634 AGRICULTURAL ECONOMICS 



201. RENT RETURNS AND SPECULATION 1 

 BY O. G. LLOYD 



Through a long series of years the productive value of land will 

 about equal its market price. In other words, the cash rent will pay 

 a time deposit rate on the market price of land and the share rent 

 will pay a mortgage rate. The risk and trouble of collecting a time 

 deposit is certainly no greater than collecting cash rent. The invest- 

 ment in farm mortgages and the collection of interest rates certainly 

 afford no more risk and trouble than the supervision and collection 

 of share rent. 



Most Iowa farm owners hold land primarily for profit and not for 

 sentimental reasons. If they believed they could make more money 

 by selling their farms than by holding them, they would sell the farms. 

 This question was asked more than 800 farmers: "If you believed you 

 could make more money in the city than in the country, how many of 

 you would sell your farms ?" With but few exceptions, all said they 

 would sell their farms if by so doing more money could be made. 



If most of the Iowa farm owners believed land would not advance 

 in price, they would sell at the market price and put the money on 

 interest. They could get 4 . i per cent on time deposits or 5 J per cent 

 on farm mortgages at a time when cash rent is 2 . 30 per cent and share 

 rent is 4 . 28 per cent. At present the land owners believe the advance 

 in the price of land will make up the difference between the cash rent 

 and the time deposit rate, or between the share rent and the farm 

 mortgage rate of interest. They prefer to hold their land on this 

 speculative basis rather than sell at the market price and put their 

 money out on interest. 



Proof that the element of risk is greater each year is shown in a 

 decreasing cash rental rate, although the time deposit rate has 

 remained about the same. For instance, according to reliable survey 

 data, the cash rental rate for Iowa in 1910 was 2 . 76 per cent; in 1912 

 it had fallen to 2.30 per cent, while in 1913 it was less than 2. 20 per 

 cent. In other words, the land had advanced in price more rapidly 

 than the rent, and the difference between the productive value of land 

 and its market price was becoming larger and larger. 



The question may be asked, "If the tenant is getting adequate 

 returns, why is the per cent of tenancy increasing?" 



1 Adapted from Bulletin 159, Iowa Experiment, Station, pp. 166-69. 



