RELATToN OF LAlSfD tffCOME TO LAND VALl 41 
estimated at any given time rarely correspond to the increases that 
actually take place, the anticipated rate of return on the investment 
is not the same as the actual return, so there are these two problems 
in connection with the rate of return on investment. 
The anticipated rate of return on the investment is anticipated 
because the future incomes are estimated. The future incomes, 
whether actually known or estimated, are discounted to a pres 
worth at a rate of interest that is fairly definite, so that the only 
element of uncertainty is in the future incomes. The rate of capi- 
talization, then, is the anticipated rate of return, but the extent 
to which this return is realized depends upon the amount by which 
the actual future incomes deviate from what they were anticipated 
to be. 
The anticipated rate of return on the investment can be determined 
by solving the land value formula for r if v, a, and i are known. 
But in actual fact, i is not known and can itself be determined only 
by solving the land value formula for i. Thus, in determining the 
anticipated rate of return on investment we are faced with two 
unknown factors, that is, the rate of capitalization and the antici- 
pated increases in land income. 
The anticipated increases in income have already been calculated 
for a number of important areas by the formula. But in doing this 
it was necessary to assume a rate of capitalization and the rate 
assumed was the mortgage rate of interest. To what extent is this 
assumption justified \ 
It is often stated that lands are capitalized in this country at very 
low rates. Some of the arguments advanced to explain this are as 
follows: (1) The majority of American farmers do not view invest- 
ment in farm lands as a commercial proposition; (2) purchase of 
farm land is an unusually safe investment; (3) farmers have no 
alternative investments, hence always buy farm land, regardless of 
the rate of return it yields. 
It is argued that purchasers of farm lands in the greater part of 
this country are not guided by pecuniary motives for several reasons, 
(a) The farmer wishes to have a home of his own, hence is willing 
to pay considerably more for a farm than an absentee investor who 
is merely buying the right to receive a money income. The typical 
investor in farm land in this country expects to live on the farm 
he purchases, so that much of the income which he receives is in 
the form of satisfactions which are not expressed or measured in 
dollars and cents, (b) The prestige of ownership is especially men- 
tioned as one of the satisfactions which the purchaser of land enjoys. 
(c) It is also sometimes said in this connection that there is a " land 
hunger'' which makes farmers eager to own land, regardless of its 
price, (d) It is also alleged that the buyer of land does not think 
m terms of return on invested capital, but in terms of securing a 
place where he can use his own labor free from interference and 
where his job is always secure. 
For all these reasons it is held that the competition for land owner- 
ship is very keen, and that the buyers of land bid its price up so 
high that it yields a rate of return that is considerably below the 
rate of interest on other investments that are equally secure. 
It is probably true that all of these considerations are important 
from the buyer's point of view. The buyers of land, however, make 
