Where do characters come from?

The article above is from the Boston Medical and Surgical Journal and describes how, in 1840, a person came to the Erie County Poorhouse claiming to be a hermaphrodite and that this affliction made it hard to find work.  I found this interesting for a variety of reasons.  First, I thought it unusual that the average person in the early nineteenth century would be familiar with such a rare condition, which lead me to assume that the individual making the claim was far from average.  Also, how desperate would a person have to be to admit to such a condition?  Now remember, this was the early nineteenth century and even in a city growing as fast as Buffalo was at the time, there were still plenty of superstitious folks who would have thought the person cursed, or worse.  It was risky and downright dangerous  to have made such a claim and the individual left himself or herself vulnerable to potential abuse and even violence from the other inmates (however, it is interesting to note that no such abuse was reported in this article).

My original intention was to mention him/her as an incidental character to illustrate the wide range of interesting people who passed through the poorhouse at any given time.  However, my beta readers liked the character and suggested that I develop this particular thread of the story more. I started with the assumption that Michael/Michelle Ketchum was educated and highly motivated to follow through on a preconceived plan, thus the character was willing to do some less than honorable things to achieve these goals.  He/she had a secret, beyond whether or not he was also a she, and was desperate to keep it.  However, I decided that this character had limits in terms of what he or she would do to maintain this mysterious persona.  From there I added some made up details about the character's past, a real life like-minded scholar as a friend and colleague, and some historical facts for color.  I ended up with a fascinating story thread that my readers loved.  Now that Orphans and Inmates is out, many readers have asked if the adventures of Michael/Michelle will continue on in the next book.  I tell them that they will find out in about five months when the second book is released!