Folk economics: investments

The economic boom (or bubble, if you prefer) that followed the second World War has encouraged folks to adopt a narrow definition of the term investment, something like “a place where your money can grow.” We take our excess funds and turn them into something which, through no effort of our own and if we are fortunate, can be sold later on for much more than it cost us. We adopt the mindset of the capitalist, thinking that we should be materially rewarded not for our labors but for the mere fact that we possess something that is valuable enough to someone else that they are willing to pay us for its use.

I think the definition that the American Heritage dictionary gives for investment is closer to the agrarian mark: “Property or another possession acquired for future financial return or benefit.” Except for the word financial, of course, since from an agrarian’s point of view there are many material blessings that will never be connected with money, e.g. the tree a neighbor gave you to plant that now produces apples you eat and drink and feed to your animals and give away but never sell.

The current economic crisis has been unkind to many people’s finances, particularly their investments. Stocks are down, bonds are down, housing is down, automobiles are down, precious metals are down, the purchasing power of the dollar is down. Folks are shocked when they look at their stock-based IRA or 401K balances and find that they have dropped about 40% over the past twelve months, wiping out the gains made over the previous ten years. The old investment truisms—stocks always go up, house prices always go up—are looking threadbare right now, and it is worth rethinking how to go about managing the assets you now have and will someday earn so as to preserve their value for your family, or even increase them.

I’ll assume that my readers are comfortable with the idea of loosening their ties to the modern industrial economy, or are in the process of getting comfortable with it, and so I won’t bother going through the usual litany of dollar-conserving suggestions. Except one: don’t pass up a bargain on a staple you would otherwise have to buy in the future.

I still remember my surprise many years ago when I read a book by Andrew Tobias called The Only Investment Guide You’ll Ever Need. Although it was primarily focused on financial investments, he began the book by pointing out that his best rate of return, and a guaranteed one at that, came from buying large quantities of, say, his favorite shaving cream that were on sale. He was so devoted to this idea that he used his investments as end tables and coffee tables in his house, covering stacked boxes of canned tomatoes or coffee or motor oil with a tablecloth and a lamp. Assuming that the price was going to remain fairly stable, he could lock in a 100% rate of return by buying something at 50% off which he knew he would use eventually.

This approach must be used thoughtfully, of course. It could be used to justify the purchase of some premium product which you buy now but would be far out of your price range when the time comes to use it. For example, I could stock up on my favorite premium coffee now, but when the time came to use it I might prefer to have invested those dollars elsewhere because I am now so poor that awhile back I gave up drinking coffee at all. Or it could be used to justify the purchase of something I don’t actually know I need; a great deal on a set of woodworking tools is only a great deal to the person who will use them productively.

Now let’s generalize this approach with an agrarian spin by restating it as follows: value is best preserved by converting it into assets which a family can use to meet its own needs and perhaps produce a surplus.

Consider, for example, garden hoes. For much everyday weeding we like a particular kind of garden hoe, the collinear hoe designed by Eliot Coleman. They don’t exactly wear out, but one has broken on us (and been replaced). A quick look at the records shows that the price of this hoe, imported from Switzerland, has increased by 15% over the past two years. So we might do well by turning surplus funds into collinear hoes, enough to go around as the next generation of households is formed, plus a few to insure against breakage.

Once we had settled on homesteading, we didn’t hesitate to turn our surplus funds into the things that we would need to make that a reality. And I use the word “need” loosely, since many of the things we bought would probably look extravagant to someone who is homesteading on a budget, not having the savings we were blessed with to help ease the transition. We bought a large, comfortable home on thirty acres with no regrets, because it was available, we thought we would be happy here, and we weren’t knowledgeable enough about homesteading to use those funds more effectively. We could have survived with less home, but giving up so much so quickly could very well have soured us on the project. We could have bought more land (especially with the next generation in mind), but we’re still learning to be good stewards of the land we have, and we figured it was better to start somewhere with something real and available, as opposed to waiting for a place that was theoretically more optimal but might never come along in practice.

In a number of other areas we have overengineered the solution, i.e. bought above our current needs, but only when we were fairly sure that we would eventually grow into the purchase. Early on we bought a very nice BCS walk-behind tractor for tilling, and have since added a number of heart-stoppingly expensive attachments: a plow for making raised beds, a chipper-shredder, a 5-foot-wide sickle bar cutter. In the beginning we only had small jobs for them, and the power of the tool was way out of proportion.

But the excess capacity made the jobs especially easy to do as we were learning them, as well as making it easy to scale up as the time came. Making a couple of raised beds as we did the first year was trivial, and could almost have been done by hand. Making forty of them, as Chris did this year, is tedious and exhausting but still one-tenth the effort of building them by hand—for us, the difference between possible and impossible. Next year there may well be sixty to build. Similarly, the sickle bar cutter makes quick work of cutting grass, which means that it is now feasible for Chris to clip three or four acres once the cows have strip-grazed them. And it is likely that we will use it in the not too distant future to cut home-grown oats and wheat, and perhaps even hay in the years to come.

One of our biggest stumbling blocks in the early days was lack of fencing; we had nine or so good acres of pasture, but none of it was fenced. When the first cows came we tried to get by with portable electric fencing, but it was difficult to move, needed to be moved frequently, and didn’t do a great job of containing the cows. More experienced folks could probably have come up with an electric fence solution, but it was beyond us at the time. In his book All Flesh is Grass Gene Logsdon sings the praises of cattle-panel fencing, which is double the price of woven wire fencing and much, much more than barbed wire, but is easy to install, easy to service, and about as secure as you can get. I caught my breath as I totaled up the cost of the panels and T-posts that would be needed to fence the perimeter of our pasture, but went ahead and bought them. Chris and Maggie were able to erect the fence in about ten days, and it has served us well. Those dollars not only bought us a fence that will last about forty years, but much peace of mind, i.e. good fences make good neighbors.

We probably bought more barn than we needed, but we now have a good solid 20’x30′ structure where the cows are milked and hay and tools are stored. But a greenhouse is s
omething we won’t use for most of the year (at least for a long time), and so for that we decided to economize, erecting some extra home-shaped metal hoops that Jerome Lange sold us for $20 apiece and stretching a double-folded sheet of plastic over them.

Potential productivity is a big consideration in deciding how to direct our funds. The drive to our house is a bit steep and a better driveway would be nice, and if we had a large cash cushion we might have it done. But these days we’re more inclined to put up with it and spend the money instead on improving our water situation by digging a pond or damming up a small gorge on the property, since it would wean us off county water (which isn’t free, and may not be there forever).

Talking this over with a friend, he asked me if I think a root cellar would be a good investment. I do, of course, and we ourselves are getting to the point where we could use a good one. But the question immediately started me thinking about how to arrange things so that a root cellar could do more for a family than just store food for the winter. Should it be built extra large so that surpluses could be stored for later sale, or green leafy vegetables could be kept for sale longer after harvest? Should it be built close to the road, so as to make it easier to fetch stored items for roadside stand customers?

And this may be a good place to emphasize again that such an asset is only worth the investment if you actually use it. Root cellars not filled with winter squash and potatoes and home-canned goods are just damp, cold holes in the ground. And there seem to be lots of root cellars in this area, nearly all unused; it’s almost as if some company came blowing through, convinced folks that they were a good idea, built a lot of them, and moved on. A good one isn’t cheap, so it would be a foolish place to park your money if you weren’t likely to be growing and preserving a winter’s worth of food.

On the other hand, if that’s the direction you need to go in, then investing in a root cellar can be a strong motivation to do the things that make a root cellar worthwhile. And as with the walk-behind tractor and the fencing, there is a strong argument for overengineering as a way of easing the transition to a more agrarian life; it can reduce the amount of determination needed to succeed at such a project by making the job pleasant and easy.

In summary:

  • If you have surplus funds, consider turning them into assets which you know you can use productively.

  • When investing in an asset, consider how the different options might yield additional productivity.

  • Don’t be afraid to buy more capability than you can use at the start, as long as you are likely to grow into it.

  • Don’t be afraid to buy an asset that will push you to go in a direction you need to go.

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