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Prodigals and Projecture: An Economic History of Usury Laws in the United States from Colonial Times to 1900

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  • Hugh Rockoff

Abstract

During the Colonial era usury laws in the United States were strict both in terms of the maximum rate that could be charged and the penalties that would be imposed. In Massachusetts in eighteenth century, for example, the maximum rate was 6 percent, and both principal and interest were forfeited if usury could be proved against the lender. The laws were eased during the early national period, and in many states they were repealed, although the United States never completely abandoned its system of usury laws. By 1870, when a limited reaction set in, the liberalization had reached the point where the great bulk of commercial transactions must have been largely unaffected by the usury laws, at least in non-crisis years. Two factors seem to have been paramount in producing the liberalization: changes in ideas about the effectiveness of government regulation in general and about the effectiveness of usury laws in particular, and competition among the states for capital. This history suggests that the usury laws, when tightly drawn, may have had a larger impact than economic historians have generally recognized.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9742.

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Date of creation: Jun 2003
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Publication status: published as Eltis, David, Frank D. Lewis and Kenneth L. Sokoloff (eds.) Human Capital and Institutions: A Long-run View. New York: Cambridge University Press, 2009.
Handle: RePEc:nbr:nberwo:9742

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  1. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  2. John H. Munro, 2001. "The Origins of the Modern Financial Revolution: Responses to Impediments from Church and State in Western Europe, 1200 - 1600," Working Papers munro-01-02, University of Toronto, Department of Economics.
  3. Eugene White, 1999. "California Banking in the Nineteenth Century: The Art and Method of the Bank of A. Levy," Departmental Working Papers 199905, Rutgers University, Department of Economics.
  4. Rudolph C. Blitz & Millard F. Long, 1965. "The Economics of Usury Regulation," Journal of Political Economy, University of Chicago Press, vol. 73, pages 608.
  5. Samuel Rezneck, 1950. "Distress, Relief, and Discontent in the United States during the Depression of 1873-78," Journal of Political Economy, University of Chicago Press, vol. 58, pages 494.
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  7. Maria Pia Paganelli, 2003. "In Medio Stat Virtus: An Alternative View of Usury in Adam Smith's Thinking," History of Political Economy, Duke University Press, vol. 35(1), pages 21-48, Spring.
  8. Snowden, Kenneth A., 1987. "Mortgage Rates and American Capital Market Development in the Late Nineteenth Century," The Journal of Economic History, Cambridge University Press, vol. 47(03), pages 671-691, September.
  9. Howard Bodenhorn & Hugh Rockoff, 1992. "Regional Interest Rates in Antebellum America," NBER Chapters, in: Strategic Factors in Nineteenth Century American Economic History: A Volume to Honor Robert W. Fogel, pages 159-187 National Bureau of Economic Research, Inc.
  10. Jadlow, Joseph M, 1977. "Adam Smith on Usury Laws," Journal of Finance, American Finance Association, vol. 32(4), pages 1195-1200, September.
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Cited by:
  1. Ager, Philipp & Spargoli, Fabrizio, 2013. "Bank Deregulation, Competition and Economic Growth: The US Free Banking Experience," MPRA Paper 49269, University Library of Munich, Germany.
  2. Caruthers, Bruce G. & Guinnane, Timothy W. & Lee, Yoonseok, 2009. "Bringing "Honest Capital" to Poor Borrowers: The Passage of the Uniform Small Loan Law, 1907-1930," Working Papers 63, Yale University, Department of Economics.
  3. Peter Temin & Hans-Joachim Voth, 2005. "Financial Repression in a Natural Experiment: Loan Allocation and the Change in the Usury Laws in 1714," Working Papers 209, Barcelona Graduate School of Economics.

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