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The Political Economy of Financial Regulation: Evidence from U.S. State Usury Laws in the 19th Century
Author(s) -
BENMELECH EFRAIM,
MOSKOWITZ TOBIAS J.
Publication year - 2010
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2010.01560.x
Subject(s) - usury , economic rent , politics , state (computer science) , enforcement , economics , political economy , power (physics) , market economy , law , political science , philosophy , physics , theology , algorithm , quantum mechanics , islam , computer science
Financial regulation was as hotly debated a political issue in the 19th century as it is today. We study the political economy of state usury laws in 19th century America. Exploiting the wide variation in regulation, enforcement, and economic conditions across states and time, we find that usury laws when binding reduce credit and economic activity, especially for smaller firms. We examine the motives of regulation and find that usury laws coincide with other economic and political policies favoring wealthy political incumbents, particularly when they have more voting power. The evidence suggests financial regulation is driven by private interests capturing rents from others rather than public interests protecting the underserved.