Payday Lending 1850s-Style

By Eilene Lyon

Ridiculously expensive loans are certainly not a modern phenomenon.  They probably began with the invention of the monetary concept.  I’ll give you two clams today; you’ll give me three clams tomorrow.

Farmers in the early- to mid-19th century were loath to borrow money, especially from banks.  They’d been burned by the federal government’s scrip during the Revolution and learned to distrust paper currency.  Things changed when gold was discovered in California.  Just getting there cost more than a farmer could earn in an entire year.  Suddenly, borrowing seemed a necessity for poor men with gold fever.

Many rural communities in the 1850s did not have banks, because the farmers would not have used them and there weren’t enough merchants to support them.  For my relatives who went to California, their farms were also difficult to mortgage.  So many people were heading west that values were at an all-time low, especially in the swamps of eastern Indiana where few improvements had been made.

Instead, they turned to merchants such as Allen Makepeace of Chesterfield, in Madison County.  Makepeace was probably the wealthiest man around.  He was a shrewd man dedicated to making money and did not hesitate to take defaulters to court.  Upon winning a case, he would snatch up their property for pennies on the dollar.

But when borrowers were obviously about to leave town to chase after their golden dreams, Makepeace wanted much more than just a deed.  He knew these loans were risky.  He wanted a high payback.  His problem was usury laws.

In the 1850s, usury laws were being repealed at the urging of bankers and businessmen.  They argued that the market should set interest rates, not the government.  Willing borrowers and lenders were sufficiently intelligent enough to agree to terms, they said.  But many states still had usury laws in place, and Indiana was one of them.  The legal maximum interest there was six percent.

Makepeace engineered a work-around, though he denied his complicity in court.  Rather than lending directly to wanna-be miners, they could draw up a promissory note to someone local including a provision for six-percent interest.  The “lender” would not actually give the borrower any money for the note.  Instead, he would take the note to Makepeace and Makepeace would discount the note, paying cash.


For this $2,800 note, Dr. Benjamin H. Jones did not give the signers a single cent.  The note was “got up” to borrow money from Makepeace.  Makepeace gave Dr. Jones $1866 for the note, which Dr. Jones then gave the borrowers.  Makepeace’s return, if the note was paid in a year, with interest, would amount to a fee of almost 60% on the $1866.  Not a shabby return.


Feature image: The vandalized grave of Allen Makepeace near Chesterfield, Indiana (2017) (You can’t take it with you.)

Transcription of note:

Twelve months after date for value received we or either of us promise to pay with order of Benjamin H. Jones, without the benefit of any appraisement or valuation laws of the State of Indiana the just and full sum of twenty eight hundred dollars with six per centum per annum until paid from the date February 24th 1851              [Signed]                                              Samuel Jones   Harvey Hunt    Humphrey Anderson   Dennis Lowry    John Anderson”  (and 11 other signers)



Hammond, Bray. 1957. Banks and Politics in America from the Revolution to the Civil War. Princeton University Press. Princeton, New Jersey. pp. 15 – 17; 33.

“Legal Interest” Indiana American (Brookville, Indiana) · Fri, Nov 17, 1854 · Page 2. Downloaded on Feb 27, 2017.

Makepeace v. Parker. 1843. Delaware County Circuit Court. Available online at Delaware County Record Image Search:

Makepeace v. Samuel Jones et al. 1851. Delaware County Circuit Court. Available online at Delaware County Record Image Search:

Note: These are just two of numerous lawsuits pertaining to unpaid debts that Allen Makepeace was engaged in during the 1840s and 1850s.  These are from Delaware County, but he also had suits in his home county, Madison, and possibly in other locations.

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