The Political Economy of Financial Regulation: Evidence from U.S. State Usury Laws in the 18th and 19th Century

57 Pages Posted: 17 Mar 2006

See all articles by Efraim Benmelech

Efraim Benmelech

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)

Tobias J. Moskowitz

Yale University, Yale SOM; AQR Capital; National Bureau of Economic Research (NBER)

Date Written: March 2006

Abstract

We study the political economy of financial regulation by examining the determinants and effects of U.S. state usury laws during the 18th and 19th centuries. We argue that regulation is the outcome of private interests using the coercive power of the state to extract rents from other groups. We find that strictness of usury coexists with other exclusionary policies such as suffrage laws and lack of general incorporation or free banking laws, which also respond less to competitive pressures for repeal. Furthermore, the same determinants of financial regulation that favor one group and limit access to others, are associated with lower future economic growth rates, highlighting the endogeneity of financial development and growth.

Keywords: Financial Development, Regulation, Usury

JEL Classification: G38

Suggested Citation

Benmelech, Efraim and Moskowitz, Tobias J., The Political Economy of Financial Regulation: Evidence from U.S. State Usury Laws in the 18th and 19th Century (March 2006). AFA 2007 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=891663 or http://dx.doi.org/10.2139/ssrn.891663

Efraim Benmelech (Contact Author)

Northwestern University - Kellogg School of Management ( email )

Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Tobias J. Moskowitz

Yale University, Yale SOM ( email )

New Haven, CT 06520
United States

HOME PAGE: http://som.yale.edu/tobias-j-moskowitz

AQR Capital ( email )

Greenwich, CT
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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