CHAPTER III

FARMING VERSUS LAND SPECULATION

As already mentioned in the preceding pages, only half the land in the United States is now in farms; only half the land in farms is "improved"; and this improved land, according to some critics, is not well farmed. It has also been shown in a preceding paragraph that farm land is passing out of the hands of the dwellers on the land, and, unless the tendency of the past forty years is broken, the time is not far distant when the land will practically all be farmed by tenant farmers or hired labor and not by the owner.

The criticism is also heard with increasing frequency that the farmer is one-third farmer and two-thirds speculator. This criticism is based on the fact that a part of the farmers aim to make their profits and do make their profits by selling their land, not by farming it. Many farmers frankly admit that were it not for this speculative gain their years of toil would show no balance to their credit. Indeed, the Assistant Secretary of Agriculture has stated that "the average farmer is only making wages; he is not making a profit over his wages and the interest on his investment."1 As long as farmers own the land, the American people will doubtless be content to see the farmer receive as a reward for his years of toil this speculative gain coming from increase in land- value. But when the land passes from the hands of the men who farm it, the question of "overcapitalized land" will doubtless become an insistent one, and one raised by the farmers themselves.

Overcapitalized Land. The agitation among farmers which led to the "granger laws" for state regulation of railroads was based on harassing conditions: rates were unsatisfactory and discriminatory; railroads, especially of the western and Pacific States, were greatly overcapitalized. Perhaps overcapitalization, or "watered stock" as it was called, was the most loudly denounced of the evils. Briefly, the farmer considered it wrong that a road costing twenty-five thousand dollars a mile should be capitalized at forty or fifty thousand a mile. Applying this same logic to land now that was applied to railroads forty years ago, it may be an evil to capitalize land costing $25.00 an acre at $50.00 an acrean evil to the farmer and to the general public.

1 Experiment Station Record. Feb. 1915, p. 105.

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was

The following case of C. L. Smith-a true story-is typical of many transactions in country real estate which are now being made every day throughout the entire United States. In the year 1907 C. L. Smith, a renter on an Illinois farm, decided to move westward and buy land in North Dakota. The Illinois land at this time, of good farming quality, was selling for $150 an acre, whereas the Dakota land, of equal fertility, was selling at onethird or one-fourth, or even one-fifth that amount. It should be added also, that much Dakota land of an inferior grade was on the market at prices ranging from $10.00 to $40.00 an acre. Mr. Smith, upon his arrival in North Dakota, was taken in charge by certain real estate agents. These agents had arranged for the conditional purchase of a farm of six hundred and forty acres at $20.00 an acre. This farm the agents then sold to Mr. Smith at $31.50 an acre, and Mr. Smith, thinking of the one-hundred-andfifty-dollar land, considered himself the discoverer of a bargain. He had been deceived, however, as later developments proved. This land, in common with other land in this community, considered by the actual owners to be worth about $20.00 an acre. Allowing the agent the commission of $1.50 an acre (a $960 commission), Mr. Smith should have paid $21.50 an acre. Instead of that, he paid $31.50, or $10.00 an acre too much, a total excess of $6400 on the section. The agents on an investment of $12,800 made a profit of $7360, or a net profit of 57 per cent. Mr. Smith paid $4000 in cash when he bought the farm, and gave a mortgage on the farm for the balance. The farm had been grossly overcapitalized. It was consequently impossible to carry the load. This meant one of three possible courses: (1) submit to foreclosure proceedings, and lose the land and much of what had been invested in it. This frequently happens. (2) Renew the loan, thus shouldering the same burden for another period of years with no more hope of ultimate success. (3) Find a new buyer, ignorant of conditions (commonly spoken of as a "sucker") and sell the land to him at $50.00 or $60.00 an acre. This course would permit Mr. Smith to recoup his losses and retire with a profit. The mortgage was foreclosed before it was due, and Mr. Smith estimated his net loss on the deal as $5,000. When asked to suggest some remedy for this system of merchandising land, Mr. Smith wrote, in language more forceful than grammatical, as follows:

"I had enough to pay for one hundred and sixty acres. That is what is hurting this county, because some of the agents are fleecing the men that come here with a little money. They overload them with land and when the

pinch comes they lose all. I am not the only man that has lost all through them around here. If they would charge $1.50 an acre for selling, we could stand that all right. And this county would boom if the ones that have come here could make a success of it, and we could if we were told the truth before we came here."

The process of "unloading" land onto the inadequately informed buyer is a practice which has assumed immense proportions in late years. The tiniest village now can boast of its "Real Estate Offices," with one or more men giving their whole time to this form of trading, whereas, a few years ago the marketing of agricultural lands was largely incidental to other businesses or was done by private agreements. Apparently the only check to this form of speculation and value-inflation (since there is ordinarily no organized Real Estate Exchange in the farm community) is the cycle of financial panics which visits the United States. In panic years, if the panic be a severe one, much liquidation in real estate takes place. This entails fearful losses on the land speculators, including farmer speculators. A good illustration of this was seen in Western Canada in 1913 and 1914, when the banks ceased to finance land trading. This was followed by a serious slump in land values, and a general depression involving the usual feature of heavy liquidations and business failures.

That real estate values are subject to wide fluctuations, and hence offer great opportunities for speculative gains, is strikingly illustrated by the Report of Senator Peffer, on "Agricultural Depression, Causes and Remedies," submitted to the Senate Committee on Agriculture and Forestry, February 15, 1894. This year was a time of low prices, but was both preceded and followed by a period of high prices. And this is true of every period of low prices. The following quotations from this report show the widespread depression in farm land values:

"In Illinois improved lands fell from $20.81 in 1873 to $11.18 in 1892.” "In Nebraska improved lands fell from $4.60 to $3.72, more than twenty per cent since 1885."

"In Kansas land was about fifteen per cent lower in 1892 than it was in 1874 or 1884."

"In the New England states lands used for agricultural purposes are not valued as high as they were in 1875 by thirty per cent."

"There are many local influences which affect prices, and it is only by averages that we can approximate the general truth in regard to the matter. When men who own land are out of debt and do not want to sell, they hold their land as high as they ever did; while, on the other hand, when the owner is in debt or wants to sell, he does not strenuously hold up the price. From the best sources of information accessible, the committee are of the opinion that the prices at which farm lands in the older states could have been sold during the last five years is at least twenty-five per cent below the level of

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fifteen or twenty years ago. And if we are guided by the reports of land sales in foreclosure proceedings, the depreciation has been more than fifty per cent. In three hundred and eighty-three cases in six counties in one state the lands sold for but twenty-five per cent of the debt, and the debt was only one-third the estimated value of the land when the debt was incurred."

Investigating Agricultural Conditions.-Four years after this date another cycle of prosperity having failed to develop Congress passed an act (June 18, 1898) creating the Industrial Commission with powers to investigate and report on agricultural and other conditions. Volume X of the Industrial Commission's Report issued in 1901 contains these statements concerning farm land prices:

"The prices of agricultural land in the Eastern States have generally fallen, in some cases to about fifty per cent of the figures asked during the time of high prices. There is said to have been also a general decline in the price of land along the Mississippi river. Figures given for Pennsylvania show an increase in the average price of farm lands between 1859 and 1879 (the high prices preceding the latter year being explained by the inflated currency), but a drop by 1889 to a lower price than that of thirty years previous About 1890, California lands showed the effect of the high prices of fruit in an increase of values which could scarcely be expected to be permanent. Land can now be obtained at about one-third, or even less, of the prices prevailing at that time."

This decline in farm values may be the best thing, after all, considering the question from the standpoint of proper capitalization versus overcapitalization. For, as L. H. Bailey testifies, "valuation of farm properties have decreased. It is therefore apparent, if prices have not depreciated, that the income from investment in farm lands to-day is relatively greater than a generation ago. When farm values are low it is the time to purchase farms if one desires to make a living from the proceeds. In this view, therefore, the decline in farm values promises well for the earning power of farming."

Professor Bailey, however, is led into error in his conclusions concerning the permanence of low values. He says, "It has been a fault with farmers, perhaps, that they have considered the changes in farm values to be merely temporary, and they have therefore been free to contract debts hoping that the status would quickly regain itself. The fact seems to be, however, that the decline in farm values is general and relatively permanent."

A Rise in Selling Price.-Yet the value of farm land increased in the ten-year period, 1900-1910, by one hundred and eighteen per cent! Since the land in farms increased during this period by only four and eight-tenths per cent, it is evident that this enormous increase in land value is due almost wholly to a rise in the selling

price of land. In short, the average value of land per acre rose from $15.57 in 1900 to $32.40 in 1910, or one hundred and eight per cent. In one decade, therefore, the value of the farm land in the United States was more than doubled. Obviously the real estate market in its present unorganized condition offers opportunity for speculative gains rivalling and even exceeding those of the stock exchange or other organized exchanges. Is the farmer the beneficiary or the victim of high-priced land and of land speculation? The farmer who depends for a living on the proceeds of his farming is clearly the victim, since it is rapidly becoming more difficult to become a land owner. An increase in the number of mortgages accompanied by a decrease in tenancy would show a healthy movement of renters becoming owners. But such a movement is lacking. On the other hand, an increase in mortgages, accompanied by an increase of tenancy, shows an unmistakable movement of land ownership out of the hands of the farmers into the hands of absentee landlords. This movement is unhappily upon us.

Commercial Value vs. Market Value.-The selling price of the products of the land determine the commercial value of the land. When land sells for a price in excess of this value it has a market value out of line with its commercial value and may be said. to be overcapitalized. This situation often exists, and may be due to various causes. But whatever the cause, the results are bad for the would-be land-owning farmer. in his book on "The Transition in Agriculture," gives us a striking statement of the case from his own observation in England. Says Pratt:

Edwin A. Pratt

"Looking in the first place at the price which the would-be peasant proprietor must pay for his land independently of legal charges, it is certain that the English agriculturist who desires to purchase a small holding in the open market labors under special disadvantages. It is not alone that he has to compete with a number of others possessed of similar aspirations, but various causes have combined to give to much of the land in this country-more, perhaps than in any other country-a market value which is in excess of its commercial value-that is to say, its value when it is wanted for the production of commodities for sale. This is especially the case in regard to land which might be utilized for residential purposes for the sake of the social advantages afforded by the ownership of an estate or in the interests of sport. Not only do established country families seek to increase their properties, for one reason or another, by incorporating therein any bit of freehold they can secure in the immediate neighborhood, but the market value may be kept above the commercial value by reason of the fact that every Englishman, more or less, who has prospered, thinks it incumbent on him to set up his 'place' in the country, if he should not have one already. In either case a higher price would be forthcoming than could be afforded by a cultivator who desired the land as a means of obtaining a living thereon. Still more do these considera