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Bringing "Honest Capital" to Poor Borrowers: The Passage of the Uniform Small Loan Law, 1907-1930

Author

Listed:
  • Bruce G. Carruthers

    (Northwestern University)

  • Timothy W. Guinnane

    () (Economic Growth Center,Yale University)

  • Yoonseok Lee

    (University of Michigan)

Abstract

The Uniform Small Loan Law (USLL) was the Russell Sage Foundation’s primary device for fighting what it viewed as the scourge of high-rate lending to poor people in the first half of the twentieth century. The USLL created a new class of lenders who could make small loans at interest rates exceeding those allowed for banks under the normal usury laws. About two-thirds of the states had passed the USLL by the 1930. This paper describes the USLL and then uses econometric models to investigate the state characteristics that influenced the law’s passage. We find that urbanization and state-level economic characteristics played significant roles. So did measures of the state’s banking system. We find no evidence that party-political affiliations had any effect, which is consistent with the USLL’s “progressive” character. Finally, we find little evidence that the passage of the USLL in one state made passage more likely in neighboring or similar states. If anything, the cross-state influences were negative. Our findings suggest that the Russell Sage Foundation only imperfectly understood the political economy of the USLL, and that a different overall approach might have produced a result closer to their aims.

Suggested Citation

  • Bruce G. Carruthers & Timothy W. Guinnane & Yoonseok Lee, 2009. "Bringing "Honest Capital" to Poor Borrowers: The Passage of the Uniform Small Loan Law, 1907-1930," Working Papers 971, Economic Growth Center, Yale University.
  • Handle: RePEc:egc:wpaper:971
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    File URL: http://www.econ.yale.edu/growth_pdf/cdp971.pdf
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    References listed on IDEAS

    as
    1. Fishback, Price V. & Kantor, Shawn Everett, 1998. "The Political Economy of Workers' Compensation Benefit Levels, 1910-1930," Explorations in Economic History, Elsevier, vol. 35(2), pages 109-139, April.
    2. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
    3. Hugh Rockoff, 2003. "Prodigals and Projecture: An Economic History of Usury Laws in the United States from Colonial Times to 1900," NBER Working Papers 9742, National Bureau of Economic Research, Inc.
    4. Mahoney, Paul G, 2003. "The Origins of the Blue-Sky Laws: A Test of Competing Hypotheses," Journal of Law and Economics, University of Chicago Press, vol. 46(1), pages 229-251, April.
    5. Olney, Martha L., 1989. "Credit as a Production-Smoothing Device: The Case of Automobiles, 1913–1938," The Journal of Economic History, Cambridge University Press, vol. 49(02), pages 377-391, June.
    6. repec:cup:apsrev:v:14:y:1920:i:03:p:458-460_01 is not listed on IDEAS
    7. Rolf Nugent, 1934. "Small Loan Debt in the United States," The Journal of Business, University of Chicago Press, vol. 7, pages 1-1.
    8. repec:cup:apsrev:v:32:y:1938:i:06:p:1082-1098_03 is not listed on IDEAS
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    Cited by:

    1. Mary Eschelbach Hansen, 2014. "Sources of Credit and the Extent of the Credit Market: A View from Bankruptcy Records, Mississippi 1929-1936," Working Papers 2014-09, American University, Department of Economics.
    2. Hansen, Mary Eschelbach & Hansen, Bradley A., 2012. "Crisis and Bankruptcy: The Mediating Role of State Law, 1920–1932," The Journal of Economic History, Cambridge University Press, vol. 72(02), pages 448-468, June.

    More about this item

    Keywords

    Uniform law; small loans; consumer credit; usury laws;

    JEL classification:

    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law

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