I love all the discussions here around debt and mortgages!
Permaculture Founder
Bill Mollison had a thought tool for this topic that I haven’t seen in any of the discussions yet:
Permaculture Asset
Class Analysis.
Both he and
Rosemary Morrow have called the asset classes the most important topic in all of
Permaculture! I agree, and hardly a day goes by that I don’t think about this tool. And yet, a lot of permies have never heard of this “most important topic in Permaculture.”
For the sake of a short introduction, there are 4 or 5 asset classes, depending on which edge of the
Permie community you’re talking in. In Growing FREE, we use: Degenerative Assets, Durable Assets, Generative Assets, Procreative Assets, and Transformative Assets.
This gives us a way of thinking about how we’re investing and spending our money, and whether or not our spending is going to lead to more
freedom or less.
At the bottom of the scale, “Degenerative Assets” or degenerating assets, are things that break down and lose value over time. Whenever we buy a degenerating asset, we’re giving ourselves another financial burden to carry.
So whenever we can trade out a purchase of a degenerative asset for one of the other asset classes, we’re giving our future selves a
gift.
Durable assets last a lifetime and hold value well.
Generative assets can be used to generate cash flow, like an
apple tree that produces apples or a cider press that can produce cider.
Procreative assets are things like
apple trees, which not only produce apples, they also can produce new apple trees!
As a former farm loan operation lackey, I saw a lot of farmers use debt to buy degenerating assets like non-durable hoophouses, or equipment with high upkeep and low economic value. It almost always ended poorly for the farmers.
But there’s one asset class that is particularly great to invest in, and using debt to buy it is almost always a good idea.
Like anarchist philosopher James C. Scott, and
Toby Hemenway, Bill Mollison pointed out in some of his PDCs that some of history’s best models of communities that grew land-based wealth used debt to buy these kind of assets. In fact, Scott points out in some of his
books that whole communities lifted themselves out of poverty to become well-to-do, using this strategy.
And these are Transformative Assets, assets that both cash flow (
enough to pay the
mortgage even in year 1) AND that appreciate well over time enough to be legitimately good investments. Ideally that means they appreciate exponentially (at least to a point.)
And in my 40 years of
experience, EVERYONE who I’ve seen become successful in creating a resilient
Permaculture lifestyle has invested in some form of Transformative Assets.
To give an example of what this means, blueberry bushes can be used to
sell blueberries. So they’re a generative asset.
They can also be used to propagate more blueberry bushes, so they’re a procreative asset.
But they only become a transformative asset if the plant capital is valuable enough that the plants will be highly valuable and maintain value as the stock increases for some time into the future.
A mortgage can be a degenerative asset! Using debt to buy a degenerating asset is a bad idea. But with the right planning, it can be a transformative asset that can lead to a lot of economic resilience and financial freedom.