farmer for his management and labor. The latter may be called the 

 labor income. There have been gathered, for example, some data on 

 general farms tending to show that if a man has invested wisely in land 

 and equipment he may pay about 7 per cent of the total investment 

 for a working manager. This is equivalent to saying that a farmer 

 should receive 7 per cent on the capital invested for his management, 

 assuming that he is himself actively engaged either in managing or 

 laboring or both. In reaching this conclusion from data collected, 

 5 per cent interest on the capital invested was assumed. On this basis 

 the following will result : 



For labor income 7 per cent on $16,000 $1,120.00 



Interest on investment 5 per cent on $16,000 800.00 



For expenses 2,080.00 



Total $4,000.00 



One thing that is at once obvious from an examination of the data 

 is that if one must pay 10 per cent interest for money to purchase 

 land and equipment there would be only 2 per cent, or $320, left for 

 labor income. It will be noted that for each per cent which is added 

 to the interest charge an equivalent reduction must be made in the 

 labor income. Thus if the interest is 6 per cent one may expect his 

 labor income to be only 6 per cent of the capital invested. If the 

 interest, is 8 per cent, the labor income will be but 4 per cent. More- 

 over there is a tendency for the labor income to be further reduced 

 on farms growing a single crop, since such farms furnish employment 

 for a relatively small portion of the year.* However, on fruit farms, 

 this condition is somewhat offset by the opportunity for employment 

 in the packing houses, thereby augmenting the income of the owners 

 and their families. Of course, owners of fruit and other farms, who 

 are not actively employed thereon need not expect to secure more than 

 a fair interest on their investment and then only when intelligently 

 and efficiently managed. 



Some surprise may be felt that any definite relation can be assumed 

 between labor income and capital invested. The explanation seems 

 to be that the value of the land rises with the income and thus the 

 interest on the new capitalization prevents the labor income from 

 rising. Thus, if a man buys a farm at $50 per acre and the subsequent 

 income justifies valuing the land at $200 per acre, the interest upon 

 the new valuation keeps the labor income from rising. It is well 

 known that this rise in the value of land has been the source of much 

 profit to farmers. 



* See footnote, page 15. 



