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# Legal Rate of Interest

## Definition

The maximum interest rate permitted by law, established through statutes that attempt to regulate lending practices. Legal rates of interest have historically been adjusted to follow market conditions rather than lead them, with examples showing rates decreasing from 10% to 5% over time in England.

## Source Chapter

Book I, Chapter 9

## Context

Smith examines the historical development of legal interest rates in England, from the prohibition under Edward VI to various statutory reductions under Henry VIII, Elizabeth, James I, and Queen Anne. He argues that these legal rates were set with propriety, following rather than preceding market conditions.

## Economic Domain

Regulation

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