CH.I7 PROPERTIES OF INTEREST AND MONEY 223

wheat-rate of interest, a copper-rate of interest, a house-rate of interest, even a steel-plant-rate of interest.

The difference between the “future” and “spot”contracts for a commodity, such as wheat, which arequoted in the market, bears a definite relation to thewheat-rate of interest, but, since the future contract isquoted in terms of money for forward delivery and notin terms of wheat for spot delivery, it also brings in themoney-rate of interest. The exact relationship is asfollows:

Let us suppose that the spot price of wheat is £100per 100 quarters, that the price of the “future” contractfor wheat for delivery a year hence is £107 per 100quarters, and that the money-rate of interest is 5 percent. ; what is the wheat-rate of interest ? ^100 spotwill buy £105 for forward delivery, and ^105 for for-ward delivery will buy . 100 (=98) quarters forforward delivery. Alternatively £100 spot will buy 100quarters of wheat for spot delivery. Thus 100 quartersof wheat for spot delivery will buy 98 quarters for for-ward delivery. It follows that the wheat-rate of interestis minus 2 per cent, per annum. 1

It follows from this that there is no reason why theirrates of interest should be the same for different com-modities,—why the wheat-rate of interest should beequal to the copper-rate of interest. For the relationbetween the “spot” and “future” contracts, as quotedin the market, is notoriously different for differentcommodities. This, we shall find, will lead us to theclue we are seeking. For it may be that it is the greatestof the own-rates of interest (as we may call them) whichrules the roost (because it is the greatest of these ratesthat the marginal efficiency of a capital-asset mustattain if it is to be newly produced); and that there arereasons why it is the money-rate of interest which isoften the greatest (because, as we shall find, certain

1 This relationship was first pointed out by Mr. Sraflfa, Economic Journal,March 1932, p. 50.