58 QUESTIONS OF PRINCIPLE 



milk or other farm produce, and therefore there cannot be 

 a charge against milk for what the money might have earned 

 if it had been employed in War Loan. It is, of course, of 

 vital importance to the farmer to consider, from time to 

 time, what rate of interest he is getting on his farming 

 capital, but he must not attempt to anticipate this calcula- 

 tion by including interest charges in his costs. The proper 

 time to do it is when his balance sheet for the year is before 

 him. A milk producer finds that on a capital of 10,000 

 invested in his farm he has got a profit of 1,500. From 

 high-class securities he could have got an income of 600 

 by the investment of a similar amount ; from good 

 industrials 800 ; from speculative investments 1,000 or 

 so, and in each of these cases he would be left free to employ 

 himself in some salaried capacity. It is then for him to 

 decide whether he will do well to continue milk producing, 

 or whether, having regard to other opportunities available 

 to him for the investment of his capital and for the employ- 

 ment of his own time, he would be better advised to give 

 up farming. Interest on the farmer's own capital must 

 always be an allocation of profits ; interest on any borrowed 

 capital is a charge against profits ; in neither case can it 

 ever be a charge against cost. To include it in cost is to 

 produce a figure which is not cost at all, but cost plus 

 a certain margin of profit. It follows, therefore, that interest 

 on capital is a matter to be considered in price, not in 

 cost. In the special case of the owner-occupier the margin 

 of profit must be sufficient to include interest on the fixed 

 capital (i. e. rent) as well as interest on the working capital. 

 Management, Another common error in statements of 

 costs is the inclusion of a charge for the farmer's reward 

 as manager. This again has to be considered in the price, 

 not in the cost, and as indicated above the amount earned 

 by the farmer is a matter to be ascertained from the profits. 

 If charges for the farmer's own management 1 and for 

 interest on his capital are included as costs, the resultant 



1 The salary or wages of a paid manager are, of course, a legitimate charge 

 against costs. 



