Evading the 'Taint of Usury' Complex Contracts and Segmented Capital Markets

What were the economic consequences of the usury doctrine in the Middle Ages? We examine how merchants attempted to evade the prohibition on interest and the attempts of the Church to clamp down on evasion. Contrary to the views of many economists and historians, the usury prohibition imposed different transaction costs on medieval merchants: increasing the cost of using capital markets for some merchants more than for others. Since only a subsection of the merchant population were able to write licit contracts, the prohibition had the effect of segmenting markets in which formal credit was important.