402 APPENDIX 



If a landlord farmer charges 6% on his investment, and his 

 neighbor tenant charges rent, which amounts to \% or slightly 

 less, on the farm investment, it is quite obvious that the 

 of production on the farm operated by the landlord would 

 be greater than on an adjoining farm operated by a tenant. 

 This would be the result in spite of the fact that the two 

 farms were of equal fertility and had similar topography; and 

 that the two men were using the same methods and principles 

 of farming. 



This explains the second reason stated for using 4 r / f as tin- 

 basis for charging interest on investment. Comparisons are very 

 valuable. An intelligent comparison of results between farms 

 operated by landlords and those operated by tenants would 

 not be possible unless the charges for interest in the one case 

 were reduced to the same basis as the charges for rent in the 

 other case. 



This principle of equality in interest and rent charges is 

 recognized by some writers of agricultural bulletins who con- 

 sider the 6% interest rate as being standard and, therefore, 

 in the case of tenant farms, advocate an increase in the charge 

 to the fields for rent up to such a figure as will correspond 

 to 6% on the investment. This method attempts to make the 

 known quantity (rent) agree with the apparently unknown 

 quantity (interest). As stated above, rent is a known quan- 

 tity, because experience shows that over a large area tl 

 turn to the landlord in the shape of rent amounts to about 

 /o on his investment. 



It is also maintained, in support of the 6% rate, that farm- 

 ing has risks, and that any lower rate would not compensate 

 for the risks involved. This statement confuses the term 

 "risk in operation*' with "risk in ownership." There are 

 undoubtedly risks in the operation of a farm, due to weather 

 and market conditions. The risk in ownership of farm land 

 rented on a cash basis is very slight, since the income is cer- 

 tain and the land value unlikely to diminish. It is this slight 

 risk for which the absentee landlord is compensated in the 

 form of rent. It is this risk for which the operating land- 

 lord should be compensated in the form of interest on invest- 



