18 BULLETIN 1382, U. S. DEPARTMENT OF AGRICULTURE 
measures selected should be indicative of the farmer's ability to 
pay as reflected in the possession of funds obtained from all possible 
sources. For the farmer, the funds available for family living are 
primarily the resultant of the efficient and effective use of sufficient 
and properly balanced farm business resources. In some instances 
additional funds are available in the form of returns from labor 
off the farm, interest from investments, gratuities — that is, gifts or 
inheritances — and increased land values. 
Chief among the factors available for consideration as measures 
of the f armer s ability to pay or to provide, as tabulated for this 
study, are farm income, labor income, disposable net income, acres 
per farm, total farm capital, operator's working capital, cost of 
operation, index of the diversity of farm enterprises, net worth 
of the fa liner, percentage of net worth obtained as gratuitous 
wealth, percentage of net worth obtained through net increase in 
the value of land, number of years since the operator began his 
earning life and the operator's average annual rate of accumulation. 10 
The first three of these factors, farm income, labor income, and 
disposable net income are suggestive of the farmer's liquid or 
quick assets, his ability to pay as measured by the profitableness 
of farming and by the receipt of funds from all other sources 
during the year of study. The first of these three, farm income, 
constituting the difference between farm business receipts and ex- 
penses, can not be regarded as a satisfactory index of the farmer's 
ability to pay since it makes no allowance for interest charges on 
borrowed capital nor for income from sources outside the farm. 
Nor can labor income be accepted as a true index of the farmer's 
ability to pay. In determining labor income deduction is made for 
interest on capital invested regardless of whether interest is paid 
as an actual farm business expense. Again, with labor income, 
receipts from sources other than the farm business are not ac- 
counted for as available for family living. 
Disposable net income, that is, the total returns per family from 
labor on and off the farm and from all farm and other investments 
is the best measure available of the farm family's liquid or quick 
assets for the year of study. Disposable net income, however, is 
regarded as an inadequate measure of the farmer's ability to pay 
since it represents the returns for only one of the years during 
which the standard of living prevailing at the time of study has 
been in the process of establishment. One year's farming opera- 
tions can scarcely be regarded as typical unless all farmers are 
engaged in the same enterprise. Furthermore a part of the ex- 
penditures for any one year are often made before the income from 
farm operations for that year is available. Funds accumulated dur- 
ing previous years or anticipated from farm operations or from 
investments of future years are sometimes drawn upon. The use 
of bank or store credit may be resorted to in many instances. 
Acres, total farm capital, operator's working capital, cost of 
operation and the index of diversity may be regarded as indicative 
of the farmer's ability to pay only as their possession or use (prac- 
tice in the case of diversity) are reflected in the family's total net or 
liquid assets. The last of these, the index of diversity, represents 
10 See definitions, p. 31. 
