RELATION OF LAXD INCOME TO LAND VALUE. 49 
below farm rents, or that other forces, such as custom, are so import ant 
in the determination of cash rent that it hears no definite relation 
to farm rent; and if this he true it would bear no definite relation to 
land value. 
The force of custom has been greatly emphasized in discussions of 
contract rent. By contract rent is meant the rent agreed upon between 
landlord and tenant under economic conditions as they are known, 
as distinguished from the freely competitive conditions assumed in 
economic theory. Cash rent is only one form of contract rent. 
Great Britain and Ireland are the classic examples of countries 
where custom has been of outstanding importance in determining 
contract rents, and in these countries practically all contract rents 
are cash rents. Since custom has been of so much importance in 
these countries, it has been more or less assumed that it has been 
of considerable importance in this country. If this assumption be 
true, then cash rents should be less on the average than farm rents 
when the latter are increasing, and there should not be any close 
correlation between cash rents and farm rents. 
It can not be assumed, however, that because custom has been 
effective in determining rents in the British Isles it must have some 
effect here. Conditions in the two countries differ considerably. 
The explanation is to be found in the different land tenure situation 
in the two countries. In the British Isles the value of land is based 
upon the annual income which the landlord can realize from it when 
it is leased to a tenant. The fact that custom is an important factor 
in determining this rent is of no consequence to the buyer or seller of 
land. They are simply buying and selling the right to receive an 
income regardless of the forces determining it. The rents once deter- 
mined, whether by competition or custom, the value of the land is 
reached directly by capitalizing these rents. The typical buyer of 
land, in other words, is not an operator but an investor, and in buy- 
ing land he buys the right to receive an income regardless of how 
it is determined. In the British Isles, land values are based directly 
on contract rents, 16 and not on farm rents. 
In the greater part of the United States the conditions are different. 
Here the typical purchaser is a farm operator. He does not base his 
offer for farm land on what it would yield him if leased to a tenant, 
but on what he thinks he himself can make it earn and on its home 
value to him. Since competition for the ownership of farm land 
is very keen he will usually have to pay a price basecfupon a capital- 
ization of the full farm rent. If he can not or will not pay this 
much he can not become an owner of farm land. The price thus 
determined in this typical purchaser's market is a price that is set 
for all purchasers, whether or not they intend to become operators 
or landlords. 
If a prospective purchaser expects to become a landlord, he must 
pay a price for the land that is based upon the farm rents determined 
in this typical purchaser's market and accept an income that is 
determined in the renter's market. Even the farms which arc 
leased to tenants do not have their value* determined by the routs 
is The writer is, of course, aware of the important part which the prestige of land ownersliip plays in 
determining the value of land in Great Britain. 
75462°— 24 1 
