Six Percent: Toward a Cultural, Political, and Institutional History of Early American Interest Rates

Capitalism revolves around an expected rate of return. Any investment must produce a return with interest in order to justify itself. The return, moreover, cannot be considered in isolation; it must be understood in light of the returns yielded by other investments: prior, contemporary, and future; private and public; domestic and international.

Interest rates deemed appropriate in early America fell into a relatively narrow range of single-digit numbers. English usury laws, brought over into the United States, established a legal maximum of six percent interest, while other colonial laws established legal maximums ranging from five to eight percent. It is striking that both capital-holding, well-to-do lenders and the poorest borrowers had access to these simple numbers. It is also striking that these numbers link the actions of the state with the actions of its citizens or subjects. This paper therefore asks: what did interest rates mean to American lenders and borrowers, and how were they politically and culturally deployed, in public and in private? How did they create and reshape institutions?

This paper takes as its starting point the interest rate of six percent, a number that appears in a variety of commercial sources (and in practices ranging from commercial lending to ground rents) as a reasonable maximum for expected returns over time. Sidney Homer and Richard Sylla refer to it as “evidently conventional.” Understanding the financially conventional—say, a “good” interest rate—may offer promise as a means for understanding the financially unexpected, e.g., the financial crises on which so much recent scholarship have been focused.