from the quill of Antisthenes the Younger
The other day, finding a remnant of an originally good meal in the fridge, I was considering the option of disgarding it or somehow salvaging it. Having been born shortly after the last war in poor circumstances I am exceedingly reluctant to throw away food and so I reached for a bottle of tomato sauce. It is a great stand-by to make almost anything palatable. As we are approaching another global economic crisis, the food manufacturers and retailers are resorting to various tricks to make us pay more for less. So it occurred to me that the Buffet’s acquisition of a big dollop of Heinz’s ketchup was rather prescient. Beans were not on my mind as I cook them myself and a few tins are kept simply as an emergency reserve.
But Mr Martin Hutchinson knows his beans: Warren Buffett’s political pronouncements are intellectually vacuous hot air, yet I suspect he retains excellent investor’s instincts about the future trajectory of the US economy. So when he manifestly overpays in a US$28 billion acquisition of the food producer H J Heinz, we should listen and ponder what the deal tells us about where we are going. On cool reflection, the answer to that question is manifestly a survivalist one. For Warren Buffett it’s clear: when Cash is Trash, Beans are Queens!
Mr Hutchinson then knowledgeably and at some length discusses the pro and cons of acquisition of gold/silver and of gold/silver mining companies, prior to returning to the unpleasant crux of the matter:
While either gold or silver has been the monetary instrument of choice for almost all major world civilizations, their value depends on the existence of an ordered civilization, with the rule of law and a substantial volume of monetary transactions. The exquisitely organized Song dynasty China was able to move to paper money for a century or so before the Mongol invasions, but China for most of history relied on silver as a means of exchange. Even when the country was suffering from hyperinflation in the 1940s, gold and silver were accepted as payment for the goods and services that were available.
However, as you can read in Jung Chang’s Wild Swans, during the Maoist famine years of the “Great Leap Forward” of 1958-61, when market mechanisms ceased to operate, gold and silver were no longer useful, because possession of them endangered your position in a society that was full of informants and imprisoned the bourgeois.
Similarly during the Ukrainian famine of 1928-32, possession of gold and silver got you labeled as a “kulak” and subject to liquidation by Stalin’s secret police. In both cases however, food itself remained a highly acceptable means of exchange and could obtain you any kind of services available, or indeed antique furniture and jewelry if your taste ran to that sort of thing and you were confident your political connections made you safe from liquidation.
There is thus a more sinister potential implication of Buffett’s Heinz purchase. He may believe that inflation will become extreme, that the monetary system will break down completely, that even gold and silver will become unacceptable stores of value in a period in which their value is after all itself a matter of fiat since gold at least has no practical use.
In that event, a breakdown of the monetary system would presumably be accompanied by a breakdown of the distribution system, causing the entire 310 million population of the United States to revert to barter and subsistence farming.
At that point, the most valuable commodities would become food staples and armaments. With baked beans piled in warehouses around Omaha, and a ketchup lake at an undisclosed location, Buffett could dominate the post-Apocalypse economy to an even greater extent than he dominates the present one. He would of course need a collection of bodyguards and a sophisticated means of self-defense, so maybe we should look for future Buffett purchases in the armaments sector.
Alternatively, Buffett may believe that the chance of a truly Apocalyptic economic outcome is small, but that a temporary period of post-Apocalypse-like conditions is still possible, during which his Heinz investment (and that in any armaments manufacturers) could prove immensely valuable.
The prospect of a breakdown of civilization may seem a remote one, but for five years we have suffered under monetary and fiscal policies more extreme than any previously attempted. Their eventual collapse is certain. Maybe Buffett’s deep investment genius is telling us, in the face of his public political persona, his view on what form that collapse will take.
Martin Hutchinson is the author of Great Conservatives (Academica Press, 2005) – details can be found on the website www.greatconservatives.com – and co-author with Professor Kevin Dowd of Alchemists of Loss (Wiley, 2010). The whole interesting article – Warren Buffett Looks Like a Leading Indicator – is here.