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Fact check: When did interest start in the US?
Executive Summary
Interest-bearing lending in what became the United States has documented roots in the Colonial era, when colonies enacted and enforced usury laws that capped allowable interest rates and shaped lending practices; scholars link these laws to rates such as 6 percent in Massachusetts during the 18th century and trace legal and economic change through the 19th century [1] [2]. Historical and empirical work also shows that usury regulation was politically consequential, used by incumbents to restrict entry and influence competition in financial markets across U.S. states during the 1800s [3]. Taken together, the evidence establishes that American interest-bearing credit and formal regulation of interest began well before independence and continued evolving through the 19th century as political and economic institutions adjusted [1] [2] [3].
1. How the Colonial Era Set the Stage for American Interest-Bearing Credit
Colonial records and modern economic histories document that interest and its regulation were present throughout British North America, with colonies adopting formal usury statutes that limited the maximum rate lenders could charge. Research synthesizing legal and economic sources shows specific caps—for example, an 18th-century Massachusetts maximum often cited at 6 percent—illustrating that colonial governments treated interest rates as public policy tools rather than purely market outcomes [1] [2]. These statutes emerged amid broader colonial commercial practices where merchants, planters, and artisans regularly extended credit; the presence of legal caps indicates governments sought to balance credit availability with social norms about fairness and debt. The historical scholarship frames these laws not as peripheral curiosities but as foundational elements that shaped early American credit markets and expectations about the legitimacy of interest.
2. The Scholarly Account: Usury Laws Through 1900 and Their Economic Role
Comprehensive treatments by economic historians chart the trajectory of usury laws from Colonial times through the 19th century and into 1900, arguing that these statutes influenced contract enforcement, credit supply, and financial innovation. Detailed chapters synthesize archival evidence and legal change, showing that while the specific ceiling rates and enforcement intensity varied across colonies and later states, the overall pattern was persistent regulation that constrained lender behavior and sometimes spurred work-arounds or contractual complexity [2]. These accounts emphasize that the existence of ceilings did not eliminate interest but instead shaped its institutional forms—affecting how loans were priced, which borrowers gained access to formal credit, and how markets adapted when statutory ceilings became binding.
3. Political Economy: Who Benefited from Usury Restrictions in the 19th Century
Empirical research into U.S. state usury laws during the 19th century finds that regulation was politically instrumental, often deployed by politically dominant groups to control market entry and limit competitive pressures on credit providers. Quantitative investigations link changes in usury statutes to the interests of incumbents, showing that legal ceilings could be used strategically to disadvantage challengers or to protect established lenders from new competition [3]. This line of work reframes usury laws as tools within political-economic contests, not simply as neutral consumer protections, and demonstrates that the historical evolution of interest regulation intertwined with partisan and economic power struggles at the state level.
4. Continuities and Changes: From Colonial Caps to 19th-Century Complexity
The historical record and scholarly syntheses together reveal a narrative of continuity in regulation accompanied by evolving enforcement and circumvention mechanisms. Early fixed caps such as the Massachusetts 6 percent ceiling provided a template, but as commerce expanded and financial transactions grew more complex, both lenders and courts developed mechanisms—contractual clauses, grace periods, or legal interpretations—that altered effective pricing and access to credit [1] [2]. By the 19th century, state-level variation and the political economy dimension meant that interest regulation became a patchwork reflecting local power structures and economic needs. Thus, while interest-bearing lending existed from colonial times, its governance adapted continually in response to economic growth and political incentives.
5. What These Findings Mean for Understanding “When Interest Started” in the U.S.
The evidence clarifies that asking when interest “started” in the U.S. conflates two distinct facts: the practice of charging interest and the formal regulation of that practice. Interest-bearing lending was already practiced in colonial America, and formal usury laws were enacted contemporaneously, establishing legally enforceable ceilings that shaped markets [1] [2]. Over the 19th century, those laws remained central but took on additional political meanings as incumbents used them strategically [3]. For purposes of historical dating, the legitimate claim is that interest and its legal regulation began in the Colonial era and remained a salient institutional feature through the 19th century, evolving with commerce, law, and political power [1] [2] [3].