Thursday, August 29, 2019

The Shrewd King 6.4: What is a horse worth?

“If what you are saying is true, that no help will be coming, then we better be planning on reverting back to an 1880s economy.” Salazar said.

“Yup.” Wilder said without qualification or elaboration.

“Then I could use some of your expertise, starting now.” Salazar said.

“What is on your mind?” Wilder said.

“We have an ally on our eastern flank who wants to buy corn...lots of corn.” Salazar said.

“He wants to buy it on credit and he is offering a horse as collateral.” Salazar said.

“I don’t have a good way to put a value on that horse. The ally claims it is worth 36,000 ounces of silver but that seems ridiculously high. That is the equivalent of 120 man-years of labor or 36,000 bushels of corn.” Salazar said.

Wilder twisted around on the large round of firewood he was using as a seat next to the dying bonfire. Seeing who he was looking for, he called out “Phil, can you spare us a moment of your time.” just loudly enough for the young man to hear.

A man in his early/mid-twenties joined the two men. He was clearly John Wilder’s son.

“What can I do for you?” the young man asked politely.

“Phil is a Certified Public Accountant. Best person to ask when you want to calculate the value of something.” John Wilder said.

Salazar repeated his dilemma.

Phil Wilder had heard about the contact between the Amish and Kate so he asked, “Did you ask the Amish? They use horses every day and ought to have a pretty good handle on what one is worth.”

“I tried.” Salazar said. “He asked a bunch of details about age, whether it was a gelding or a mare, breeding and the like. As soon as he heard where it was coming from he said ‘No Bid’ and clammed right up.”

“No Bid?” Phil said.

“Yup. Amish are big on auctions. ‘No Bid’ means they don’t want it at any price.” Salazar said.

“That’s odd, but, whatever.” Phil said.

“Did the man requesting credit tell you how he figured the horse was worth 36,000 ounces of silver?” Phil asked.

“Yup. He said a horse can do the work of ten men pulling. He said a horse has a working life of at least ten years. By his figuring at an ounce of silver for a man’s full day of work, that came to 36,500 ounces of silver.” Salazar said.

“He can say anything he wants, but I doubt that a horse can work that hard every day of the year. More to the point, is that kind of work available year-round?” Phil mused.

“Is there anybody we can ask how they would use a horse?” Phil asked.

It just so happened that Farmer Don was nearby and pressed into service as an expert.

“I really don’t know.” Don demurred.

“You know a heck of a lot more than we do.” Salazar said. “At least you can get us into the neighborhood.”

Phil asked Farmer Don, “If you had a horse...think of it as a very small many months out of the year would you have work for it?”

Don said, “June...I would use it for haying and cultivating. July, August and September would be light. October harvesting and November harvesting and to start plowing. January wood hauling. February and March would be light. April and May would be pedal-to-the-metal plowin' and plantin'.”

Counting on his fingers he said “That is four months out of the year.”

Phil pulled out his smart phone and pulled up an app. He tapped in a little bit of information.

“Horses have expenses. How much do they eat?” Phil asked.

“They eat a lot!” Salazar said.

“The equivalent of one man-day for a day’s food?” Phil asked.

“Maybe not that much. Maybe a half bale of hay and some grain every day.” Salazar said.

“How about equipment?” Phil said. “Harnesses and shoes and saddles and such.”

Having heard “horses” mentioned, Di Carnie (Kelly’s wife) had edged up and had been following the conversation.

“Those are expensive.” she said “and they wear out and need replacing.”

“The equivalent of another half man-year per year?” Phil asked.

“Maybe if you include the grooming and hoof-care.” Di allowed. “I really don’t know what we are going to do as they need to be re-shoed and new harnesses made. I suppose somebody will have to teach themselves how to do that.”

“And that won’t be very efficient, will it.” Phil finished for her. "My job as an accountant is to protect my client. In the absence of solid data I work from safe, conservative estimates."

Looking over the numbers, Phil asked “Even if a horse can do the work of ten men, can it do it alone or does a person have to be with them?”

“A person has to drive them, of course.” Di said.

“Then it is really the net work of 9 men, right?” Phil asked.

“Not if you have a team of horses. One person can drive a four horse team just as easily as a single horse.” Di responded.

Phil looked up. “Is he putting up one horse for collateral or a team of four horses?”

Rick Salazar answered. “A single horse.”

Looking down at his spreadsheet, Phil said, “That puts the value of a horse pretty much on-par with a human working full time.”

“So 3600 ounces of silver, not 36,000 ounces.” Salazar concluded.

“Not so fast.” Phil said. “We haven’t discounted for the time value of money.”

“I am familiar with the concept but don’t see how it applies here.” Salazar said.

John Wilder was content to sit back and let the conversation flow between his son and Salazar. It was a side of his son he had not seen much of.

“A working horse today is worth more than that same horse next year.” Phil said. “Since there is no way to insure the horse, you have to discount the work it MIGHT do next year.”

“What do you mean ‘might do’?” Di asked.

Phil shrugged. “What if it gets stolen? It is not like we have police. If it is stolen then it is gone. What if it slips and is lamed up? What if it eats something and gets sick. It is not like we have a vet we can call.”

Salazar asked “How do you pick a discount rate for something like that?”

Phil said, “We make educated guesses. The prime interest rate was 20% before they stopped reporting it. Most of society was still functioning at that point. The cops still showed up for work, kids went to school and convicts were in prison and trucks could still make deliveries.”

“I would double that number to start with. 40% for a proven borrower and 50% or 60% for an unproven one.” Phil said.

Rick scratched his head. “That is more than I can keep in my head after a few mugs of beer. What does that work out to?”

Phil tapped a few numbers into his smart-phone. “That comes to 400 ounces of silver for the 60% discount rate and 600 for 40%.

“So splitting the difference is 500 ounces of silver or bushels of corn.” Rick said.

“Yup.” Phil said.

John Wilder interjected at this point. “Another thing you can do is to spread the risk around. I, for one, am willing to go halfsies if the horse is a mare. That way you would only be risking 250 bushels of corn or ounces of silver if you have to collect on the collateral.”

"Let me add to that" Phil said. "From a macro standpoint, the local economy is going to lock-up if loans are pegged at 40% interest rates. One way to minimize the risk, which will lower the interest rate that has to be charged, is to spread the risk around. That is, to let other parties buy a piece of the action. That way if one venture goes belly might sting but it won't be fatal to any one family."

“Let me talk to Kate, but I think she will go for that. We ARE getting stretched a little bit thin.” Rick said.



  1. Interesting approach, and I'm curious as to how this is going to play out.

  2. It sounds like the owner of the horse is Blastic. That would explain why the Amish were not interested at any price. It would also explain why he is trying to get over ten times more than what the horse is worth.

  3. Really starting to hope that Blastic gets what seems to be his just deserts ...

  4. Not only is Blastic overvaluing his horse, which he seems to feel he has a monopoly on, due to the Amish "no bid", I would be suspicious of whether his horse was as good as he claimed - and if I DID do business with him, I'd check for a last minute ringer!
    Why doesn't Paul work with the Amish instead of Blastic?

  5. A prancing Thoroughbred is no work horse, it doesn't have to be a Belgian or Clydesdale, but race or show horses are not suited to the plow. Go to the Amish for an honest deal on an animal that has real utility.

    1. My source for horse information suggested that there is a place for both. The huge draft horse is ideal for plowing but is over-kill and slow moving for cultivating.

      Growing up in the early '40s his parents had several horses and he said Standardbreds earned their oats.


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