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talization value as an important factor, Aereboe repudiates it entirely. In this work, the writer thoroughly investigates the radical demand of Prof. Aereboe, which would entail a revision of the laws of valuation which are based upon the capitalization value and which he considers retrogressive. He thinks Dr Aereboe's definition that the capitalization value of an estate should be estimated from the net profits to be expected in the future to be too narrow a conception and distinguishes between past capitalization value, i. e. that which can be ascertained, and future capitalization value, which can only be estimated. The latter is the more important for purposes of valuation; the former however is indisputably of the nature of capitalization value. That the estimation of the capitalization value depends on the net profits of the past is no argument against this method. The estimation of the market value, which is recommended by Aereboe as the only correct one, must also be based on the past, and it is easier to arrive at probable future net profits from the consideration of dependable past capitalization values, than to estimate future market values from the sale prices of the past.

Aereboe's second argument against capitalization value is that the basis for this is not obtained by the estimation made by one valuer, but only by taking the valuation of the generality. This objection does not touch the essence of capitalization valuation, but only its possible misapplication, for the estimation is arrived at from the average capitalization value of similar estates. Aereboe finds an additional difficulty regarding capitalization value in the fact that opinions differ as to what should be considered as forming part of the net profit of an estate.

According to the writer, however, the difficulties in the estimation of the changes in the capital have little effect on the average capitalization values of several estates.

Aereboe believes that valuations made on the basis of market values would include fancy prices which exceed the agricultural value of the property and considers that, for this reason, the above method is preferable to estimation by capitalization value. This, however, the writer believes to be rather a disadvantage, for the relation between the average capitalization price and the mean market value gives a measure of how far the sum exceeds the local customary prices of land.

Aereboe also advances against capitalization value, that equal incomes under the different conditions of everyday life have very fluctuating purchasing power, or in other words, that the amount of pleasure and comfort which can be obtained for the same money is subject to great variations according to individual circumstances, and that an estate is, in the first place, a man's home and only secondly a source of profit. This objection in no way lessens the importance of capitalization value, which tells us what the estate is worth in capital, independently of the wants of the owner, whether these be few or many. If, in addition to the agricultural advantages, the possessor is willing to pay for the convenience of proximity to a town, he should know how far he is doing this, and for this reason it is again necessary to be acquainted with the capitalization value.

Aereboe then draws attention to the rate of interest, and says that equal returns with equal indebtedness of capital have to pay very different rates of interest annuities and that the income of the agriculturist consists entirely of the difference between his returns and the interest he has to pay on his debts. This faulty manner of estimating the value of property is, according to the writer, no reason why the science and teaching of valuation should give up a correct method. Interest on debts and annual payments cannot, of necessity, be included in the capitalization value, and this does away with the objection that the rate of interest in a country varies according to time and place.

Aereboe also considers that the conditions of taxation are a ground for rejecting capitalization value, for the value of the property depends on the rate of taxes.

Aereboe also alleges against the adoption of capitalization valuation that the latter does not cover the price of the estates. This is true, but when the capitalization value of a property is ascertained, it affords the buyer a means of calculating the risk he runs, in accepting the market price, of paying the property more than it is worth, and at the same time allows him to know how much more he pays it. On the contrary anyone who takes as basis only the average market price is no wiser than other would-be buyers and has not a really clear idea of what he is doing.

Aereboe looks upon the price of an estate as the result of a long building up of the market value and a criterion of the capitalization value of the property. According to the writer, however, he over-estimates the circumspection and foresight of the intending purchaser, for the present times clearly show the small part played by capitalization valuation and the large element of speculation in land purchase. The purchaser who does not take the capitalization value as a basis will always value the land too high, and if the land were to cost all farmers such high prices as correspond to the average sale prices of every decade, farming would almost cease to exist. The market values must be supplemented by estimates which consider the land exclusively from the standpoint of its returns. According to the writer, the capitalization valuation affords the best security against excessive prices being paid for estates; the recognition of the market value as a basis for judging the conditions of the returns of an estate and the rejection of capitalization valuations would be a step which might easily prove fatal to the agriculturist.

The intending purchaser learns from the statistics of the prices paid whether the sum demanded is above or below the usual average. The capitalization value affords him a means of calculating the money returns which he can expect.

As for the valuation of mortgages, Aereboe is of opinion that the value of the security is given by the price which can surely be obtained by the sale of the estate, within not too long a period, excluding from it the value of all those parts of the property that are liable to deterioration (devastierbar). The writer does not see why the capitalization value should not afford as good a basis of estimation as the market value. The Swiss Civil

law has defined the following limits for mortgages for which the Cantons are responsible, since they provide the valuations: A mortgage can amount to two-thirds of the capitalization value of the land and to one-half of the value of the buildings. The security of these mortgages is so large that the Cantons have not hesilated to make themselves wholly responsible for the valuation, in order that it may be made with all possible care. The writer does not consider that Aereboe's method of valuing the security is in any way an improvement upon the Swiss enactment.

Aereboe rejects the estimation of the capitalization value even in the case of the succession duty and maintains that this should be based on the market value. He admits, however, that the market values of properties in a whole district usually exceed the capitalization value of these estates and sees the necessity of reducing them.

The writer readily agrees that the expropriation valuation must be based on the market value of the properties. Only in the rare cases where the capitalization value exceeds the market value can the owner be justified in demanding a sum of indemnity based on returns.

Neither the theory nor the practice of agriculture, nor legislation, can in any way be induced by the objections of Aereboe against the estimation by capitalization value to give up the important postulate that the land is a capital yielding profit and that its capitalization value plays the chief part in its valuation, mortgaging, sale, inheritance and taxation.

The objections which Aereboe makes against the form of the so-called Ertragstaxe (calculation of net income) are so far admitted by the writer, that he allows that the net income can only be ascertained by a system of book-keeping calculating separately gross returns and expenses but cannot be as certained from only one of these items. While Aereboe abandons the capitalization valuation also on practical grounds, the writer sees the possibility of giving the valuer accurately calculated average capitalization values by means of the formation of agricultural book-keeping offices. In the work mentioned at the beginning, the writer has shown how the material collected by the Swiss Peasants' Secretariat on the profitableness of farming can be made use of in estimating the capitalization values.

With the help of such returns, the Swiss Peasants' Secretariat hopes in the course of time to draw up the average capitalization values and their factors in the different districts and under the various conditions obtaining in the country. According to the writer, Aereboe's suggestion deserves the fullest support. The latter wishes for the establishment of special valuation bureaus to which should be entrusted the work of collecting the market prices; in the writer's opinion these valuation bureaus should also collect capitalization values. Work has been done already for some years in this direction in Switzerland and in the course of last summer, the Swiss Peasants' Secretariat was commissioned to forward suggestions respecting an intelligence bureau for the valuation of property. It was a question also of the establishment of a Swiss Peasant's Association, which should assist the peasant to extend the advantages of the new civil legislation also to the spheres of the laws of inheritance and of the mortgage of property.

56- Farming Problems according to Working Expenses and Difference of Net Returns.

OSTERMAYER, ADOLF. Landwirtschaftliche Betriebsfragen im Lichte von Produktionskosten und Reinertragsdifferenz. Archiv für exakte Wirtschaftsforschung, Vol. IV, Part IV, pp. 608-636. Jena, 1912.

The author endeavours to show by means of some examples the value that the calculation of the cost of production has in judging some problems in farming. In valuing agricultural produce he applies the simplest principles of practical experience. Thus, for instance, the money value of farmyard manure is calculated according to a farm price which varies with the quality of the manure and the soil of the farm; and for the sake of simplifying matters it is debited in equal proportion to all the crops of a rotation, while the labour of the hands and teams employed in the operation of manuring are debited to the crop which receives the manure.

Next follows the average cost of production of a series of crops, calculated on the account books kept during the year 1910 in nine peasants' farms in Moravia. In the cost of production the interest at 4 per cent. of all the capital invested in the farms is included as well as the wages for the manual labour of the owner, but no indemnity for the direction of the farm. The difference between the cost of production and the effectively obtained realisation prices does not represent the net returns, but the socalled difference of net returns (Reinertragsdifferenz), that is, the difference between the effective returns and the minimum interest required on the capital invested.

The writer shows that the cost of production varies inversely with the gross returns and that consequently it depends in the highest degree upon the many risks with which farming has to reckon. If the figures, which are obtained from farms which have remained exempt from all injurious influences be compared with the average costs of production, the differences show clearly the characteristics of the year.

In the practice of illustrating the farm by means of book-keeping, the mean values drawn from the averages of several years are used, while the results of one year's accounts are useful in enabling comparisons to be made between them and their causes.

The data in figures given by the writer prove that the cost of production of winter cereals is throughout higher than that of spring wheat. Sugarbeets and mangolds show no important difference between them. The high cost of production of potatoes seldom allows of this crop being a paying one, whilst the cost of production of hay ensures the profitableness of this forage. Rye and oats cost less in the mountains, while for wheat and barley the conditions of the plains are more favourable.

The depth of soil in the plain satisfies better the requirements of hoed crops, while the greater rainfall of the mountain climate is favourable to meadows. The calculation of the costs of production confirms thus the old experience that the farmer must adapt his work as much as possible to the natural conditions of production.

The employment of artificials reduces the cost of production of field crops and the systematic working of meadows reduces the cost of their produce by increasing the output.

The annuities for interest and amortisation of plain farms, on account of their greater value, are higher than those of mountain farms, which require greater quantities of seeds, of team work, of farmyard manure and of artificials.

The writer then proceeds to examine the question from the point of view of the profitableness of the farms.

The item of labour, on account of its importance, being one of those that weigh heaviest on a farm, has the greatest influence on its profits. With average daily wages at Is. 44d. (exclusive of board), normal amortisation, and 4 per cent. interest on the whole capital, only sugar-beets in the plain farms and forage crops in both plain and mountain farms yield a profit higher than the interest. The profit on beets is the one that most feels the oscillations in the wages of labour; potatoes follow, then wheat and last of all forage crops. Only the latter afford sure profit even with considerably rising wages and in the mountains continue to do so longer than in the plains. The present costs of production indicate clearly to farms in the mountains the profitableness of forage crops and live stock raising, and that, with the increase of wages, the intensity of farming can only be maintained on the most naturally favourable soils and by replacing to the greatest extent manual labour by machines.

The oscillations in the prices of farm produce have also a very great influence on the net returns, consequently on the profitableness of farms; the sensibility of a farm to the rise and fall of the prices of produce can be judged by the range of its net income.

In a general average for all the farms examined, the greatest sensibility exists in connection with the prices of live stock, then follow the prices of cereals and thirdly the prices of milk. Among the prices of cereals, the variations in those of barley are most felt; they are followed by those of wheat and rye, and last of all by those of oats. Among live stock, the prices of oxen exert the greatest influence on the net profits of the Moravian peasants' farms; next come the prices of calves and of pigs. Here also a difference must be made between plain and mountain farms, inasmuch as the latter are more interested in the prices of live stock than of cereals, while the net returns of the former are more dependent upon the prices of cereals than of live stock. In general, the profits of plain farms are much more affected by all oscillations in the prices of produce than those of the mountain farms.

A comparison of the effects of variations in prices on the net returns of farms of different sizes shows that the prices of wheat affect large farms more than small farms, which feel more the changes in the prices of live stock. Both the large and the small farms have, however, per unit of surface, the same interest in suitable steady prices of wheat and of live stock and consequently in a customs and commercial policy which will ensure such prices.

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