Richard Cantillon, Farmer
I wonder what it’s like to have negative economic phenomena forever attached to your name. Richard Cantillon is often cited, quite a bit more often of late, when people observe the destabilizing effects of inflation and how it tends to advantage some people and leave the rest at a disadvantage. Oversimplified, he observed that newly minted (or printed, or mined) currency enters the financial bloodstream unevenly and changes the relationships between economic actors over time. Or, those closest to the spigot get the party and all the others get the hangover.
It is blamed, with some empirical justification, for the currently-widening gap between the richest and poorest, or actually, between the very richest and everyone else.
As it’s always been. And then what? Historically there’s scant evidence that democratic processes have addressed it; if anything, it would be easier to “prove” they made it worse. I’m not sure that storming the Bastille has historically led to a reliable improvement in economic circumstances, either.
We’re best served to work out the financial geography and make some judgments about what actions we can take, or avoid, that further our financial interests—which sounds inaccurately selfish. From a career of observation, I know farmers to be truly interested in guarding the financial legacy that two or more prior generations have taken pains to leave them, and managing its growth and stability so that their children and grandchildren enjoy the same opportunity and more. In a word, stewardship.
It’s worth noticing the distinction since our attention to profit, return on assets, and growth, will get us tagged as “acquisitive” or “greedy” a bit more often than we like to think about, and it’s largely inaccurate and almost entirely unfair.
As to that legacy, I’m tempted to hypothesize that Cantillon’s effects bequeathed farmers (as a class) as much as the grandfather who happened to be born at the right time to buy farmland in 1960 (or 1985). I’ve shared this chart before, showing a) farmland dramatic rise and b) the divergence between its recent price and its valuation based on real, historical revenue and cap rate proportions:
With some additional sleuthing at the USDA’s NASS database, I was able to create a comparison of revenues per acre directly with its reported price by year.
Cantillon, indeed. Before the USD ditched its tether to gold c. 1972, land prices hovered around 2.5X corn revenues. After that, nearer 5X with the added feature of greater variability. If that wasn’t enough, rocketed to nearer 8X just after 2010. Makes you wonder what happened…
Can’t help but say it: fiat is a heckuva drug.
It does suggest that the current state of farming, and dominance of land-rich, cashflow-poor farms, has at least something to do with a dramatic inflation-driven rise in our key asset price, which advantaged asset holders and lessened the advantage of entrepreneurship and simple, good management.
As interest rates are up, crop prices down, and quantitative tightening trailing cautiously along (you saw the reduction in asset holdings in the chart above), we could see some sort of reset. For the moment, it’s about setting the stage and staying vigilant.