History Geography and the Market for Mortgages
Abstract: This articles examines the impact of two themes in Kenneth Sokoloff’s research on mid nineteenth-century French mortgage markets. In particular, the negative effects of inequality and the positive effects of large, competitive markets. We document negative externalities from inequality: when the distribution of wealth is too skewed, the middle class gets excluded from the market. The second externality is a positive one that is generated by the geographical density of markets. We further distinguish its effects in the credit market itself from possible spillovers from the comparable externality in product markets. We proceed in four steps. We begin by summarizing the sources of our data and our aggregate findings of our research on French credit markets. We then move to an analysis of local credit markets, which suggests that inequality had adverse effects on lending. The next step is to search for the positive externality by examining loans between inhabitants of different cities and towns. We show that there were indeed positive network externalities in credit markets, which are consistent with a queuing model. Although most loans were local, the credit network allowed for significant inter-market flows of resources
