Land Values and Inflation

It has been said that land is often viewed as a hedge against inflation for investors and land buyers, but what does that actually mean? To fully understand that concept, it is important to first understand inflation and money supply, and how they influence land values and farmland investment decisions.

Inflation and Money Supply

Inflation, in layman’s terms, is the loss of purchasing power of your dollar. It is the reason a candy bar that used to cost 25 cents now costs 2 dollars and 35 cents. You are not necessarily getting something dramatically better—your dollars simply do not stretch as far as they used to.

Money supply is the total amount of money and near-money circulating in the economy. The Federal Reserve tracks this through measures such as M2 money supply, which includes cash, checking deposits, and easily accessible savings.

When you put these two forces together, inflation and money supply, you begin to see how powerful they are in shaping an economy and influencing asset values, including farmland and land prices. They directly impact the average person, and they hit hardest for those who are holding cash rather than productive assets like land.

M2 Over the Last Decade

If you look at the Federal Reserve data on M2 money supply over the last 10 years, the trend tells a very clear story about inflation and asset price growth.

In 2016, M2 was roughly 13 trillion dollars. By 2019, it had grown to around 15 trillion. Then came COVID, and everything changed. Between 2020 and 2022, M2 money supply expanded at a pace with no real modern comparison, moving from about 15 trillion dollars to over 21 trillion in a very short period of time.

Since then, the growth has slowed, but it has not reversed. As of recent readings, M2 sits above 22 trillion dollars, highlighting that the money supply remains at a structurally higher level. The important point is not just the spike, but the fact that the system has held at this elevated level rather than returning to prior levels.

A large portion of that expansion came from emergency fiscal spending and monetary policy working together during the COVID period, AKA the feds and Politian’s creating money. The Federal Reserve supported the system through large scale bond purchases and liquidity programs, while Congress authorized unprecedented levels of spending. This combination expanded credit availability across the entire financial system. It was an expansion of bank reserves and credit conditions that allowed more money to flow through the system at once.

Since the United States left the gold standard in 1971 under the Nixon administration, the dollar has operated as a fiat currency system. That means it is not backed by a physical commodity, but instead by trust in the system, government policy, and the strength of the economy.

That change gave policymakers far more flexibility to respond to crises and manage economic downturns. It also allowed for a much larger expansion of money supply and credit over time than would have been possible under a commodity-backed system.

There is no question that this system has coincided with strong long term economic growth, technological advancement, and a dramatic improvement in living standards. At the same time, it has also contributed to persistent inflation and rising asset prices, including farmland values and other real assets, over time.

Who Does This Reward and What Does This Have to Do With Farmland

This is where it ties directly back to agriculture and farmland values.

An easy money environment, where credit is abundant and money supply is expanding, tends to benefit asset owners and punish those holding cash or nothing at all. Farmland is a clear example of this dynamic.

When liquidity expands, asset prices, including land values, tend to rise. Borrowing becomes easier, and investors search for hard assets like farmland that can hold value over time. At the same time, the purchasing power of cash declines as more dollars circulate through the system. In theory, this benefits those who take risk and invest in stocks, bonds, and real assets like land.

That creates a split outcome. Land values increase as more capital competes for a finite supply of farmland acres, while cash loses relative value because it does not participate in that appreciation.

That is the core of why farmland is often described as an inflation hedge. It is not that land is immune to economic cycles, but rather that it tends to hold its value in real terms when the currency is being expanded or devalued.

Over the last several years, this effect has been very visible. Those who owned farmland or other real assets saw significant appreciation, while those who held cash or delayed decisions often found themselves chasing a higher market.

It is no surprise that investors have moved into farmland investments in greater numbers. Farmland offers tangible value, income potential, and a level of scarcity that cannot be replicated, making it one of the most reliable assets for those looking to hedge against inflation.