Archive for February 24th, 2011

To help celebrate the 100th anniversary of the Weeks Act, we have asked Dr. Bob Healy of Duke University’s Nicholas School for the Environment to write a series of blog posts in which he’ll reflect on his classic book, The Lands Nobody Wanted, and the future of the eastern national forests. This is part 2 in the series. We invite you to join the conversation and post comments for Bob to respond to.

There is much discussion these days about government “investments.”  As an economist, I have to assume that what is meant is a federal expenditure that is not only immediately useful (like hurricane forecasting) but that yields a continuing stream of income or benefits (improving education at all levels is probably the one most discussed).  It would also presumably be something unlikely to be done, or done as well, by private capital.  Looking historically, it appears that the government has made some exceptionally good investments (the Louisiana Purchase, the land-grant universities) and some very poor ones (the high-rise public housing projects of the 1950s, many now razed.)

I’ve been giving some thought to the “investment” aspects of the Weeks Act forests.  From a strictly monetary standpoint, they seem to have been a remarkable bargain for the government.  I suspect that even John Weeks and other proponents of land purchase in 1911 did not foresee the vast increase in cheap, marginal farmland that would be dumped on the market, and available for government purchase, during the 1930s.  A combination of the devastation of the small farm sector in the 1920s and 1930s, with its movement of millions of people from marginal farms to the cities, and the general collapse of economic activity in the Great Depression caused enormous amounts of marginal land to become available for purchase, often through auction for unpaid taxes.

In 1912, the federal government used the Weeks Law to buy 287,698 acres at an average price of $5.65 per acre.  Purchases during the period 1912–1931 amounted to a total of 4.9 million acres, at an average price of $4.40 per acre.  But then came the Depression, and with it greatly increased purchases, at greatly reduced prices.  For example, in 1935 alone, Weeks Act purchases totaled 4.2 million acres, at an average price of only $2.38 per acre.  From 1932 through 1942 (when Weeks Act purchases slowed significantly because of World War II) the government bought 14.1 million acres, paying only $3.44 per acre. This, of course, was not just a consequence of the authority granted by the Weeks Act, but also government appropriations.  In 1912, the government appropriated $2 million.  But for 1934–35, there was a sudden jump to $34 million, followed by $12 million in 1936.  By 1942, the federal government had purchased a total of 19.1 million acres for $71 million, or only $3.72 per acre.

Cut over area, Louisiana.

Cut-over longleaf pine area on Kisatchie National Forest lands, Louisiana, 1930.

The bulk of the land bought during the Depression was so worn out by a combination of cultivation, cutting, and subsequent burning of slash, and erosion, that many considered it essentially worthless.  It was the sort of land, found particularly though not exclusively in the Appalachians and the Piedmont South, that pioneer soil conservationist Hugh Hammond Bennett often termed “destroyed.” In a speech given in 1934, Bennett said of land in a Piedmont county in South Carolina:

No one lives on the land. From the higher points, all the surrounding country was observed to be much the same: Destroyed land, worn-out and abandoned as far as the eye could reach. Silence pervaded the landscape, desolation, irretrievable ruin. Man had laid bare the bosom of the earth to the wrath of the elements. Nature had wreaked vengeance upon this once beautiful countryside; and yet, the same agency had set to work to rebuild what it had torn down. Pine trees had sprung up in every direction. Some of the land was too poor for trees, but much of it was covered with volunteer forests. Thus, the first step toward rejuvenation of the worn-out land was well under way. Unfortunately, the rehabilitation in all probability will require more than a thousand years. (Speech at Ohio State University, January 31, 1934)

Bennett had, of course, failed to appreciate that the forests themselves would have value, both economic and environmental.

So, how have the Eastern National Forests (ENF) fared as an investment?  First, let’s consider purely monetary returns.  Between 1940 and Jan. 1, 2010, a representative average of large company common stocks (S&P 500—this is the farthest back the series can be obtained) increased 8,600 percent (i.e., 86 fold).  During the same period an investment in Treasury 10-year bonds would have climbed 2,650 percent and inflation would have raised price levels 1,500 percent (which should be subtracted from the 8,600 percent and 2,650 percent nominal returns to get “real” returns.)  Now let’s value the ENFs in 1940 at $4.00 per acre, the price at which during that year the government purchased 545,000 acres.  What are they worth today?

As someone who has long studied rural land values, I can assert with some confidence that an “average market price” for forestland simply doesn’t exist.  And even if it did, the ENFs include areas of unusual scenic value (think of the Blue Ridge Parkway through the Pisgah, Nantahala, and George Washington-Jefferson National Forests, or the Appalachian Trail through the White Mountain National Forest) and timber stands that are older and better managed than the “average” for their respective states.  So let’s try another approach.  If the government had sold the ENFs in 1940 at $4.00 per acre and bought (or avoided the need to issue) its own bonds, it would have made money if the average price of an acre of ENF land in 2010 was $106 per acre or larger.  If the government had (adventurously!) invested in the stock market, it would have made a good investment decision if the average price per acre of ENF land in 2010 was $344 per acre.  I think that most people would consider either $106 or $344 to be far, far below what the ENFs are worth in a market sense.  So there can be little doubt that the government got a bargain, or, putting it another way, made a good long-term investment.

Weeks Act acreage approved

Acreage approved for purchase under the Weeks Act by fiscal year, 1912-1976 (click to enlarge)

But clearly the ENFs have values far beyond their monetary or real estate value.  They provide water control, wildlife, timber, and recreation.  And they increasingly are seen as reservoirs of biological diversity and possible buffers against some of the effects of climate change. Some of these values were foreseen by Weeks and his colleagues, others were not.  These additional values will be the subject of a future blog post.

Note: The calculations above are meant to be broadly illustrative.  S&P 500 returns include reinvested dividends as does the index of 10-year government bonds.  Certainly the government would have made a higher return in the stock market if it had included small company securities in its portfolio.  But that would have been quite unrealistic—even more so than investing in the 500 largest firms, which make up the S&P 500.  Returns on government’s actual purchases, rather than using a 1940 base would affect the return somewhat, but the calculations are tedious and unlikely to much affect the results.

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