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, therefor
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