MEANS OF ACQUIRING LAND
Of the three essentials to successful farming--capital, knowledge and
love for the calling--only the first can be obtained on credit, and
this only in part. Usually when a man desires to buy a farm he must
have, at least, one-third of his desired investment in cash. The
amount to be invested will include, not only the cost of the land, but
the cost of the necessary equipment of the farm. The percentage of the
total capital which may be borrowed, however, will depend on many
circumstances and is usually a matter of first importance. No man
should borrow more than a banker or other reputable business man
considers a safe investment.
Usually there is no better counselor as to a safe investment than the
local banker. The banker should, and generally does, stand in much the
same relation to the financial welfare of the community as the
physician to its physical, the minister to its moral and spiritual
welfare. The inexperienced person, even if he does not need to borrow
money, would do well to consult some responsible banker in the
neighborhood before making an investment in farm lands.
The young man should, as early as possible in life, open an account
with the local bank, not merely for the sake of the habit of saving
which this will encourage, but in order to come into personal business
relations with the banker. Instead of concealing from the bank his
business operations, he should seek the advice of his banker on all
important financial matters.
On an average, every farm changes hands at least three times in a
century. Every farm, therefore, must be acquired by purchase,
inheritance or gift at more or less irregular intervals. In the
neighborhood in which the author was born, there is not a farm but has
changed hands since he can remember. In many cases the farm is now in
the possession of a son; in some instances in that of a grandson of
the owner as known by the writer in his boyhood days. In this
particular community the acquirement of a farm by a person not related
to the former owner has occurred in relatively few instances.
As a rule, when the farm has been acquired by a son, the latter has
operated the farm as tenant or partner for a period previous to his
ownership and during lifetime of the father. In some instances the son
has boarded with the parents or the parents with the son and his wife;
or, in the case of a daughter, with the daughter and son-in-law.
Where there are several heirs, as is apt to be the case, the son
operating the farm is required to purchase or rent the interest of the
other heirs, unless the farm is large enough to be divided, which is
less seldom the case than is popularly supposed. Thus, if there are
200 acres of land worth $50 an acre, and five heirs, the young farmer
may inherit $2,000, and be required to assume the remaining $8,000 as
an obligation. He may borrow this money at the bank, placing a
mortgage upon the farm, thus settling with the other heirs at once. Or
he may pay the other heirs rent on their share of the farm. In any
case he will, if successful, gradually cancel his obligation and
become owner of the farm. That no heir is willing to assume this
responsibility is the most common reason for a farm changing from one
family to another, and the disruption of community interests.
The customary, or normal, method of acquiring land has been and still
is a combination of tenancy, inheritance and mortgage. Without some
tenant system and without the farm mortgage, it would be impossible
for the average young man to acquire a farm. That men are constantly
advancing from farm tenant to landowner is shown by statistics giving
the percentage of tenants by ages. The majority of farmers under 30
are renters. Most farmers over 45 are owners of farm land. Thus in
Illinois, in 1900, approximately 75% of the farmers under 25 years of
age rented their farms, while less than 20% of the farmers over 55
years of age were tenants.
The question for the young man to consider is not what effect the
tenant system has upon the welfare of the nation or what political
ills may be connected with farm mortgages, but how to make use of
these necessary and beneficent agencies for the acquirement of a farm.
A system of tenancy which leads to absent landlordism and a permanent
tenant class is thoroughly vicious, while a practice which enables a
man to become, within a reasonable period, a land-owning farmer is a
thoroughly approvable and, indeed, necessary method of acquiring land.
As already indicated, most young men will need in some form or other
to employ more capital than they possess when they start farming. They
must, therefore, determine what is the best form of obtaining the
necessary capital, viz.: whether to borrow the money on a farm
mortgage, or whether to use the capital someone else has invested in a
farm by paying him rent for it. The conditions of tenancy in this
country are often not the most fortunate, yet the young man of
character may well find, for a time, at least, it would be best for
him to rent a farm and invest his own capital in the necessary
machinery and live stock to conduct it properly.
Much will depend on the character of the arrangement which may be
made. Usually more favorable terms can be secured from landlords
owning large numbers of farms than from the owner of one or two farms.
The large landowner is content with a moderate income from each farm,
because in the aggregate his income is sufficient for his needs, while
the retired farmer who must live off the proceeds of a single farm is
apt to drive a hard bargain and may not be over particular concerning
the maintenance of said farm. The writer knows a farmer who owns a
good farm purchased from the proceeds of a rented farm. He continues
to live on the rented farm and rents his own, because, it is said, his
landlord is willing to make him more favorable terms than he makes to
his tenant.
The more capable the tenant the more favorable the terms he may exact.
Certain tenants are in demand and can have their choice of farms. A
prosperous-looking man was pointed out recently as an example of a
tenant capable of buying a farm in one of the most highly developed
counties in the United States. It was stated that as a renter he could
have his choice of any farm in the county, but that he did not have a
dollar invested in farm land. Possibly he invests his surplus earnings
in stocks and bonds.
It is not the present purpose to determine the relative merits of the
different systems of land tenure, but to try to be helpful to the
beginners by discussing the usual practices in order that he may know
whether the arrangement he is considering is customary and whether it
is likely to prove satisfactory.
Every third farm in the United States is rented under one of three
methods:
1. A definite money rent may be paid, ranging from $2 to $6 an acre
for land on which the ordinary, staple crops are raised. Perhaps $3 to
$4 is more commonly paid for such land.
2. In the South it is common for the landlord to require a definite
number of pounds of cotton per acre or a certain number of bales of
cotton for a one or two-mule farm, as the case may be. This is
classified by the census authorities as "cash rent," but will here be
called "crop rent." Crop rent is less common than either cash or share
rent in the northern and western states, although perhaps the most
common form in the South. Crop rent, however, is met with in some
sections, as in western New York where certain large landowners
require a definite number of bushels of wheat, oats or maize and make
certain stipulations as to hay and straw. They charge a cash rent for
pasture.
3. Much the most common form of tenancy, however, is that where a
certain percentage or share of the product is given the landlord for
the use of the land.
Before entering into a discussion of the customary conditions under
which land is rented on shares it may be helpful to point out the
fundamental differences between cash rent, crop rent and share rent.
In case of cash rent, the landlord takes no risk, either as to the
price or the amount of product. In the case of crop rent, he shares
the risk as to the variation in price, but not as to the amount of
crop raised. The latter may depend upon the clemency of the weather or
upon the industry and skill of the tenant. In the case of share rent,
both landlord and tenant share equally as to variation in the price
and the amount of product.
Three forms of share rent may be recognized:
(a) Where landlord furnishes only real estate (land and buildings),
the tenant supplying everything else, including teams, machinery,
labor, seeds and fertilizers. Under these conditions it is customary
for the landlord to receive one-third and the tenant two-thirds of the
crop raised or the product produced.
(b) The second form of share rent is where the landlord furnishes the
real estate; the tenant supplies teams, tools and labor, while the
landlord and tenant own equally all live stock other than teams, and
bear equally all other expenses, as for seeds, fertilizers and cost of
threshing. Under this system, it is customary for landlord and tenant
each to receive one-half of all sales. As each owns one-half of all
the live stock (teams excepted), each shares equally in all increase.
The landlord pays for the cost of permanent improvements such as new
buildings, fences, repairs and drainage. The tenant, in making these
improvements, in some cases, agrees to furnish two days' labor for one
day's pay. The theory is that, while the increased value of the real
estate is of advantage only to the landlord, the improved facilities
are of some benefit to the tenant. Since he can do this work at odd
times when not otherwise employed, he can afford to take a generous
view of the matter. It is obvious that if he remains on the farm long
enough the tenant will come into his share of the benefit, while if he
intends to leave the farm soon he may not. There is in the mind of the
writer a prosperous tenant who, after eighteen years on a single farm,
declared he had no desire to make a change, and doubtless there are
thousands of similar instances.
Under the plan in which the tenant furnishes everything except the
real estate, the tendency of the farm is apt to be downward both as to
the improvements and the crop-producing power of the soil. The
interests of the landlord and tenant are not mutual. This condition of
tenancy leads to growing only those crops which can be readily sold
from the farm and to frequent changes of the tenant, with its
accompanying auction sales of property. In one region, where this
system prevails, it has been facetiously remarked that each tenant has
a sale every year to determine how much he is worth. It is less
trouble than taking an inventory.
In the second form of share rent, the interests of landlord and tenant
are more nearly mutual. Under this system, animal husbandry is
possible, which, generally, involves pasturing and feeding a
considerable part of the crops upon the farm, and even the purchase of
nitrogenous by-products. All this leads to permanency of tenant, since
the landlord and tenant are both interested in the live stock and
other personal property, which cannot be divided, with economy, each
year. It is interesting to note that the house is the least likely to
be kept in repair. The improvement of the barns and fences or the
laying of tile drains increases the landlord's income, but he has no
financial interest in the house, so long as the tenant is willing to
live in it.
There are, of course, many variations in the arrangement of details
between the landlord and tenant. On many dairy farms in the northeastern
states it is customary for the landlord to own the cows. While the
landlord and tenant share equally from the sale of milk, butter or
cheese, in such cases the increase in the herd belongs to the owner of
the land. Hence, money from the sale of any animal, old or young, goes
to him. This is because the landlord must keep up the herd. If a cow is
sold, he must furnish another to take her place.
(c) The third type of tenant farming is where the tenant furnishes
nothing but his labor and managerial ability, and receives a share of
the sales, which may be one-third. This is rather an unusual type of
tenancy, since, where the landlord furnishes all the capital, it is
much more common to employ a farm manager at a monthly wage. The wage
varies greatly, but is seldom below forty dollars or above seventy-five
dollars per month without board, especially to those who have not
hitherto had much managerial experience.
Various attempts at profit sharing have been made. A recent instance
is of a young married man taking 160 acres of tillable land where the
landlord has a fairly well-stocked farm. The young man is to have a
house and everything in the way of living the farm can furnish. He is
to receive $20 a month and one-half the net proceeds, or, what is
called in Chapter XI, the farm income. In considering a contract of
this kind it is necessary to make a careful distinction between: (1)
Gross sales, (2) net proceeds, viz.: the gross sales less the expenses
of running the farm, and (3) profits, which may be defined for the
purpose of this discussion as the net proceeds less the interest on
the investment.[A]
Assuming 160 acres of land, all tillable, devoted to dairy farming in
eastern United States, gross sales may be estimated at $20 an acre, or
an annual gross income of $3,200, and the net proceeds at $10 an acre,
or $1,600. Under these conditions the young man's income would be
$240, received as wages, plus $800, as his share of the net proceeds,
or a total of $1,040 a year.
Generally speaking, probably a more satisfactory method, both for
landlord and the farm manager, would be to pay the latter as nearly as
may be what his services should be worth and give him in addition
one-half the profits; that is, one-half of that which was left after
deducting the expenses of running the farm and interest on the capital
invested.
Merely for illustrating the method of calculation, let us assume this
farm with its equipment to be worth $100 an acre, or $16,000. Let the
farm manager be paid $840 a year. Assume the same gross income,
$3,200, and the same cost of operating, $1,600, to which add $600, the
additional salary of the manager. The total expense is then $2,200,
and the net proceeds $1,000. If 4%, or $640, was charged on the
investment, there would be $360 to be divided between landlord and
manager, making the salary of manager $1,020. A simple calculation
will show that if 5% were charged, the salary of the manager would be
$940 a year, and if 6%, $860 a year. The advantage of the latter
method of employment is that the young man runs less risk, while both
receive equally any surplus beyond fair wages and fair interest on the
investment.
In this connection it is important to consider how much may be
reasonably paid for managerial ability. A study of the figures on page
133 will show that the labor income from a considerable number of
farms of the better class was about 7% of the capital invested in the
farms. The inference is, therefore, that if a man has $10,000 wisely
invested in a farm he may pay $700 for a working manager; or, to put
it in another form, before the owner of a farm can afford to pay
$1,200 a year for a farm manager, he should have about $17,000
invested. Moreover, this investment must be in a form calculated to
return an income. If part of it consists of investments for pleasure
or fancy, such investment will not only not add to the income, but
will detract from it by increasing the cost of maintenance.
This is scarcely less important to the employee than it is to the
employer, since if the owner pays a higher salary than the manager can
earn, he quite surely will sooner or later discharge his manager. This
may result disastrously for the discharged young man, not merely on
account of the loss of employment, but because his failure may
militate against his securing satisfactory employment elsewhere. When
an employer is seeking a man, he looks for one who has succeeded.
There is an old saying, "Nothing succeeds like success," and it is
only too true that nothing fails like failure.
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[A] Profit is sometimes defined as that part of the product which
the producer can consume without reducing his means of production.