The centrifugal governor

What went wrong in the UK banking crisis of 2008?  According to George Osbourne it was a catataxis – although he does not use that word. The confusion of roles between the Bank of England and the FSA meant that a key role was not being done properly: macro prudential regulation. The Bank of England’s remit was to keep inflation under control. They were responsible for setting interest rates so that inflation would not breach 3%. The Bank of England was looking at the big picture. The only trouble is it was the wrong picture . The FSA was busy regulating the City on a micro level, making sure that no one broke the rules. They were examining each financial firm in turn, going through a checklist to make sure that procedures were being properly followed. The FSA was the micro regulator but where was the macro regulator? This function fell between the two stools. Both organisations were interpreting their remit too narrowly.  Rules were being applied but at the wrong level: this is catataxis. There needs to be someone who will lock up the drinks cabinet just as the party is getting good. According to George Osbourne’s proposed reforms, there needs a to be a regulator but at the macro level. Thats why he is abolishing the FSA and replacing it with a new body.

We have been here before. Back at the dawn of the industrial revolution James Watt invented a device to make steam engines run more smoothly. It was called  a centrifugal governor.  Two balls rotating around a spindle. The faster the spindle rotates, the further out the balls get flung. But the further out the balls are, the more work it takes to rotate the spindle which will therefore slow the system down. A big flywheel with a lot of inertia will smooth out an erratically firing engine.  But this is a dynamic flywheel: the distribution of the weight changes with speed. Its damping down the acceleration. In other words, it is regulating the second derivative. It is macro prudential regulation. Having led the world in the steam age, maybe the new reforms will help Britain’s global competitiveness in the financial age.

A centrifugal governor

9 Replies to “The centrifugal governor”

  1. Great analogy.

    Just reading Alastair Macintosh’s book “Soil & Soul” and came across a passage, which is unsurpassed as an illustration of how emergent properties can lead to structural oppression

    The owners of the land came onto the land, or more often a spokesman for the owners came…some of the owners’ men were kind because they hated what they had to do, and some of them were angry because they hated to be cruel, and some of them were cold because they had long ago found that one could not be an owner unless one were cold. And all were caught in something larger than themselves… The owner men explained the workings and the thinks of the monster that was stronger than they were…. You see, a bank or a company…. those creatures don’t breathe air, don’t eat side meat. They breathe profits; they eat the interest on money. If they don’t get it, they die the way you die without air, with out side meat. It is a sad thing, but it is so. It is just so…When the monster stops growing, it dies. It can’t stay one size…We’re sorry. It’s not us. It’s the monster. The bank isn’t like a man.

    Yes, but the bank is only made of men [said the tenants]

    No, you’re wrong there. Quite wrong there. The bank is something else than men. It happens that every man in a bank hates what the bank does, and yet the bank does it. The bank is something more than men, I tell you. It’s the monster. Men made it, but they can’t control it.

    Of course, the quote comes from Steinbeck’s the Grapes of Wrath.

  2. The centrifugal governor is more than a dynamic flywheel, it is also a variable “throttle”. Note the picture shows the linkage to a throttle plate. As the RPMs speed up, the balls swing out, and that is mechanically connected to the throttle causing it to shut. the opposite happens as it slows down. This is a very early mechanical version of a automated system controller, that controls the RPM based on the RPM, not the RPM rate of change. It is actually an example of a linear controller.

    The dynamically changing torque of the flywheel is correct, but it is typically very small compared to total steam engine output.

  3. Shame you don’t actually understand what a governor does.

    The change in angular momentum is a pure side effect: The real work is to throttle the input as speed rises. In practice the governor has effectively zero flywheel effect whatsoever. It’s mass is well below the main engine flywheel.

    Having led the world in the steam age, its tragic that people today have not the slightest concept of, or respect for, the engineering on which their society is founded.

  4. You sound very upset, Leo. I am just making an analogy. The spinning balls respond to the angular momentum. The throttle system then amplifies that. The macro prudential regulator will respond to the “angular momentum” of the financial economy. The banking system will then amplify that. An apt metaphor in my view…

  5. Thanks for your interesting feedback. The device is detecting the change in RPM, unlike a fixed flywheel. That makes it a second order effect, no? You are right about the throttle but that is just the amplification/feedback system like fractional reserve banking. So a centrifugal governor is a second order linear controller. That’s what macro prudential regulation aims to be.

  6. Actually it is a first order effect. It is detecting the actual RPM not the change. As a thought experiment if it was detecting a change in RPM then the control output would be the same if RPM changed from 100 RPM to 200 RPM, or 200 RPM to 300 RPM in the same amount of time. That is not the case. The control output at 200 RPM if there has been no change or alot of change.

  7. Maybe that’s all part of the analogy – the centrifugal Governor not significant influential compared to the weight of the runaway flywheel/UK banking system !!!

  8. superSWF,

    The only way to “control it” is by the throttle. Too bad there does not appear to be consensus what the throttle for the economy actually is.

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