A fine failure: Relationship lending, Moses Taylor, and the Joliet Iron & Steel Company, 1869-1888

Abstract

In this study of lending in the emergence of a modern steel industry in the United States, I analyze the evolving interaction between borrowers and lenders in historical context. I show how relationship lending (that is, credit allocation in which personal contacts play a major role) can go wrong, despite good intentions at the outset, and that institutional conditions exert an important influence on how lenders and borrowers negotiate conflicts. Particularly important in the case of Moses Taylor and Joliet Iron & Steel Company were the uncertain jurisdictions and political maneuvering that stemmed from structural peculiarities of the U.S. legal system, peculiarities that belie claims of its efficacy for protecting creditor interests. Although this failure of relationship lending might seem to imply negative consequences for economic development, I show that, at least in this case, the opposite interpretation is more compelling.