Better Because it Costs More?

What is a car supposed to do?  Why do we need them?  From a utilitarian perspective, we simply need them to help us get from A to B.  Do leather seats help us get from A to B?  No, but somehow a car with leather seats is normally considered better than one without. In fact, the less utilitarian a car is the better it is, up to a certain point.  I mean, I would probably enjoy driving a Lamborghini but not when grocery shopping. So there are two things there, Price has little to do with function and every paradigm has its limits. This applies to cows, land and money equally.

The price of money is particularly interesting (pun intended).  Money today is worth more than money tomorrow.  That’s why we pay more for it.  In part, this is also true because our central bank is targeting inflation, destroying the value of currency over time but even with a stable currency, money today costs more than money tomorrow. We want it NOW! I have to INTEREST you in deferring consumption today so I can use your money now…so I offer to pay you back more than you loan me. Similarly, if I borrow your cow I can’t repay you in 5 years with the same or equal cow.  You have lost 5 years of calves from that cow and, potentially, additional calves from heifers those calves would have birthed. I would have to INTEREST you in loaning me a cow…or herd…or even just a bull for stud service. I recently borrowed a bull and I am expected to repay the same bull plus $20 for each cow covered. How is that different than interest on money? Everybody involved is participating voluntarily so everybody believes they are better off in some way at the end of the day. Well, that’s how it should work but we have this central bank thing that dictates what borrowed money should cost today which really gums up the works for everybody unless you’re borrowing in terms of cattle and they butt out). That’s a topic for somebody else’s blog though.

Bull2

Back to the point. Money today is more expensive than money tomorrow…but is it better? And, if it is better are there any limits to the “better-ness”?

Hoo boy. Well, I guess it can be…or can be perceived as such. I mean, I borrowed money to buy the farm because I thought I was better off with the farm today than I would be if I waited till I was 60 and had the cash. Plus, the farm I want is available today.  Would it be available in another 25 years? Further, farming is a young man’s game…especially the getting started part. If I don’t get started I’ll never get going. So we borrowed…but not without reservations. Reservations you’re probably tired of reading about.

Borrowing can be a really bad idea too. We don’t borrow for consumption.  We don’t use credit to buy hamburgers, t-shirts or even cars (which means we take care of our cars…they last a long, long time). We even buy our livestock with cash…forcing us to grow slowly and deliberately. I could see a time when I would want to grow the herd quickly, forcing me to borrow tomorrow’s calves today but I would hate to explain to my banker that the cow I bought with his money died. I would also hate to make payments on a dead cow. 

Further, because future money is available for buyers today, prices today tend to go up. If everyone had to pay cash for cars and houses we would have fewer dollars chasing after scarce goods…prices would have to fall (which is great if you are poor or have savings but horrible if you owe money on depreciating assets). But we live in the opposite world. In the current economy we can borrow money for houses, educations (lol), cars, farms, cows, hog buildings, tractors…you name it. Every loan puts more and more money in competition for the same number of goods…driving prices higher (which is horrible if you have savings or are poor but helps out borrowers). If our economy lacked available credit, the perceived currency value of my farm would have to fall (see 2008)…and my lender would get nervous. But that’s part of the deal. My banker is betting that my farm will retain value and that I will be able to repay…otherwise he wouldn’t voluntarily loan me money.

So because of easy credit, prices are higher. Does that higher price make my farm better than it was when my great, great, great….grandpa paid tens of dollars for it? No. The work that went into the farm over the generations makes it better. The lack of work that went into maintenance in the last 20 years makes it worse. Price has nothing to do with “better”. The “better” of the thing has to do with the work we accomplish with it. Farmers vary in skill level. A skilled farmer is going to do a better job with the land. I have to be more skilled than the farmers who came before me or I will have wasted the land, money and time.

Family

Maybe you disagree. Maybe you are happier when you pay more for the same thing. I dunno. I tend to look for sales or buy things second hand…or third hand.  But the cost of the thing has nothing to do with the “better” of the thing. If I need it, I need it. If I need it immediately I’m going to have to pay more for it. As we farm we try to limit our immediate needs. We try to plan years in advance. Years. Decades. Lifetimes. What will my great-grandchildren do with their inheritance? Can I influence that now? How much do I have to pay now to make things better for my grandchildren? Do I pay the future by not having a second vehicle? Do I pay the future by enslaving myself to the farm and to an off-farm job? Do I pay the future by avoiding eating meals out or by not going to see a movie? If the goal is to build better futures for my children’s children I have to pay a lot now. Does the future get better as I pay more for it? It might if I’m thoughtful about how I use my resources in the present. When does that paradigm run out? I doubt I’ll ever know.

So what if you don’t have kids? Does this matter to you? It most certainly does! The money part of the farm has nothing to do with the better part of the farm. You, as a steward (the dirt will outlast you), should be working and investing in future generations, even if they aren’t your kids. There are consequences to your actions. You don’t live in a bubble. Make choices that positively impact the community around you. Yes, it will cost you something; time, energy, cash. But that’s just part of the deal. You can’t simply consume your way through life. That is, I feel, immoral. Make a positive impact. Go out and “better” something. Do it cheaply if possible.

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4 thoughts on “Better Because it Costs More?

  1. My great grandfather and grandmother had already faced the loss of at least one child. One uncle had lost his wife. This family had a hard life, but look at the fun they must have had. They had to have worked hard to build their farms and support their families. What financial decisions did they make along the way? Some good, some bad. They loved, cried, laughed, celebrated and buried on these farms. It may not be everyone’s choice of a good life, but it is ours.

    • Right. And the choices we make now impact future landholders in many ways. We may not be able to prevent childhood accidents but we can give them a good supply of firewood, timber, nuts and build solid fencing. We can retain more water in the landscape. We could build more structures of concrete and rebar but we have to make those decisions carefully. Any of these decisions could be borrowed from the future…and that act of borrowing could prevent our family’s future on the farm. We follow the example you and dad have set. We are careful.

  2. This is a great way to explain how borrowing works – something I’m definitely going to share with my teens. We talk about debt, savings, borrowing, investing, etc fairly regularly, but this is just a really great perspective. Thanks.

    Though I agree that from a farmers perspective, the amount of “better” that has been invested in the property and the land by previous generations is part of the value, to anyone other than a farmer, a piece of land is just a piece of land. To all but actual farmers, the value is really whatever the market will bear. If local properties have been selling for $100,000/acre, then that’s the market value: 20 acres X $100,000. No one is considering the quality of the fences, or the pond, or the organic status, or the heavily producing walnut trees. We are in that place here, where there are several acreages for sale, all around the 1 million mark or higher – for 30-40 acres (no house or building existing). Obviously, since they’ve all been on the market for a couple of years, the value is not reflected in the price, and they will eventually sell for whatever the market will pay for them.

    • Wow. Just wow. 1 million. Ever consider moving South? You can buy nearly 1,000 acres in Missouri for that money.

      Some of your better comes from location but otherwise, land is not land. And kind of the point is that paying more for the same bit of ground doesn’t make that bit of ground better. It just gets it bought now.

      I know some buy just as a hedge against inflation. They don’t care what they buy, they’re just looking to buy something to get rid of surplus dollars. I totally get it. But, here in the States, we only live on 3% of the soil. There is so much stinking land available that it boggles the mind. More so in Canada, though Vancouver Island is in demand. Maybe we should just get out of the way and let them buy it. They don’t want to use it and will need us to manage it for them. Salatin suggests it’s going to happen and we’ll be looking at lifetime leases on farmland. Lots of ideas here, no answers.

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