VALUE OF FARM LAND 



in land at a greater distance he will usually expect 

 a higher rate of return to counteract the disad- 

 vantages arising from the distance. 



This same principle of capitalization may be 

 applied to other forms of income bearers as well 

 as to land. In estimating the value of a given 

 machine, the farmer may think of the amount of 

 service he is to get out of the machine during the 

 next ten years, let us say, on the assumption that 

 the machine will be worn out in that time. This 

 is a rather difficult process because the deteriora- 

 tion of the machine and perhaps, also, the inven- 

 tion of a better machine to do the same work will 

 result in a gradual reduction in the usefulness of 

 the machine; and yet, if he is to invest wisely in 

 the various forms of capital-goods, the farmer 

 should attempt to estimate the value of the series of 

 uses which may reasonably be expected to be got- 

 ten from the particular instrument of production 

 during the time which it shall be at all serviceable, 

 and then find the present value of these future 

 uses by discounting them "at a rate that reflects 

 the prevailing premium on the present." 



This capital value of the instrument represents 

 the maximum price which the farmer can afford to 

 pay, but does not, of course, necessarily represent 

 the market price of the instrument of production. 

 The market price may be greater or less than the 

 capital value obtained in this way, for the instru- 

 ment of production may have as many valuations 

 195 



