You have savings. I need capital to get things rolling. I interest you in allowing me to use your savings by offering to pay you a little more than I borrow when I repay you. This also rewards you for taking a chance on me. The difference between what I borrow and what I repay with time factored in is the interest rate. If I loan out my money at 1% over 70 years it will double. If I loan out money at 70% for one year it will double. If I continue loaning out the principal and any interest earned I earn more. And more. And more. It’s compound interest.
Bill Bonner covers this in Family Fortunes: How to Build Family Wealth and Hold on to it for 100 Years. He says old money sits. Old family money moves slowly. It doesn’t get consumed. It is guarded and at the right times is nurtured into growth.
Is this interesting? Well, yes but no. But it happens all the time on the farm.
If I were to foolishly breed rabbits, then breed their bunnies and the rabbits, then breed three generations without harvesting from the stock you would see your interest compound. But you would lose money…
My wife’s aunt and uncle are tireless supporters of our efforts on the farm. They are also an example to us of what could be. Each year they host events at their house selling splits and starts from their garden.
This year they surprised us with coneflowers, red bud trees an, most recently, daylillies.
I think daylillies are a good example of compound interest. Unlike rabbits, they don’t taste very good [Turns out I’m wrong. See comments]. Their value is in their continued existence. But their continued existence and health multiplies them. So you split the cluster and plant them again. And again. And again. Before long you have so many daylillies you are looking for a niece to give them to. Like old family money, old family daylillies are guarded, nurtured and grown over time. Time. How do we make daylillies? The old-fashioned way. We grow them.
So here is our daylilly savings account. They gave us 10 different varieties. Someday it may look more interesting. I had to plant my flag on some new garden territory here so…
I know this is a farm blog but what’s the fun of gardening if you don’t have something pretty to look at too? My kids like flowers. I like flowers. My wife likes flowers. And our interest is compounding. Who knows? Maybe we’ll start propagating plants too. Gotta do something interesting with all our free time.