Market Forces and Own Rates

A modest wordpress through its linkback facility can sometimes trigger vigorous internet discussions.  As my post yesterday on multiple own rates did which triggered discussion by David Grasner and then Nick Rowe, with follow up in the comments by Richard Murphy and JP Koning.

David said

Laiton (sic) apparently thinks that there could be multiple real own rates, but seems to me to overlook the market forces that tend to equalize own rates, market forces wonderfully described by Keynes in chapter 17.

No it is not market forces that ‘equalise’ own rates it is market forces which create own rates.  The point I was making that it is the money market not product markets which equalises interest rates was missed.

In the supermarket yesterday, the same physical product but two commodities.  Unripe mangos half the price of ripe ones.  It says on the packet keep them in your fridge for a few days to ripen.  Here we have a commodity with a very high own rate.

Market forces do not lead to the convergence of own rates between ripe and unripe mangos, rather it is the product market which always and everywhere leads to the divergence of own rates.

Market forces will erode differences in cost between a single  commodities but here we are talking about two different commodities with the same cost structure to the producer.

My post was triggered by the comment to the debate from Daniel Kuehn

So what accounts for the different observable own-rates on Chicago and Minneapolis wheat? First, you have to take into account storage. Sure, you may earn more holding Chicago wheat, but storage costs may be far higher in Chicago so that final returns are equalized. You also have to think about risk.

JP Konings comments

The above is really just a restatement of John Maynard Keynes’s Chapter 17 of the General Theory.

Chapter 17 of course was concerned with the equalization of the investment returns.  The quote from the chapter which sums it up is

the total return expected from the ownership of an asset over a period is equal to its yield minus its carrying cost plus its liquidity-premium, i.e. to q – c + l. That is to say, q – c + l is the own-rate of interest of any commodity, where q, c and l are measured in terms of itself as the standard.

Then he set out an investment schedule

As output increases, own-rates of interest decline to levels at which one asset after another falls below the standard of profitable production; — until, finally, one or more own-rates of interest remain at a level which is above that of the marginal efficiency of any asset whatever.

But there is an error here, either of clarity of exposition or theory, because at the profitability frontier what is being equalised is the rate of profit on investments not those aspects of return which are time variant.  Costs of carry and liquidity premiums (which are likely to be relatively time inelastic) may more than outweigh differential yields, the primary cause of differential own rates, as in our example above.  Keynes example is of an investor investing directly in one of many possible production processes and receiving all profits, not of an investor investing in one of many possible firms each with different rates of profit.

And let us underline we are talking about own rates in a monetary economy not in some hypothetical barter economy (where costs of carry and liquidity premiums would be way different).

Minky’s concept of dual markets is useful here.  In output prices differential yields create differential own rates however the asset price market through the money & equity market equalises rates of profit on those products.

Slew of Problems at Kevin Mc Cloud’s Swindon Triangle

Last year we were severely critical of the Glen Howells designed Swindon Triangle project to Kevin Mc Clouds’s Haboakus .

It seems we are not the only ones with complaints


Issues raised by occupants of the £4.2 million ‘environmentally responsible’ social housing development include water leaks, cracks in walls and ceilings and difficulties with doors and stairs.

Haboakus – which developed the 3,465m² project in a joint venture with housing association the GreenSquare Group – said that contractorWillmott Dixon and the association ‘were working together to resolve the issues’.

In a statement the company admitted it was ‘hugely upsetting that residents have had to bear the brunt of the problems’.

Architects Fail Foul of China Scam


 ‘The scam, we are told, is usually to get you to China, to wine and dine you, to get you to pay for everything (they say it shows respect), to go to a special shop to buy gifts, and the following day, on signing the contract, to pay a lawyer’s fee of between $5,000 and $10,000.

‘On returning from what seemed a successful trip, you find they have all disappeared, do not answer calls and emails, and you do not, in fact, have a contract.’

HBF – South West Housing Targets Cut by 115,000 Homes – 20%


In the South West:

  • Planned house-building slashed by 115,000 – 20%
  • Just  54% of the homes needed for local families are being built
  • House building down by a third in the last six years
  • Shortfall is costing 30,000 jobs and around £79M in Gvmnt funding
  • No of families on social housing waiting lists doubled in 10 years
  • Planning permissions have collapsed – down 36% in the last 5 years
  • Average house prices have doubled in 10 years from £93k to £186k

New research released today reveals that planned housing numbers in the South West have been reduced by 20% following the scrapping of the Regional Spatial Strategies and the introduction of the new planning system. This reduction is around 5700 homes per year which, over the 20 year period of the Regional Spatial Strategies, amounts to more than 115,000 homes.

These planned housing numbers are also 15% lower than the government’s projected household growth for the region which, added to the historic shortfall of new homes, will create huge pressure on local housing supply.

Meanwhile, the report reveals that house-building in the South West has plummeted by around 35% over the past 6 years while planning permissions – a good indicator of future supply – have fallen by a similar amount. Official government projections reveal that the number of households in the area is expected to increase by 23,000 annually – twice the current house-building level.

Average house prices in the area have doubled in the last decade, from £93,000 in 2000/01 to £186,000 – more than 7.5x average income – in 2010/11.  A lower quartile priced house – those most often bought by first time buyers – costs £142,500 in the South West meaning that young families need to find around £20,000 deposit to get a foot on the property ladder

Meanwhile, pressure on the area’s social housing is growing with the waiting list more than doubling from 89,576 families in 2001 to 186,226 families last year.

The report also examines the financial rewards cities, towns and villages in the South West would receive from building the homes it clearly needs. The Government’s new incentive for house building, the New Homes Bonus, could see funding for the region increase significantly at a time when cuts are being made to budgets across most service areas.

If enough homes in the South West are built to meet household projections the local authorities within it would see around £79 million extra funding every year and more than 30,000 local jobs created.

Stewart Baseley, Executive Chairman at HBF said today:

“The South West is suffering from a serious under supply of housing. It is crucial that more homes are built, particularly for younger families and first time buyers. It is concerning that local authorities in the area have reduced their housing targets by a fifth and important that they recognise the responsibility they have to communities in their region.

“On top of the obvious social benefits – increasing affordability and easing the pressure on social housing waiting lists – building the homes the area needs would create thousands of local jobs and bring in millions of pounds from central government.”


click here to open South West Housing Crisis Report

PINS ‘if there is a problem with the duty to cooperate, we can’t help you resolve it” #NPPF

Stuart Holland and RTPI Planning Convention as reported by Jamie Crpenter in Planning

Holland said that Department for Communities and Local Government (DCLG) lawyers had taken a “very firm view” that the new duty “applies to the plan-making stage”. “The DCLG lawyers’ view is that the plan preparation stops when you submit it to us,” he said.

Holland said that this meant “if there is a problem with the duty to cooperate, we can’t help you resolve it”. He said: “The approach that we take to problems in local plan work is that, if possible, we give local authorities every opportunity to sort out problems that we identify. We are prepared to adjourn an examination. It’s in no-one’s interest to find plans unsound”.

But Holland added: “With the duty to cooperate, we don’t have that ability. If there is a problem we cannot say to you ‘go away and sort out this problem’.

“So please, take the duty to cooperate incredibly seriously and sort it out before you submit your plans to us, because we cannot help you sort that out afterwards”.

Heathwick is Impractical – It would take more than 15 minutes

Name me any city to city High Speed Rail route anywhere in the world which has 5 terminus’s at one city and one at the other end.  None  Its impractical.  You would have a terribly complex series of acceleration deceleration and merging/demerging of traffic.  Yet that would be necessary as having one route on a loop servicing 5 stations would be required to slow down and stop at each, and an HSR is not like a tube, loading and unloading takes some time.

How then can the Government consider that an HSR linking Heathrow to a two runway Gatwick is practical, even for a moment?  It is claimed that the transfer time would only be 15 minutes, but how to you load and unload at Heathrow?  The only practical solution would be to have a single HSR terminus at Heathrow and then distribute the traffic to terminal via some kind of people mover.  But this will add 10 minutes to the journey time, +15 minutes HSR time +10 minutes Headway, its creeping up to 35 minutes.  This means there is zero time advantage over a new hub north of Cotwolds/Chilterns solution on the existing or rerouted HSR route.  A route which could have three airports along it former RAF Gaydon (which has space for a four runway hub, is on the M40 and would be served by HSR (if slighly diverted) and the Chiltern Line, Former Coventry Airport site and Birmingham International.

Justin Greening calls for an end to ‘pub conversations’ about airport capacity.  But the classic dremt up in a pub by civil servants who dont know about the operational requirements of HSR solution is Heathwick.

Multiple Own Rates of Interest – Does it matter in a Monetary Economy?

There has been a very good discussion over the last few months about the argument promoted by Sraffa (though first used by Fisher) that because each commodity will have its ‘own’ rate of interest it is not possible to assume a single ‘natural’ rate in the economy.  This on its face not only undermines Austrian Business Cycle Theory but all work in the Wicksellian tradition including Woodfords brand of New Keynsianism which has been so influential to Central Bankers.

Here at Daniel Kuehn’s blog. Here (with many comments) on David Glasner’s blog.  Here is an older comment on “Lord Keynes” blog. Bob Murphy also has a paper (pdf) and JP Koning has a contribution as does Daniel Kuehn.

An own rate is the difference in price of the same commodity between two points in time. But passage of time will change the commodity.  Strawberry seeds will grown into strawberrys over several months and will rot to zero value over several days.  At each point in time they will be different commodities.   We therefore need to consider production and the money needed to put the commodity into production.  This will require consideration of costs of storage & carry.

Lets consider an ‘own rate’ as a rent of money saved or created to bridge the inter temporal price gap between T0 – the input price-  and T1 – the output price-  when the produced commodity will be sold.

Lets then consider a toy model that for every commodity there is a bank solely financing that commodity.

A loan by a bank to finance the commodity purchase will be on the assumption of a sale price at T1. They will make more or less profit dependent upon the accuracy of their forecast.

Wheat yield at T1 will depend upon the risks of a bad harvest and will built into the price of credit.

If there is a bad harvest the equity of the bank will decline and their ability to lend for production of that commodity will fall. If there is a run of bad harvests the equity price of the bank will fall against risk adjusted assumptions.

An investor then – in a toy model where the only investment opportunities are single commodity banks, will attempt to form a portfolio of different banks to hedge risk over the yield period of their investments.

Now widen the model so that banks could not only loan against their single commodities but also to purchase other peoples bank investment portfolios. This will then produce a single ‘money market’ interest rate.

So can we say ‘so what’ for multiple own rates then? Can we say it doesn’t matter in a monetary economy?

No – because different commodities will have different responses to changes to the ‘money’ interest rate.

If interest rates are lowered then production will become profitable for processes with high own rates/high risk rates and vice versa. This creates the conditions for speculation and overinvestment in some sectors (which wont always have a lot to do with the time structure of capital – but this is a much more complex point)

If all own rates were identical then we have a speculation and arbitrage free economy – not the real world.  But differential profits and own rates drives the dynamics of the economy.

Neighbourhood Planning and the Failure of Spontaneous Order #NPPF

Today Planning Aid and the RTPI launched a website designed to act as a forum and means of interchange between forerunners and other groups.

The golden rule of launching websites is dont launch them before you have content.  This has nothing not available on the DCLG website.

It lacks on the step by step introduction to neighbourhood planning – as in the DCLG funded CPRE guide, and the latest news sections lacks the key latest news – Dawlish, and the lessons from that.

Part of the whole ideology of Neighbourhood Planning is that it will spontaneously fill the gap in planning and housing numbers caused by the planned revocation of regional plans and so many local planning authorities revising their housing numbers down as a result.  Greg Clark et. al. have given endless speeches to this effect.

It is polyannaish nonsense with no evidence to back it – quite the opposite.  It is driven as in so many areas of policy formulation by neo-liberal ideology rather than evidence.  Notably in this case Hayeck’s theory of ‘spontaneous order’.  This concept has a grain of truth – that centralised state interventions can be inefficient – as long ago stated by thinkers of the libertarian left such as Proudhon.  But this alternative strand avoids two key errors made by neoliberal ideologies.

Adam Ferguson described the phenomenon of spontaneous order in society as the “result of human action, but not the execution of any human design”.  But Neighbourhood Planning is a result of cooperation and collective design not individual human action.  So the the whole sociological basis of the Neoliberal approach to planning is undermined.  ‘Planning’ is attacked as a bad thing for not being spontaneous, but local/neighbourhood planning is far from spontaneous.  It requires structured information, evidence and lack of uncertainty so as not to require bureaucratic intervention.  It is this lack of certainty which pervades neighbourhood planning.  Again the ideology is they will work it out, but without information and process we get chaos not certainty and a failure to move forward together at speed.  Information and the levers of power are pulled by those with wealth and influence to which small local groups will always be at a disadvantage unless the public sector explicitly provides the information, expertise and process needed.  If this is not funded it will not move forward.  As Neoliberal ideology says it cannot be funded as the priority is to protect rentier income of the few and cut public spending quite simply neighbourhood planning will stall as local planning authoritiy budgets are squeezed to zero as the Graph of Doom advances.

The only way to reconcile neoliberal ideology with neighbourhood planning is to assume a position of minimising harm.  The idea that states do harm because they are big and powerful so minimise this through undertaking planning at the lowest level possible.  Of course this minimise harm position will also minimise gain by marginalising neighbourhood planning to shaping the small, scattered and non strategic.

The success of Neighbourhood Planning is therefore incompatible with Neoliberal Ideology and can only be made successful by abandoning these assumptions in the shaping of policy and support provided to it.

Windfarms ‘the one objection that is not dishonest? It is: “I don’t like the look of them.” Damien Carrington


So what’s the one objection that is not dishonest? It is: “I don’t like the look of them.” As I have reported before, I accept that argument is a valid one in some locations, though I’d note the planning system already turns down plenty of wind farm applications and that more community ownership could resolve the stand-off. But accepting the argument that an “ugly” wind farm should not be built also requires accepting the fact that it will raise energy bills.

Here here.  Days, sometimes weeks of evidence is spend on reargusing issues of national energy policy which are irrelevant and out of the scope of the inspector’s powers.  The arguments are confusing becaus the political discourse on this is confusing.  But published policy has not changed and is clear.

If these were national infrastructure projects inspectors would be tough, outside of the scope of the inquiry.  So why not be similarly tough at T&CP Section 68 appeals?  Why not simply rule out of order all and every piece of evidence relating to energy policy, subsidies and energy prices.  All that is relevant in planning terms terms relating to output is carbon savings.

Central Beds Local Plan includes No Expansion SE of Milton Keynes or West of Luton – DTC Fail #NPPF

The recently published consultation on the Strategy for Central Beds shows a distinct lack of cooperation for positive planning.

Central Beds of course had previously prepared a joint plan through a joint planning committee with Luton. but the inspector detected a shortfall in housing and this threw into the frame the previously rejected West of Luton option. So did both LPAs revise the plan, so Central Beds cllrs refused to the joint committee was deadlocked and they voted to abolish it instead. Does this unmet need from the adjoining authority figure in the newly separated segregationist strategy – see the blue question mark above no. They solely and only consider ‘local’ need quite contrary to the NPPF requirement to consider the potential to meet unmet need from the adjoining authority. The SEA does not even consider the overflow need making it unlawful on a second ground.

Bot it does not end there. The second question mark is SE of Milton Keynes. This is more complicated because it was in the SE Plan but the spill over the border is in the old Eastern Region and the EEP amendment was never finalised.  The old Mid Beds Core strategy examiner had felt there would be conformity issues until this was confirmed and so took it out until it was. The issue then is whether it can meet ‘objectively assessed need’ from another authority. Rather comically the SEA says –

The land southeast of Milton Keynes would largely be addressing housing needs arising in Milton Keynes rather than Central Bedfordshire.The Milton Keynes Core Strategy does not propose any development on the Milton Keynes side of the boundary and it is therefore considered inappropriate to provide for development within Central Bedfordshire.

Isn’t an SEA supposed to be an objective assessment of impact not statements of prior policy considerations?  The only reason Milton Keynes is no longer proposing such housing (in 2010 both districts signed a memorandum for 2,000 houses to be provided on the Central Beds side of the border) is that staggeringly it now proposes to meet ‘local’ need only despite it having the best growth potential in the South East.  Are we not supposed to be planning for growth?  Is not growth along the varsity line the strategy approved by an independent panel following years of argument?  Where will this displaced housing go, to dozens of little villages in Aylesbury Vale District or North Herts – another district that pretends it can shove its head in a hole and present its ass as evidence of cooperation?

Remember the POLICY side of the duty to cooperate is ‘Positively prepared’  adjoining authorities can fake the DTC by cooperating on equally negative plans as here – will they be found sound – not a hope in hell.  The Milton Keynes examination opens in a few weeks and one expects that following its early findings Central Beds will be forced to do this consultation again with much less of the attitude of a pisstake of the DTC and Soundness tests.

Indeed what is sad about this is it is deliberately foot dragging tactic to put off the inevitable, positive plans prepared across travel to work areas realistically meeting growth requirements in the parts of the country most able to meet it.

I havent mentioned the Marston Vale here as I dont know enough about the history of it however im sure someone will fill in the details in comments.