VALUE OF FARM LAND 

 ratio ; . The limit of the sum of such a 



series is which reduces to . We have 



i 



i+r 



then the formula for the value: V = which 



is the ordinary method of capitalizing rent. 1 



As a matter of fact, however, the present capital 

 value of the land as determined in this way does 

 not often correspond with the price which is paid 

 for land. There are several important reasons 

 for this difference. First it is not certain that the 

 annual income that can be drawn from sixty dol- 

 lars will always be three dollars. The rate of 

 interest may fall to four per cent, which would 

 reduce the income to be derived from that amount 

 of money to two dollars and forty cents, while 

 the annual income from the land would not be 

 reduced by a lowering of the current rate of 

 interest. The belief that there is a greater proba- 

 bility of a decline in the income to be derived 

 from the money than from the land, often makes 

 men willing to pay more for land than the amount 

 of capital which will now yield the same income. 

 Another reason which leads men to pay more 

 for land than a money loan which will, at the pres- 



1 The author is indebted to Prof. E. B. Skinner, of the 

 Department of Mathematics of the University of Wisconsin, 

 for assistance in the preparation of this formula. 



189 



