The Economics of Usury Regulation

Blitz, Rudolph C.; Long, Millard F.

doi:10.1086/259087

Cited by 57 publications

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“…While early rules often outlawed the taking of interest altogether, later restrictions stipulated maximum permissible interest rates. To the present day, many developing and Islamic countries and US states impose limits on private loan contracts to stamp out predatory lending by ‘credit sharks’; only recently Italy re‐introduced a law against usurious credit contracts (Glaeser and Scheinkman, 1998; Blitz and Long, 1965; Homer and Sylla, 1996).…”

mentioning

confidence: 99%

Interest Rate Restrictions in a Natural Experiment: Loan Allocation and the Change in the Usury Laws in 1714

Temin

Voth

2008

The Economic Journal

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If financial deepening aids economic growth, then financial repression should be harmful. We use a natural experiment -the change in the English usury laws in 1714 -to analyze the effects of interest rate restrictions. We use a sample of individual loan transactions to demonstrate how the reduction of the legal maximum rate of interest affected the supply and demand for credit. Average loan size and minimum loan size increased strongly, and access to credit worsened for those with little 'social capital.' While we have no direct evidence that loans were misallocated, the discontinuity in loan receipts makes this highly likely. We conclude that financial repression can undermine the positive effects of financial deepening.

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confidence: 99%

Interest Rate Restrictions in a Natural Experiment: Loan Allocation and the Change in the Usury Laws in 1714

Temin

Voth

2008

The Economic Journal

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“…Hume [1752] (198), p 228 note 7, where he distinguishes between real and perceived stability. One of the expressions of the idea of sterility of money is the general aversion to interest, experienced from the Babylonian code of Hammurabi of 1800 BC (Blitz and Long 1965;see also Homer 1963) through Christianity (Nelson 1969) to modernity. The prohibition of interest could be justifiable, following the ancient tradition, as an 'illicit modification of a standard of valuation,' and therefore, in Scholastic wording (which relies heavily on the Aristotelian works), as a logical sin (Pribram 1983).…”

Section: Resultsmentioning

confidence: 99%

David Hume on Monetary Policy: A Retrospective Approach

Paganelli

2009

J Scottish Philosophy

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Monetary policy is a modern idea of which David Hume is generally considered a precursor. Moreover, thanks to Milton Friedman and Robert Lucas, he is often presented as one of the first and most illustrious endorser of monetarism. This paper argues against this view, and in agreement with Joseph Schumpeter, that Hume's contribution to economics, while not insignificant, cannot claim any real novelties. It offers an interpretation of Hume as a descendant of a pre-modern understanding of money rather than a forerunner of modern monetary ideas, and as a scholar exposing common ideas of his time rather than a prophet of economic theories developed centuries later, and argues that there is little in Hume that resembles today's monetary policy prescriptions.

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“…Most of the literature dates from the 1970s and early 1980s when, partly because of inflation, there was significant popular dissatisfaction with usury laws. In an early work, Blitz and Long (1965) apply economic theory to usury regulation and generate testable predictions for its effects.…”

Section: Previous Empirical Evidencementioning

confidence: 99%

The Effects of Usury Laws: Evidence from the Online Loan Market

Rigbi

2013

The Review of Economics and Statistics

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Usury laws cap the interest rates that lenders can charge. Using data from Prosper.com (an online lending marketplace), I show how interest rate caps affect 1) the probability that a loan is funded 2) the amount a borrower requests 3) the interest rate at which a loan is funded, and 4) loan repayments. The key to my empirical strategy is that there was initially substantial variability in states' interest rate caps, in which Prosper borrowers from different states faced different caps ranging from 6 to 36%. A behind-the-scenes change in loan origination suddenly increased the cap to 36% in all but one state. This change, which was not pre-announced, created "treatment" states whose caps rose and few control states whose caps remained unchanged. I find that higher interest rate caps increase the probability that a loan be funded, especially if its borrower is risky and had been previously * This is a revised version of chapter 1

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The Economics of Usury Regulation

Cited by 57 publications

References 0 publications

Interest Rate Restrictions in a Natural Experiment: Loan Allocation and the Change in the Usury Laws in 1714

Interest Rate Restrictions in a Natural Experiment: Loan Allocation and the Change in the Usury Laws in 1714

David Hume on Monetary Policy: A Retrospective Approach

The Effects of Usury Laws: Evidence from the Online Loan Market

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