THE VALUE OF FARM LAND AND EQUIPMENTS 205 



amount of all these possible rents, which the future years may 

 possibly yield, the price of land would be such that no man could 

 purchase it. 



As a matter of fact, however, the present market value of 

 the perpetual rent bearer is often not more than twenty times 

 the net rent, and it is seldom more than thirty times the rent. 

 This is explained by the fact that present wants are estimated 

 more highly than future wants, which leads to the discounting 

 of future incomes l " at a rate that reflects the prevailing 

 premium on the present." The rent which will be due one year 

 from date is discounted at this prevailing rate, and so it is for 

 all the succeeding rents. The present values of the succeeding 

 future rents grow smaller and smaller as the time one must wait 

 for them becomes greater and greater, until finally the rent 

 which is due at the end of an infinite period of time would be 

 infinitesimal. 



When the rate of discount is five per cent, for example, the 

 present valuation of a six-dollar rent which will be due in ten 

 years is approximately three dollars and sixty-eight cents; 

 the six-dollar rent which is due after twenty years has a present 

 valuation of about two dollars and twenty-four cents ; and the 

 six-dollar rent which is due in forty years has a present value 

 of about eighty-four cents. If this process of discounting future 

 rents be carried far enough, the point would finally be reached 

 where the present value of the future rent is too small to be 

 taken into account. The present value of the rent which is 

 due after an infinite number of years is infinitesimal. If the 

 present values of all these future rents be added together, the 

 sum would be the present capital value of the land, or the amount 

 of capital which, if lent at a rate of five per cent per annum, 

 would yield the same income as the land is yielding at the present 

 time. 



The simple mathematical method of finding this " sum " 

 is to divide the annual value, that is, the net rent, by the rate 

 which " reflects the prevailing premium on the present." If 



1 Frank A. Fetter, Publications of the Am. Econ. Assn., Papers and Proceedings 

 of the Sixteenth Annual Meeting, Part I, p. 196. 



