CALCULATING LABOR INCOME 89 



" Farm income is the difference between receipts and expenses. 

 This is the net return as a result of the use of the capital and unpaid 

 labor. It does not represent what the farmer earned, because both 

 the farmer and his money were working. In order to see what was 

 produced by the unpaid labor, we must subtract the amount that 

 the capital would have earned if placed at interest." 



" Income from unpaid labor is the farm income less 5 per cent 

 interest on the capital." 



" Labor income. Often the farmer is helped in the farm work 

 by members of his family. If such help has been given, the amount 

 that it would have cost to hire it is deducted from the income from 

 unpaid labor in order to get the amount that the farmer earned 

 by "his own labor. If a farmer's labor income is $500, it means that 

 as a result of his year's work he has made 5 per cent interest on 

 his capital and has cleared $500 above all farm expenses, besides 

 having the use of a house and such farm produce as the farm furn- 

 ished for consumption in the house. This figure can, therefore, 

 be compared with wages paid to a hired man who is given a house, 

 garden, etc." 



These definitions are stated in simple, direct terms, familiar 

 to farmers who are not learned in the mysteries of accounting 

 principles and practices. Modern farm accounting, it may be 

 added, is as yet neither a science nor an art. Hence these defini- 

 tions quite naturally run counter to certain usages observed by 

 some accountants in other lines of business. However, the account- 

 ants do not agree among themselves. 



Calculating Labor Income. The following case from the survey 

 above described illustrates concretely the method of determining 

 the farmer's " labor income": 



Capital invested $10,183 



Receipts 3,494 



Made up as follows: 



Crops $766 



Stock 536 



Stock products 2083 



Inventory increase 109 



Expenses 1,323 



Farm income $2,171 



Interest, 5 per cent on capital 509 



Labor income $1,662 



It will be observed that interest on " capital invested" is deducted 

 in arriving at the farmer's labor income. This is correct. Account- 

 ing practice in other lines of business which refuses to allow interest 

 on investment as one of the legitimate items of expense seems to 

 be an error. Obviously the farmer could invest his capital in bonds 



