Evading the Taint of Usury

Abstract:     
The development of capital markets in medieval Europe was shaped for centuries by the religious ban on lending money at interest. This paper examines how this prohibition developed as the outcome of strategic behavior by religious, commercial and political elites. A model is developed to analyze this hypothesis and to examine how the usury prohibition developed over time. It suggests that an important reason for the persistence of the ban was that it created a barrier to entry that enabled secular rulers, the Church, and a small number of merchant-bankers to earn monopoly rents.

Number of Pages in PDF File: 55

Keywords: usury, transaction costs, regulatory capture, competition

JEL Classification: N23, G21

working papers series