Kirtland Safety Society

Failed banking venture had long-term ramifications

The Kirtland Safety Society, a failed banking venture in Ohio of Joseph Smith and other Church leaders, a casualty of the nationwide financial panic of 1837, had long-term ramifications, including the eventual ownership of the Kirtland Temple, a legal expert in the Joseph Smith Papers Project told a Sons of Utah Pioneers Symposium audience May 12.

Jeffrey N. Walker, an attorney and instructor at the J. Reuben Clark Law School at BYU, is the associate managing editor of the project and series manager and co-editor of the Joseph Smith Papers' Legal and Business Records.

"Certainly there were enormous financial losses and long-term antagonism about the venture," Brother Walker said regarding the Kirtland Safety Society, "but I think few have really tried to go behind it to really understand what it was, how it worked, how it fit into the very fabric of early 19th century community-building."

He placed it in the context of the issue of states' rights vs. federal power that was going on at the time. The administration of U.S. President Andrew Jackson was endeavoring to do away with the national banking system.

"In addition," he said, "You have to understand what's happening in Kirtland, one of the boom towns."

Between 1830 and 1837, land prices in the city increased 500 percent and food prices 100 percent, Brother Walker noted. "Because of the missionary work that the Mormons were engaged in it became a gathering spot, and so you had a lot of people coming in to participate in the boom. Consequently, you had a tremendous crunch for money and an incredible soaring of inflation,"

The cost of constructing the Kirtland Temple in the 1830s was one reason Church leaders saw the need
The cost of constructing the Kirtland Temple in the 1830s was one reason Church leaders saw the need to establish a local bank. Fifteen years after Joseph Smith's death, the temple was sold as part of a probate settlement stemming from the failure of the Kirtland Safety Society. | Intellectual Reserve Inc.

Moreover, the Kirtland Temple was being built, presenting a debt to the Church of between $30,000 and $40,000, Brother Walker explained.

Starting a local bank presented itself as a possible solution that would convert Church members' land wealth into liquid assets that could be used to build the economy. "At the time there were over 1,600 local banks in America," he said. "This was not a novel, unique, experimental, extravagant or bizarre concept."

But political dynamics prevented Church leaders from obtaining a bank charter, largely because of competition from the city of Painesville, 20 miles away, which aspired to be the economic hub that Kirtland was becoming.

Frustrated in that endeavor, they instead converted their venture into the Kirtland Safety Society, a joint stock company that differed from a bank in that the directors were liable for all of the loans. In one last attempt to get into the banking business, they bought a controlling interest in the Bank of Monroe in Michigan with the intent that the Kirtland Safety Society would become a branch of that bank.

Almost immediately thereafter, the panic of 1837 hit Wall Street in New York. Every bank in America failed, including the Bank of Monroe.

Meanwhile, the Church was confronted by an adversary, Grandison Newell of Painesville. Brother Walker said Newell didn't like the Mormons "because we were going to remove his chance at having Painesville be the center" of prosperity in Ohio. His efforts to financially cripple the Church included trying to cause a run on the Kirtland Safety Society. Ultimately, that did not matter, because the society failed with other banking institutions during the panic.

In the aftermath, Newell, using his employee Samuel Rounds as a "straw man," filed a qui tam action, or citizen lawsuit, against the Church leaders over the failure of the society, a type of legal maneuver alleging harm done to the community. Under the law, a victorious plaintiff could split the proceeds of the suit half-and-half with the government.

The Church leaders lost the suit, though they appealed. "My feeling is had they pursued it, they would have had an absolute slam dunk on appeal," Brother Walker said. But by then, it was necessary to move the Church headquarters from Ohio to Independence, Mo.

So Newell pursued collections against the Church leaders, pocketing not only his share of the $2,000 judgment but the half that should have gone to the state.

"This should have been the end of the case," Brother Walker said, "but of course, bad people do bad things."

Fifteen years after the death of Joseph Smith, Newell went to the state legislature and got them to revive the judgment and assign him the government's half, which he had already collected. With that concession, Newell and associates pursued the Kirtland Temple property on probate, then sold it, with the property eventually ending up in the hands of the Reorganized Church of Jesus Christ of Latter Day Saints, now the Community of Christ.

Despite the twists and turns in the saga, Brother Walker said they don't take away from the legacy of the temple and its sacred history, and he sees the hand of Providence in its preservation.

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