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# Market Rate of Interest

## Definition

The prevailing rate at which money is actually lent and borrowed in the marketplace, determined by supply and demand for capital rather than by legal statutes. The market rate of interest typically exceeds the legal rate when the legal rate is set too low, as people find ways to evade restrictive laws.

## Source Chapter

Book I, Chapter 9

## Context

Smith contrasts the market rate of interest with legal rates, showing how market forces ultimately determine actual lending practices. He provides examples from Scotland and France where market rates exceeded legal rates, demonstrating that attempts to artificially control interest rates through legislation are ineffective.

## Economic Domain

Regulation

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