Coverture’s demise in the US: Women’s rights led to shifts in household portfolios; a positive shock to credit supply; & a reallocation of labor towards non-agriculture & capital intensive industries, aiding industrialization

Women’s Liberation as a Financial Innovation. Moshe Hazan and David Weiss. October 23, 2018. https://m.tau.ac.il/~davidweiss/WomenRights.pdf

ABSTRACT: In one of the greatest extensions of property rights in human history, common law countries began giving rights to married women in the 1850s. Before this “women’s liberation,” the doctrine of coverture strongly incentivized parents of daughters to hold real estate, rather than financial assets such as money, stocks, or bonds. We exploit the staggered nature of coverture’s demise across US states to show that women’s rights led to shifts in household portfolios; a positive shock to the supply of credit; and a reallocation of labor towards non-agriculture and capital intensive industries. Investor protection deepened financial markets aiding industrialization.

Keywords: Women’s liberation, financial innovation, investor protection, economic growth.

 Property rights are at the heart of capitalism’s ability to efficiently allocate resources. Inone of the greatest extensions of property rights in human history, common law countriesbegan giving rights to married women in the second half of the19th century. Before this“women’s liberation,” married women were subject to the laws of coverture.1Coverturehad detailed regulations as to which spouse had ownership and control over various aspectsof property, both before and after marriage, and strongly incentivized women to hold realestate, rather than financial assets such as money, stocks, orbonds. This paper explores theeconomic ramifications of coverture’s demise, and the resultant expansion of investor pro-tection to women. We exploit the staggered nature of coverture’s demise across the United States to show that these rights had a large impact on household portfolios, credit markets, and labor allocations.

Under coverture, property was divided into two types. Moveable property (also referredto as “personal property”), including money, stocks, bonds, furniture, and livestock, became the husband’s property entirely upon marriage. He could sell or give the property away, oreven bequeath it to others. Real assets, such as land and structures, were placed under the husband’s partial control while remaining in the wife’s name. He could manage the assets as he saw fit, including any income generated by the assets, but he could not sell orbequeath the property without his wife’s consent.2 After analyzing the laws of coverture, Holcombe (1983) concludes that “[w]hatever the reasons forthe distinction between realand personal [moveable] property, the legal rules applyingto these categories of propertywere substantially different. The common law afforded married women considerable protection with respect to real property. It afforded no protection for their personal property.” (Holcombe 1983, p.20).

By differentially allocating property rights, coverture affected portfolio incentives notonly for women, but for parents wishing to bequeath or gift assets to their daughters. Con-sider a father who wants to bequeath his estate to his daughter upon his death. He wouldface an incentive to hold his wealth in real assets. Indeed, parents did bequeath to daughtersin the US as primogeniture was abandoned after the War of Independence. The default became to divide equally inheritances of both types of assets equally among children, including girls (Shammas, Salmon and Dahlin 1987, p.67). Therefore, our first prediction is that undoing coverture should cause portfolios to shift towards moveable assets, such as financial assets, because removing legal constraints allows households to purchase assets withhigher returns or diversify their portfolios.3This shift in portfolios towards moveable assets represents an increase in the supply of financial assets. Accordingly, our second predictionis that after rights are granted, we expect bank deposits–and loans–to increase, along with a reduction in interest rates. An increase in the supply of loanable funds should aid industrialization, as entrepreneurs find capital to be cheaper and thus invest more readily. Greater industrialization yields a sectoral reallocation of workers. Accordingly, our third predictionis that coverture’s demise leads to a shift in the labor forceaway from agriculture. More-over, even within the non-agricultural sector, cheaper capital causes greater investment inindustries that are more capital intensive. Thus, our fourth and final prediction is that rightslead to a relative increase in employment in capital intensive industries.