The Political Uses of Debt and Mormon History

January 30, 2009 | 9 comments
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Yesterday’s discussion got me thinking about debt, in particular the political uses of debt.  Here, I think that the experience of the American Revolution and the failure of the Confederacy may have something to tell us about Mormon history.

Consider, for example, the success of the American Revolution.  In the dark days of the American cause was kept alive in large part by a trickle of guns and money that came from Holland via the Dutch controlled island of St. Eustatius.  American envoys in Amsterdam had succeeded in selling bonds issued by the Continental Congress to Dutch investors.  The money generated from these bonds was then used to purchase weapons, which were shipped out in Dutch bottoms to the Caribbean, where they were transferred to American ships that then ran the British blockade into the colonies.  The sale of the bonds — that is the indebtedness of the nascent American government — was extremely important for two reasons.  First and most immediately it helped the Continental army to arm and equip itself.  Second and perhaps more importantly it created a powerful constituency within Dutch society in favor of independence.  Hard-headed Dutch investors who didn’t give a fig for the American cause on ideological grounds nevertheless began putting pressure on the Dutch government to help the revolting colonials.  The only way that their highly speculative American bonds would pay was if the Americans succeeded.  In contrast, a British victory would guarantee a total loss.

During the Civil War the Confederacy unsuccessfully pursued the same policy.  They issued bonds to finance their war.  The bonds were mainly sold to British and French speculators.  The hope was that not only would the debt create immediate revenue for their cause, but it would also create a political constituency in Europe that would pressure the French and especially the British government to support the Confederacy.  It almost worked, but not quite.  The costs of English involvement in the Civil War were too high both in military terms and in domestic political terms.  The English middle and lower classes were not eager to go to war on behalf of southern slave-owners in order to protect the investments of City bond holders.  Also, by the mid-nineteenth century the English securities markets were deep enough that a proportionally smaller share of the capital in place was parked in speculative Confederate bonds, as compared with the Dutch markets the century before.

There is, I think, a similar story that can be told of Mormon debt.  During the final two decades of the nineteenth century, the Church began taking on increasing amounts of debt by issuing bonds to speculators in New York and California.  As I understand it, this was done mainly to prop up Church owned industries that were taking a hit from a combination of general economic down turns, the transformation of the western economy (many businesses founded during the pre-railroad days of expensive transport no longer worked in the post-railroad days of cheap freight), and a drop in tithing income caused by the economic disruption of the anti-polygamy Raid of the 1880s.  Today Mormons learn about this debt mainly through the church-produced movie “The Windows of Heaven” about Lorenzo Snow’s re-emphasis on the law of tithing.  The debt, however, had — I think — an ironically salutary effect on the political position of the Church.  In the late 1880s and 1890s, Mormons had comparatively few political friends.  The issuance of Church bonds, however, did give Mormon emissaries entre into the financial centers of the East, and, perhaps more importantly, gave powerful men in those centers a strong incentive to protect the Church from destruction.  After all, the end of Mormonism meant that they would not get paid.  It was in part through these political channels that the First Presidency was able to broker the deal for Utah statehood in the 1890s.  It also meant that the Wall Street wing of the Republican party in effect tempered the ideologically driven anti-Mormon wing of the Republican party  This, in turn, helped to pour oil on the troubled Mormon political waters of the 1890s.  In short, the existence of Mormon debt probably played an important role in negotiating the integration of Mormons into the American political mainstream.

9 Responses to The Political Uses of Debt and Mormon History

  1. Adam Greenwood on January 30, 2009 at 11:25 am

    What does this tell us about the Church’s current emphasis on keeping Church businesses out of debt? For one, that we can afford to, both politically and financially.

  2. Frank McIntyre on January 30, 2009 at 11:43 am

    That’s a great story. How well do we know that the Mormon debt holders were politically influential and also, influenced by the Mormon debt they held? I’m just curious what kinds of sources are available on that and you obviously would know much better than I.

  3. Nate Oman on January 30, 2009 at 11:55 am

    Actually, I am mainly making this up ;->. The best source for back channel political manuevering by Mormon leaders in the 1880s and 1890s is Lyman’s _Political Deliverance_. Also, Ron Walker’s _Qualities that Count_ has a nice chapter on Heber J. Grant’s involvment in negotiations over Church debts in the 1890s. The debt-as-inadvertant-Mormon-political-commitment-device is, as far as I know, unique to this post. It would be fun sometime to nail down the details of the characters involved to see how big of a role it played. Lyman, however, makes it pretty clear that politically well-connected GOP financiers played a key role in Utah statehood.

  4. bfwebster on January 30, 2009 at 4:51 pm

    As I recall from the Pres. McKay biography, the Church actually had a similar problem with expenditures and debt in the 1950s, and Pres. McKay finally took steps to put the Church on a firm financial footing. ..bruce..

  5. Nate Oman on January 30, 2009 at 4:53 pm

    The church did get into a lot of financial trouble in the mid-twentieth century, although as I understand it the one who really got the church finances fixed was President N. Eldon Tanner.

  6. Mark Brown on January 30, 2009 at 6:14 pm

    Frank,

    You can read a pretty good summary by Ron Walker of the church’s borrowing from New York’s banks here:

    https://www.sunstonemagazine.com/pdf/019-26-34.pdf

    The church needed cash badly, and new apostle Heber J. Grant was given the task of securing loans. In order to borrow, he was required to offer the lenders shares in Zion’s Bank and ZCMI as collateral. So, I think Nate is absolutely right, in the 1890s, the financial markets had a very serious interest in seeing the church succeed.

  7. Aaron on January 31, 2009 at 7:21 am

    It is also my understanding that Pres. Tanner was the one who guided the church out of financial trouble and modernized the whole financial apparatus of the church, sort of brought it into the 20th century. Kind of ironic, since he was a Canadian who had been active in the suspicious-sounding Social Credit Party.

  8. Adam Greenwood on January 31, 2009 at 12:24 pm

    Social credit? That just leads to people shorting your popularity and then spreading nasty rumors about you.

  9. woodboy on January 31, 2009 at 2:18 pm

    Make sure to hedge with a Popularity Swap where the counterparty is cooler than you in that case.