It has been said that land is often viewed as a hedge against inflation for investors and other land buyers, but what does that actually mean? I think in order to fully wrap your head around that mentality, you first have to understand inflation and, to some degree, 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 $2.35. You’re 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, which includes cash, checking deposits and easily accessible savings.
When you put these two things together, inflation and money supply, you start to see how powerful they are in shaping an economy. They directly impact the average person, and they hit hardest for those who are holding cash rather than productive assets.
M2 over the last decade
If you look at the Federal Reserve data on M2 money supply over the past 10 years, the trend tells a very clear story.
In 2016, M2 was about $13 trillion. By 2019, it had grown to about $15 trillion. Then came the COVID-19 pandemic, and everything changed. Between 2020 and 2022, M2 expanded at a pace that has no real modern comparison, moving from about $15 trillion to over $21 trillion in a very short period.
Since then, the growth has slowed, but it has not reversed. As of recent readings, M2 sits above $22 trillion. The important point is not just the spike, but also the fact that the system has held at a structurally higher level rather than returning to previous levels.
A large portion of that expansion came from emergency fiscal spending and monetary policy working together during the pandemic, or the feds and politicians 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 U.S. left the gold standard in 1971 under the Nixon administration, the dollar has operated as a fiat currency. 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 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 also has contributed to persistent inflation and rising asset prices over time.
Who does this reward?
This is where it directly ties back to agriculture.
An easy-money environment, where credit is abundant and money supply is expanding, tends to benefit asset owners and punishes those holding cash or nothing at all. Farmland is a clear example of this.
When liquidity expands, asset prices tend to rise. Borrowing becomes easier. Investors search for hard assets 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 buy stocks, bonds and assets like land.
That creates a split outcome. Land values tend to rise because more capital is chasing a finite supply of acres. 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 itself is being expanded or devalued.
Over the past several years, this effect has been very visible. Those who owned farmland or other assets saw significant appreciation. Those who held cash or delayed decisions often found themselves chasing a higher market.
It’s no surprise that investors have moved into farmland in greater numbers. It offers tangible value, income potential and a level of scarcity that cannot be replicated. It truly is a strong hedge against inflation.