THE RENT AND VALUE OF FARM LAND 633 



an unimportant one. If he chooses to buy land, it will be because 

 he can get a satisfactory income from it, and he will very properly 

 count the income as interest on the money he has invested in the land. 

 If the income from the land increases, the selling value of the land will 

 increase. From the point of view of our investor this will, of course, 

 be an increase in the ''capital value" of the land. It is important to 

 note, however, that the land does not return an income simply because 

 it is valuable. The process is the reverse of this. The land aids 

 annually in the production of goods which command a price in the 

 market; a part of the value of this annual product is imputed to 

 the service of land and paid for in the form of economic rent; and 

 the land is valued because it commands a rent. The value of the land 

 is governed by its income-yielding power. 



This fundamental fact is apt to escape our notice because in the 

 United States lands are more commonly sold than rented, so that we 

 think of the value of lands as the price at which they will sell, rather 

 than their annual value, or rent, although the first kind of value is 

 derived from the second. In England, where lands are more com- 

 monly rented, the value of land is usually thought of as its annual 

 value or rent, while the selling value is often expressed as "twenty 

 (or other number of) years' purchase," meaning twenty times the 

 annual rent. The process by which the capacity to yield a certain 

 annual income is made the basis for the determination of a certain 

 selling price is termed "capitalization." In a country which is grow- 

 ing in population and wealth, and where land rents are consequently 

 increasing, the selling value of land is apt to be somewhat greater than 

 a capitalization of the amount of income it is yielding at the time of 

 the sale would justify. This is because the ownership of land carries 

 with it the right to receive future as well as present incomes, and the 

 prospectively larger future incomes are taken into account in the 

 process of capitalization. On the other hand, the durability of land, 

 the variety of uses to which it may be put, and the social prestige 

 attached to land ownership cause the rate of capitalization, that is, 

 the ratio of income to selling value, to be lower in the case of land in 

 old established communities than in the case of most forms of capital 

 goods. 



