NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Hugh Rockoff

NBER Working Paper No. 9742
Issued in June 2003
NBER Program(s):   DAE

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 The laws were eased during the early national period, and in many states they were repealed, although the United States never completely abandoned its system of usury laws.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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Published: Eltis, David, Frank D. Lewis and Kenneth L. Sokoloff (eds.) Human Capital and Institutions: A Long-run View. New York: Cambridge University Press, 2009.

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