6 BULLETIN 1822, U. S. DEPARTMENT OF AGRICULTURE ( 
investment which the owners added to the original outlay for real — 
estate, this one may be accepted as a rough indication. On this basis — 
the net increment was approximately $86.58 per acre,° an average of © 
$3.46 per acre for each of the 25 years. Expressed on the basis of 
the valuation in 1896, $86.58 is 468 per cent and $3.46 is 18.7 per cent. — 
When net increments are added to net rents, an even more striking ~ 
result is shown. By allowing for $2.10 primary net rent per acre, 
a yearly figure for increment and rent is shown as $5.56, or 30.1 per 
cent on the original valuation. 
RATE EXPRESSION OF RENTS AND INCREMENTS 
These changes may be expressed in terms of compound interest. 
From one point of view it 1s incorrect to say that the owners in- 
vested but $18.50 an acre at the beginning of the 25-year period and 
$6 an acre more during the period. The valuation of the real estate 
was established on higher levels at intervals throughout this period. 
The owners could have taken their profits from increased realty 
prices at almost any time during the period. If they had done so 
and reinvested their money in bonds, for example, or left it in a 
savings account to compound once or twice a year, they would have 
calculated the rates of return from these higher levels. 
‘Had the amount of the original investment been put at interest 
at 8 per cent and had the principal been allowed to grow by yearly 
compounding, the sums attained would have been but little different 
from those to which the net increments would have brought the 
valuations. If these increments had so proceeded as to be most 
nearly approximated by interest additions compounded from the 
original investment at 5.6 per cent per annum, the yearly addition 
would have been practically the same as the primary net rents 
actually received. If an annual compounding rate of 9.2 per cent 
were applied to the original investment the yearly additions would 
correspond closely to the yearly benefits that accrued to those owners 
from net increments and primary net rents combined. Persons 
lending money on first farm mortgage security in the neighborhood 
of these farms obtained an average of 6.4 per cent during the 
period 1896-1920. The return in the form of primary net rent was 
but little short of the return these farmers might have had on the 
equivalent of the original investment loaned out, with the yearly 
interest reinvested in similar loans. The return in the form of 
net increment was considerably in excess of such returns on mortgage 
investments. Increment was practically paralleled by net increases in 
equities, since but little of the increment was withdrawn in the form 
ot borrowings against the increased valuations. The returns in the 
form of primary net rent were applied but little as: reinvestment 
funds in this property, and can be considered to have been devoted 
to the current consumption of the owners. Through the combina- 
tion of rental and incremental returns this land surpassed mortgage 
lending as an investment. The principal advanced, as if accumulat- 
ing a return larger than the mortgage rate; but at the same time 
there was a side return in the form of rent available for current 
disposal. The good fortune of the land investor is less impressive, 
6 Five years showed decrements in a total of $3.49 and 20 years showed increments 
in a total of $90.07. 
