: https://bit.ly/2vRh8SI
- Warren Parrish embezzlement suspicion sources: https://bit.ly/39nbUvn
- Addressing additional questions about the KSS: https://bit.ly/39m4rwG