MAFIA – THE SUPERHEROES OF LEMON GROWERS & THE BOOM-BUST CYCLE
Nov 23rd, 2018
Lemons. Great for a sore throat and funniest home videos, especially the reaction when you give a lemon to a toddler to try.
But would you believe they are responsible for the growth and early success of the Italian mafia?
Back in the mid-1700s, seafaring folk were dropping like flies. If it wasn’t the rum, a wretched disease known as Scurvy got ‘em.
The symptoms of Scurvy include weakness, feeling tired and aching all over. As the condition worsens, it can lead to personality changes, and finally death from infection or bleeding. Pretty horrid stuff.
But life changed forever for many a sailor when a Scottish doctor by the name of James Lind found that Vitamin C rich fruits, like lemons, significantly helped sailors stay alive.
So with fewer deaths and healthier sailors, more cargo was moved from port to port resulting in increased profits.
This medical breakthrough had a gigantic impact as it enabled the shipping industry to be more productive.
Word got out around Europe how beneficial lemons were, resulting in somewhat of a Texas oil boom type scenario for growers of lemons. The great Lemon boom was on!
Don’t discount the importance of Lind’s discovery. Remember it’s important to see history through the lenses of time to give perspective on the technological and medical breakthroughs we see today.
This was a massive medical breakthrough of the time.
Much like the breakthroughs we see today with stem cell therapy, the 3D printing of body parts and robotic surgery.
Lind’s discovery has had a direct impact on ALL of us in Australia. See Cooks discovery of Australia in 1770 was only possible due to the humble lemon. One of the main reasons previous “Endeavour(s)” to discover the great southern continent had been foiled, was the crew falling ill with scurvy. Cooks ability to keep his sailors healthy throughout the long voyage meant that he was written into the history books forever as discovering Australia!
Lind’s discovery changed the shipping industry forever and turned the humble lemon into a highly desired (read priced here) commodity!
Italy at the forefront of keeping sailors alive
Back in Lind’s day, Sicily in Italy just happened to be one of the major growing regions for this life-saving fruit.
At Calnan Flack, we often say if you want to really understand the story – follow the money.
Enter the Italian mafia, also known as the Cosa Nostra.
Now, I can hear what you are thinking. The Godfather called in some favours, the boys put some horse heads in some beds, whacked a few blokes and “batta bing batta boom” took over the lemon, rich growing lands of Sicily making themselves a fortune along the way.
Pretty simple – but you’d be wrong.
In digging a little deeper, the mafia back in the day were the good guys. They were the vigilantes and would confront criminals on behalf of the locals.
Superheros of the lemon growers
Consider them the superheroes of the day, especially if you were a lemon grower.
The demand for lemons grew exponentially from the late 1830s to the 1890s, which helped struggling Sicilians out of poverty and introduced a whole new world of lemon-zesty thieves.
It was at this stage, the good-guy mafia brought in order to the whole supply chain from growing the lemons, crop protection and local and international distribution.
It was big business the lemon business.
As the price of lemons increased, so did the value of the orchards growing them – it had to.
As the farms became more profitable, they became more valuable and as we know they will be priced on their future profitability.
And further to this, every step of the process became more efficient and more profitable, allowing the underlying assets (the land) to be priced higher and higher.
This brings us back to the typical boom-bust cycle we see in bull markets everywhere.
When a resource or technology is running hot, people from all over the world step in to take advantage of the boom. Greed steps in and everyone wants their little piece of the action.
But as we know, the best cure for high prices, is, well high prices. So as other growers, from the likes of Florida, also a ripe lemon growing region of the world (pardon the pun) and substitutes like oranges and limes started to be consumed. This impacted the supply of vitamin C fruits and hence put the squeeze on the price of the Sicilian lemons.
Things turned sour for the lemon growers and distributors as the price fell.
And like all booms that have gone before us and all those that will happen in the future, there was a bust.
After the bust
Once the profits started drying up in the citrus industry, many Sicilians – including members of the Mafia – migrated to other countries, including the US.
In true entrepreneurial and mafia-style progress, these Italians leveraged their successful business models and teamed up with locals in America to seek new opportunities and continue to boost their success.
It was here they got into racketeering, extortion, gambling, then the corruption of public officials, stock manipulation schemes and eventually into what effectively became running the banks – but that’s a different story!
Every investor can and should learn lessons from history. As Mark Twain so rightly said, ‘History doesn’t repeat, but it often rhymes.’
Today you see a BOOM the likes of Bitcoin going from $1,000 to $19,000; where you can see the same themes play out.
The boom and bust of the crypto space
Today we see the growth in both the blockchain industry and the thousands of initial coin offerings (ICOs) which have been spawned off the back of Bitcoin’s rise in popularity. Hundreds of new crypto-style and blockchain businesses were started.
Now transactions in most online crypto related services are now down more than 80%. And that has happened in only a few months.
But like the Mafia that moved on, so are the blockchain geeks, seeking to create real productivity gains with their technology.
Keeping an eye on technologies of the future
So what services and technologies will ‘team up’ mafia style to create the new technologies of the future?
Where are the medical and blockchain innovations and transformations going to come from in the next couple of decades?
Remember, these innovations will be driving more productivity, increased profitability and more capital growth.
The mafia created a new industry – ‘the protection of the lemon trade’ which extended into distribution and sales, all increasing productivity, hence profitability and the subsequence increase in the economic rent.
When you boil it down, The Mafia was in the protection of assets business – just like Ray Kroc and his beloved golden arches (McDonald’s) were in the real estate business.
So next time you are sitting in McDonald’s sipping on a Lemonade, have a think about The Mafia, Lemons and how at the end of the day, whether you are a sailor on a boat or a hitman in New York, all the productivity gains will manifest back into the land price.