Population and Bank Support

In their 1977 paper, Hill et al. The Kirtland Economy Revisited (BYU Studies Vol 17, 4, Article 2) argued that the idea of founding a bank such as the Kirtland Safety Society was an appropriate idea based on the size of Kirtland and the number of other banks in existence in other communities.

Kirtland at this time was one of the larger communities in northern Ohio---a number of smaller communities already possessed banks. Judging from the successful experience of other banks in Ohio, one with as little as $20,000.-- in paid-up capital, Kirtland probably could have supported a modest bank. (433)

In a footnote they go on to enumerate some of the locales with banks that Hill et al had in mind.

... smaller banks in northern Ohio included Warren (3), Ravenna (2), Canton (2), Salem, Youngtown, Elysia, Ashtabula, and Cuyahoga Falls. Cleveland, which had perhaps twice as many people [as Kirtland, RCK] had eleven [sic RCK] banks. (433 Fn 61)

In my dissertation,  where I discuss this argument (246), I argued that this exposition was misleading on multiple grounds. But in order to fully counter the claim by Hill et al, one needs to first explicate the argument structure. And in order to explicate the argument structure, we need to make clear that this argument is trying to support the larger notion that the creation of a bank, as endeavored by the Church leadership in 1836 was a reasonable thing to undertake and had all of the appearances of success on its side. 

So the argument structure goes something like this:

• Warren had a smaller population than Kirtland.
• Warren had three banks.
• Raven had a smaller population than Kirtland.
• Warren had two banks.
• Canton had a smaller population than Kirtland.
• Canton had two banks.
• Salem (Ohio) had a smaller population than Kirtland.
• Salem had one bank.
• Elysia had a smaller population than Kirtland.
• Elysia had one bank.
• Ashtabula had a smaller population than Kirtland.
• Ashtabula had one bank.
• Cuyahoga Falls had a smaller population than Kirtland.
• Cuyahoga Falls had one bank.

The inductive leap of this assumption then is that towns with smaller populations than Kirtland had between one and three successful banks in 1836. We will call this argument Min1-3

(Note: The bank of West Union, which is the one of $20,000 capitalization, is not in this list. Perhaps it was not possible to arrive at population data for West Union?)

The argument in the case of Cleveland goes in the other direction.

• Cleveland had double the population of Kirtland.
• Cleveland had twelve banks.

The inductive leap here is that Kirtland should be able to support six successful banks. We will call this argument Max6.

Combining these two inductive leaps Min1-3 and Max6, we can now create another inductive leap, to wit:

• Kirtland's population sized should have supported at least one to three banks (Min1-3) and possible as many as six banks (Max6).

We will call this argument Kirtland-1-3-6. 

Hill et al are arguing that the Church leadership made this same sequence of inductive leaps. They have no documentary proof for this, but it is a reasonable imposition: the members of the Church leadership were well connected with political leaders and the legislature; furthermore, they had taken out loans before and engaged in real estate speculation, a task that required banking connections during the boom times of the federal land sales [RCK15, 248f]. Assuming Kirtland-1-3-6 and the absence of any banks in Kirtland in 1836, at all, it was a reasonable idea to found one and to expect it to succeed.

The first problem is that the argument is prefixed by the assumption that Hill et al interpreted the data given in Coover correctly. Unfortunately, as I argued in my dissertation [RCK15, 247], that is not the case. Coover's list gives all the banks known for Ohio between 1803 and 1866, not just the banks operating in 1836 time. In fact, since Coover was a collector of banknotes, all that can be said is that at some point someone issued a note with the name of a bank located in one of these cities (and some people made notes for non-existent banks, as Coover pointed out). 

As I pointed out in my dissertation [RCK15, 247], the following banks have to be removed from the list, because we know nothing about when and how successfully they operated:

• Two of the three banks in Warren.
• Both banks in Ravenna.
• One of the banks in Canton.
• The bank in Salem.
• The bank in Youngstown.
• The bank in Elysia.
• The bank in Ashtabula.
• The bank in Cuyahoga Falls.
• Ten of the twelve banks in Cleveland.

In terms of inductive evidence that is a slaughter. 

But there are further problems. There are two key unstated assumptions in this argument:

1. Population size is a good predictor for bank success.
2. Past success is a good predictor for future success.

The first is wrong on the observation, as spelled out in my dissertation, that a lot of the money in Ohio banking was from out-of-state, both financiers of the East Coast [RCK15, 244] as well as Europeans doing import/export business with the United States. In the 1830s, the United States was effectively a third-world country, running a huge trade deficit on its import of goods and export of raw and somewhat processed materials. Because these problems were common to all of the frontier states, the situation was the same in Michigan for example.

The second one seems like a reasonable slogan, but one could only have agreed to that assumption with respect to a bank if one was ignorant of the then-brewing storm regarding small bills in general (New Jersey and Maine in 1835 forbidding small bills, Virginia & Maryland & Pennsylvania purging small bills from their monetary system at the same time). Furthermore, the no-bank Democrats had just won dominance in the legislature of Ohio, they had been cool on charters for bank for a while now, and they had passed no charters in 1836 by the summer, pointing to the unused potential for capitalization in the existing charters [RCK15,234f]. Ohio was also pressuring its bank during the spring of 1836 with threats of taxation should they not strive to remove the small bills from circulation, with all $3 bills phased out by July 4, 1836. 

Perhaps even more importantly, President Andrew Jackson on July 11, 1836 had issued his famous specie circular via the Treasury, which eliminated local banknotes as method of payment for purchasing federal lands and insisted on hard specie. Professional cashiers left the frontier banks after this circular, unless their fianciers promised additional monetary support, as Henry Dwight of Massachusetts did to H.K. Sanger, who was cashier at the Bank of Michigan [RCK15,244].

Post Scriptum

It is not entirely clear when the Church leadership decided to go ahead with the plan for the Kirtland Safety Society. Oliver Cowdery was already traveling to New York to inquire into credit for printing plates in August of 1836. The revelation promising resolution to the financial plights (v5) that is now Doctrines & Covenants 111 was given in Salem, Massachusetts, August 6th, 1836. The letter that reports the decision was printed in the Messenger & Advocate in September 1836.  

Points that I did not make clear with reference to this argument in my dissertation include that the Kirtland Safety Society was anything but modest [RCK15, 250], and the number of Cleveland banks in the research by Coover on Ohio Banking Institutions from 1913, on which the observations were based, is twelve not eleven.