50 BULLETIN 1234, U. S. DEPARTMENT OF AGRICULTURE. 
these tenants pay. Their values are determined in the buyer's 
market where the typical purchaser intends to become an operator. 
If the situation were one in which all land were operated by tenants, 
and if the typical buyer bought to lease, and expected an annual 
return based on what an average tenant could or would pay, then 
land values would rest directly on contract rents, and if custom were 
effective in keeping these rents down it would also be effective in 
keeping land values down. 
Since, however, a large majority of prospective buyers bid for 
land on the basis of what they themselves can make it earn and not 
on the basis of what it will earn if leased to tenants, land values 
in the greater part of this country, outside of the Cotton Belt, are 
not based on contract rents. Land values are based upon the 
income which buvers who expect to operate the land hope to make 
it earn. Since the competition among buyers is very active they 
will usually have to pay a price that is based upon a capitalization 
of the full farm rent. What, then, is the relationship between farm 
rent and cash rent ? 
The demand for land comes from tenants and prospective buyers. 
The suppliers of land are in the main retiring farmers and landlords. 
These suppliers of land can dispose of their farms in one of two 
ways. They can lease them to tenants or they can sell them. If 
they can secure a larger return by leasing to tenants they will do it, 
but if they can obtain a larger return by selling their farms they will 
sell. 
Thus, if cash rents tend to fall below farm rents, more retiring 
farmers and landlords will offer their farms for sale in order to get 
the higher return. In other words, if the capitalized value of the 
cash rents is less than the selling price, these classes will sell and 
invest in farm mortgages or some other securities. This will increase 
the number of farms for sale and decrease the number for rent. 
The tendency is, therefore, for cash rents and farm rents to be main- 
tained in equilibrium. If custom were the force causing cash rents 
to fall below farm rents, it would appear, off-hand, that custom 
would have some influence on land values, for if farms are selling 
on the basis of their farm rents and more farms are offered for sale 
because cash rents are below farm rents, land values would be de- 
pressed below the capitalized value of the farm rents. This, how- 
ever, would be only a temporary situation if ever actually realized. 
The decrease in the number of farms for rent would start an active 
competition among tenants for those farms, thus forcing the contract 
rents back to the full farm rent and thus offering an inducement for 
retiring farmers and landlords to lease their farms rather than to sell 
them. 
On the other hand, if the demand on the part of buyers falls off, 
with the result that the land values fall below the capitalized farm 
rents, fewer farms will be offered for sale and more for rent. That is, 
the capitalized value of the contract rents will be greater than the sale 
price, so that it pays the retiring farmers and landlords to lease 
rather than to sell. Thus the selling price of land will be brought 
back to the capitalized farm rents. This is just the adjustment 
that has been taking place in the last 15 to 20 years. The available 
data on the number of farms sold each year indicate a downward trend 
in the number sold from 1900 to 1920. With the rising land values 
