All that happened below 5 percent : religious endowments, credit, and interest rate discrimination in colonial Spanish America

Abstract

Historians of European capitalism have generally assumed that lending at interest during medieval and early modern times pitted religious understandings of usury against mercantile and banking interests. The latter developed new financial instruments that sought to circumvent traditionally set usury rates, an interest rate ceiling in existence across Christian polities and often associated with the “5% contract”. Arguably those intellectual history debates have rarely looked at how decisions about lending at interest were made from the bottom up. This paper uses the lending practices of a colonial religious institution, the Colegio de San Pablo of Lima, to investigate how creditors and borrowers thought about what was right and what was wrong when writing credit contracts. I argue that the institution was typical for the largest lending institutions at the time, which were all religious endowments. But crucially it operated in a credit market in which the market interest rate had fallen well below the usury rate. That meant that the interest rate was de facto not fixed. I show that in this situation a careful reading of the contracts reveals some of the strategies used to justify a discrimination in access to credit and diverging rates of interest.