Inflation and Cheap Land

What is the correlation between inflation and cheap acreage? Inflation is basically the result of more and more paper currency being printed, that competes for the same existing goods and services. Land, however, can’t be created or printed. Thus, you have the case where more and more paper currency causes it to become worth less and less, while land, because it is in finite supply, becomes worth more and more.

The above hypothesis can easily be tested by reviewing historical data. Let’s take the case of a person who lived in the United States 75 years ago, in the year 1936. This was during Franklin D. Roosevelt’s presidency, and a few years before World War II. In 1936, houses sold for $3,900, new cars for $700, a loaf of bread for eight cents, and gasoline for 10 cents, and the average wage was around $1,700 annually.

Now, let’s assume that this person inherited, in that year of 1936, the sum of $10,000 cash. Let’s further assume that this person wanted to pass the money down to his heirs, to be paid out 75 years later, in the year 2011. But the person couldn’t decide whether he wanted to pass down the $10,000 in cash or buy the cheapest 10,000 acres he could find in the nation and, instead, pass the acreage down to his heirs. In 1936, he could easily have found cheap land for $1 per acre, and thus he could have acquired 10,000 acres for the $10,000.

Would the heirs be better off receiving the $10,000 cash or the 10,000 acres?

Had they received the $10,000 in cash, it wouldn’t have been much of an inheritance. That sum of money in 2011 didn’t have nearly the same purchasing power that it possessed in 1936. In fact, by 2011, the $10,000 would barely support a family’s meager lifestyle for 90 days.

The 10,000 acres, however, would be an entirely different matter. Depending on where the land was located, the 10,000 acres would be worth anywhere from $2.5 million to $10 million, or more!

In summary, the above clearly demonstrates the direct correlation between inflation and cheap land. Through the years, paper currency always depreciates in value, and finite assets like land always appreciate in value.

To view cheap land that can be a hedge against inflation, please click here.