Why Did Joseph Smith Start His Own Bank, and Why Did it Fail?

Comment: “It appears from recent history that your Joseph Smith was nothing more than a con man and charlatan. Who else would have started his own bank with friends money and then let it fail?” (Manny C.)
    Response: One of the many problems people in general, members of the Church and critics alike, have is s to judge events and people of the past by the knowledge and mores of the present. While the following are all considered ridiculous today, they were in fact part of the American scene in the recent past:
• In the early 17^th century, coffee as a beverage was considered a “bitter invention of Satan, and called “Devil’s Drink.”
• During the late 1700s, tomatoes were dubbed “poison apples” because some aristocrats got lead poisoning while eating tomatoes on pewter plates—which were especially high in lead. Even 19th-century poet Ralph Waldo Emerson considered them “an object of much terror.”
• In the mid-18^th century, men who walked the streets using an umbrella would have been pelted with rubbish—even run over with a car.

• In 1876, forcing kids to go to school was “anti-American, anti-Republican, anti-Democratic.” As stated at the time, “It may do in a Monarchy where all is forced and compulsory, but in a free society it is unjust, wrong and unconstitutional.”
• While it is acknowledged today that Coca-Cola is not good for one, in 1911 the government seized 40-barrels of Coke explaining that the beverage was a danger to college girls capable of causing “wild nocturnal freaks, violations of college rules and female proprieties, and even immoralities.”
• In 1920, cocaine and heroin were regularly prescribed by doctors for “depression and against indigestion and with the most brilliant of success.” It was a common ingredient in cough syrup.
• In the early 20^th century, electrifying homes (having light bulbs) was frowned upon and dangerous because it would expose women and children as vulnerable to predators who would be able to tell if they were home because the light would be on, and outsiders “will be able to see them.”
• In 1931, Modern Girl magazine, writing about the newly introduced bikini bathing suits, said; “It is inconceivable that any girl with tact and decency would ever wear such a thing.”
• In 1932, radiation was placed on the skin and was a health drink—a steel mogul drank three bottles of radiation a day until his death.

Take as an example an 1832 Editorial in The Family Monitor, which called bedside reading “little less than tempting God, to sport with the most awful danger and calamity which can affect ourselves and others.” It likely had something to do with candles, which had a tendency to set a sleepy reader ablaze. There were also such things as riding bicycles without helmets, children playing outside all day without supervision, playing stickball in the streets, spanking children, questionably unsafe toys, and numerous other things that are taboo today.
    The point is, as modern thinking and understanding has progressed, people tend to make unfair judgments of past peoples and civilizations that used and did things that are today unacceptable or considered downright wrong or even evil.
    One excellent example is when Joseph Smith founded the Kirtland Safety Society in Ohio. Critics today cast great dispersion on his efforts to build a religious society along the early frontier of Ohio and then Illinois. However, there were certain practices in those earlier days that were not only acceptable but encouraged within the general society, and in most cases, a downright necessity if a new community was to succeed.
    As is shown in the historical events of the Rigdons, Campbells, Owens, Rapps, and the Harmonists and Zoar societies in Ohio, in efforts to build advanced societies among its people. In fact, establishing new communities with clear cut goals and objectives was common in the areas of Ohio, Pennsylvania, Western New York and Illinois in the early 1800s. So was divining for gold or other treasure.
    The Harmonists, under the Utopian leader George Rapp, founded New Harmony, Indiana. As a special community they created a quasi-independent economy of farming and manufacturing and created their own bank to help them do business with the outside world.

In the 1820s the Harmonists sold New Harmony, Indiana, to the wealthy Welsh industrialist, philanthropist, and utopian Robert Owen (left) and his followers the Owenites. Robert Owen had been invited to America by Cornelius Bletchley the author of the Co-operative Commonwealth, a book which proposed a future economy of co-operatives that were self-funded by the working class. So Robert Owen organized much of the industry in his version of New Harmony, Indiana as joint-stock companies functioning as co-operatives.
    In fact, much of the success of the early communities was built in their controlling their own bank and their own currency. This idea was true of Jamestown in Virginia in 1607; Plymouth in 1620 under the Pilgrims; Charlestown, Manhattan, Main, Rhode Island, St. Mary’s, and other colonies who, in contrast to other countries, were not sponsored by governments but by private groups of individuals whose chief motive was profit, which endeavor involved considerable expense and risk—settlers had to be transported over 3000 miles across the sea, and needed utensils, clothing, seed, tools, building materials, livestock, arms and ammunition. All of this, of course, took money.
    Where colonies were set up on their own, the leaders needed to find ways to raise money to support settlement and continued living. Often, this was through creating a quasi-independent economy of farming and manufacturing, and establishing individual banks to allow them to do businesses with the outside world in the selling and trading of their production. Many a town and early settlements and communities failed to succeed in such efforts.
    These earlier quasi-banks were set up at a time when there was no national bank in the United States. Banks published their own currency which only had value in as much as other banks were willing to honor it, and as long as the issuing bank had gold, specie, or land holdings sufficient to reimburse it if the holder wanted to reimburse it at the issuing bank. Without its own source of currency a community’s ability to trade among its own people and with neighboring communities was limited, hindering their economic growth
    In this arrangement, the early Saints settled in Kirtland, Ohio. Almost immediately, the Lord, through the prophet, required the Church to build a temple. The timing was particularly difficult, for in 1841, most of the Church member were poor having lost most of their property when they were chased form Missouri only a year earlier.

    The temple was to be built by tithing Church members, which allowed everyone to participate, and was quickly embraced. The tithing system unified the community as all Church members everywhere could contribute to building the temple. Tithing came in various forms: money, food, clothing, land, livestock, and personal belongings. One woman donated every tenth round of flax to be spun and woven into cloth. Others donated flour, dried pork, clothing, wristwatches, or cash. Many of the donated items were used to pay stonecutters, carpenters, and other skilled craftsmen who worked on the temple.

In fact, able-bodied men who lived in and around Nauvoo were asked to donate their time and labor—one day out of every ten would be spent working on the temple, and at one time approximately one thousand men were donating every tenth day in work on the temple.
    It was only natural, then that in Nauvoo, Joseph Smith and Sidney Rigdon and other Latter-day Saint leaders all saw such a bank as being very important to the development of their community—for without its own source of currency a community’s ability to trade amongst its own people and with neighboring communities was limited, hindering their economic growth. Thus they attempted to establish a bank, however, the state of Ohio denied them a bank charter. As a result, non-Mormon legal counsel suggested that they form a quasi-bank like the labor-value co-operative at the Owenite New Harmony or the Cincinnati Time Store. As a result, they created the Kirtland Safety Society as a quasi-banking institution that published and backed its own currency.
    While proposed as a bank in 1836, it was eventually organized on January 2, 1937, as a joint stock company, with “Articles of Agreement” intended to serve the financial needs of the growing Mormon community in Kirtland, with a preamble that 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.”
    Unfortunately, as time well showed, the Kirtland bank did not have enough funding for a crisis, and when the Panic of 1837, which had both domestic and foreign origins, hit the United States financial markets, touching off a major recession that lasted until the mid-1840s, the Kirtland bank as well as half of the banks in the US. failed. During this time, profits, prices, and wages went down while unemployment went up, and pessimism abounded.

Kirtland Safety Society Bank Five Dollar Note, signed by Joseph Smith and Sidney Rigdon 

When the bank failed, less than a year after its formation and a few months after Joseph Smith had backed out of the institution, it became insolvent in November and its business closed. Unfortunately, many bankrupted members left the church because they believed Joseph Smith had established the bank in order to enrich himself and the Mormon leadership. These and others began criticizing the prophet and calling him a con man—a label well publicized by enemies of the Church.
    However, the circumstance of the events held true to the events of the time, and the results that hit almost all of the small communities and their quasi-banks, as well as nearly half of the nations established banks. In Nauvoo between 1832 and 1837 there had been a rapid increase in land prices, with the average price per acre of land sold rising from about $7 in 1832 to $44 in 1837, only to fall back to $17.50 in 1839. Generalized inflation during the period accounted for between 25 and 40 percent of the price increase. Although the church held considerable real estate, estimated at approximately $60,000 in equity, it also needed liquidity to repay outstanding loans. The credit needs of the church, growing population and ongoing land transactions had, of course, required a local bank—and like almost all banks in the United States in the period before the Civil War, they issued and often backed their own currency.
    Because of widespread banking speculation, fraud, counterfeiting and gamblers, Joseph Smith warned after resigning from the bank in the August 1837 Messenger: “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, defectors 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.”
    Judging such matters, or even evaluating them against a different time frame, such as today, requires a a naïveté or a willful ignorance of the historical context, and requires a willful misunderstanding of the cultural and social environment of the period. It may make for great propaganda but it would be terribly in accurate history.