230 



The Control of Farm Management. 



[TrNE, 



accountants appear to be agreed about this. In estimates of 

 aoricnltural costs appearing from time to time in the press, 

 the practice of charging interest is one of the commonest 

 errors, the argument being, apparently, that the farmer is 

 entitled to charge, as part of his cost, such a sum as the 

 capital involved could have earned had it been invested in 

 some other security. Money in the form of capital invested 

 in, say, War Loan cannot be used to produce milk or other 

 farm produce; therefore there cannot be a charge against milk 

 of the sum which the money would have earned if employed 

 in War Loan. It is, of course, of vital importance to the 

 farmer to consider, from time to time, what rate of interest 

 he is getting on his farming capital, but he must not attempt 

 to anticipate this calculation by including interest charges in 

 his costs. The proper time to do it is when his balance-sheet 

 for the year is before him. A milk producer may find that 

 on a capital of ^10,000 invested in his farm he has obtained 

 a profit of ^01,500. From high class securities he could have 

 obtained an income of .^600 by the investment of a similar 

 amount; from good industrials, ^£800; from speculative invest- 

 ments, d61,000 or so; and in each of these cases he would be 

 free to be employed in some salaried capacity. It is then for 

 him to decide whether, having regard to other opportunities 

 available for the investment of his capital and the alternative 

 employment of his own time, he would be better advised to 

 give up farming. Interest on the farmer's own capital is an 

 allocation of profits: interest on borrowed capital is a charge 

 against profits. But in neither case is it a charge against cost, 

 and to include it in cost is to produce a figure which is not cost 

 at all, but cost 2^7?/.s a certain margin of profit. 



Another common error in statements of costs is the inclusion 

 of a charge for Management. This has to be considered in the 

 price, not in the cost, and, as indicated above, the amount 

 earned by the farmer is a matter to be ascertained from the 

 profits. If charges for the farmer's own management, as 

 distinct of course from paid management, and for interest on 

 his capital, are included as costs, the resultant figure represents 

 the price at which the article can be sold to the consumer to 

 give the necessary margin of profit to the producer. For the 

 farm accountant to call it " Cost of Production " shows a 

 lack of clear thinking or is an attempt to impose on the 

 credulity of the public. In the long run both these charges 

 have to be reckoned with if supply is to be maintained, but as 



