accumulation of Farm B was somewhat re-
duced, the reduction in the operator’s capital
investment was substantial. In real terms, the
net worth accumulation of the average
manager was only 77 percent as great as when
inflation rates were equal (Table 1) and capital
investment was only 57 percent as great. For
above average management, the respective
figures were 99 and 75 percent. Effects on the
average managers with Farm C were similar.
Farm C with above average management had
about a 3 percent lower real net worth with the
differential inflation, but real capital invest-
ment was only about 86 percent as large as
when inflation rates were equal. In all of these
cases the differential rates of inflation led to
the purchase of less land and lower capital
investment, but this was partially offset by the
higher per acre values of land owned. Again,
the impact of inflation depends in large part on
the initial asset position of a farmer, but his
managerial ability is also important.
Because of the rather substantial impact of
differential inflation on both net worth and
capital investment, Farm B was also simulated
with average and above average management
in the stochastic mode. With the average level
manager, 20 of the 25 replications were
terminated before the simulation runs were
completed because of dissatisfaction. In con-
trast, only 9 of the 25 replications with above
average management terminated early. The
average net worth was only 87 percent as great
as in the deterministic simulation and the coef-
ficient of variation, 17.4 percent, was about
twice as large as when the rates of inflation
were equal.
In summary, the results indicate that the
effects of inflation vary with the initial asset
position of the farmer. The individual with
more real assets tends to benefit in relation to
the individual with fewer real assets. However,
individuals generally accumulate less land and
have lower real capital investments and net
worth with inflation, particularly if differential
inflation occurs, than with no inflation. Infla-
tion increases equity, but it also increases the
price of assets and tends to slow expansion of
the firm. If an individual could anticipate infla-
tion and were willing to assume considerable
risk, growth could be increased, but such a
situation would be unusual.
The coefficients of variation of real net worth
accumulation and capital investment are
generally higher with inflation than with no
inflation. The levels of real net worth and
capital investment generally are reduced
further by the introduction of variability in
yields and prices. Managerial ability of opera-
tors is an important factor enabling an individ-
ual to obtain acceptable levels of satisfaction
in situations of variability and to survive in
situations of uncertainty. Although the
simulation results cannot be tested by
comparisons with farms in the real world, the
general conclusions appear consistent with the
behavior of Central Indiana farmers over time.
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