636 AGRICULTURAL ECONOMICS 



The difference in the market price and the productive value of 

 land is more evident when rental and interest rates are compared. 

 Tenants make adequate returns for the use of their labor and capital 

 because they pay a rental rate which is little more than half the mort- 

 gage rate of interest. This rental rate enables them to make sufficient 

 savings for the first payment on land, but if they were paying the 

 mortgage rate as rental on the present market price of land they 

 could not acquire ownership in a reasonable length of time. 



This unhappy situation is not necessarily due to the present 

 interest rates. If these rates were lowered they would likely cause 

 an advance in the price of land. The difficulty lies hi the capitaliza- 

 tion of the anticipated rise in land values. People are very optimistic 

 concerning the future price of farm land and have added part of the 

 future value to the present price. This has caused land prices to 

 advance more rapidly than rent and resulted in widening the gap 

 between the market price of land and its productive value as measured 

 in terms of the difference between the interest and rental rates. 



If land were owned as a home and not as a speculative investment, 

 the market price of land would more nearly equal its productive value 

 and the rental rate would more nearly equal the mortgage rate of 

 interest. The value of land would then depend on its annual produ- 

 cing power rather than on its probable advance in price. Land would 

 be valued according to the capitalization of its rent and would be low 

 enough hi price to enable the farmer to pay for it from the annual 

 earnings of the land. 



Today the returns from the farm are divided equitably between 

 the landlord and tenant and are sufficient to enable the tenant to 

 acquire ownership of a farm in a reasonable length of time. The 

 regrettable feature of the situation is the element of chance brought 

 about by speculation, which could be abolished if more of the farmers 

 regarded the farm as a permanent home, not only for the accumulation 

 of capital, but as the best place to retire from active work. 



202. THE INFLATION OF LAND PRICES 1 



In these days we hear much talk about "back to the land" and 

 "forward to the land." The proponents of these movements show 

 us with alarm the exhibit from the census presenting the facts that 



1 From Report on Unemployment by the Commission of Immigration and 

 Housing of California, December, 1914, pp. 21-22. 



