It is the end of a long day here in the Normandy countryside and we have jumped online long enough to learn that very little of consequence happened in financial markets today. In the meantime, we learned from our host Bill Bonner tonight that three-life leases are still alive and well. Are you surprised too?
We’re still working on our short summary of how three-life leases led to a huge generational transfer of wealth and capital in 17th and 18th century England. Landholders who were content with steady, predictable returns in the form of money and livestock from their land holdings didn’t think twice about leasing their most productive assets to those who worked the land.
Bill tells us that in France, this arrangement was designed to look out for the interests of farmers so they would not be at the mercy of unscrupulous land holders. It also recognised that farms were long term capital investments, and it was better for everyone to remove them from the volatility of shorter-term leases. Losing the productivity of farmers meant less food, and there was not as much surplus to go around before the advent of fiat money and cheap credit.
But what the English landholders did not anticipate was a large, one in a three-generation inflation in land prices during the term of the leases they had granted. Land prices in Europe surged, partially because the money supply surged with the opening of gold and silver mines in the new world. Meanwhile, the land owners were receiving fixed rental payments, just as the three-life lease holders were fully benefiting from an historic appreciation in land prices.
Getting into an asset class at the right time is the single best thing you can do to increase you investment returns. It’s really the most important factor – more important than stock selection or individual security analysis. The lease holders got historically lucky, and their good fortune literally generated much of the capital that would finance the industrial revolution.
We’re only belabouring the point because we think a similar opportunity exists today. The world’s productive assets are changing hands. Debtors are losing out to creditor. And for investors, avoiding the assets that will lose the most from debt deflation is job one. Finding the assets that will benefit the most from inflation is task number two. More on that tomorrow.
Also, we spent dinner tonight talking with a Graham and Dodd style investor from India. More on what we learned tomorrow. Until then…
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