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The first requisite to the consideration of the capital required in any case is that the person analyze his business. He must cast it up, look at it from many sides, adjudge its relation to the commercial opportunities. The laws and generalizations that obtain in any good business procedure must be applied to the organization of agriculture.

One great advantage of agriculture as a business lies in the fact that it can be conducted with much or little capital, as conditions dictate. While a man with little capital must always work at a disadvantage, it is possible for him to begin with greater assurance of success than in many other lines of effort.

For purposes of analysis the capital demanded may be classified as follows:

A. Permanent Or Invested Capital (not necessarily immovable):

1. Land:

Natural value,
Land improvements,

Wells, drains, roads, fences, etc.

2. Buildings:

Farm buildings,

Building equipment,

Silos, stalls, shafting, etc.


3. Equipment:

Teams, Implements,

Live-stock used in production.

B. Working Or Less Permanent Capital: .

1. Seed, feed, fertilizer and supplies.

2. Market crops and market live-stock, growing or unsold.

3. Money required to pay for labor and to conduct the business.

Economists generally classify the elements of production under three heads. These, in agricultural operations, are represented by land, capital and labor. This classification considers labor as entirely distinct from capital, and aims to distinguish between natural agents, such as land or water power, and other forms of capital. Such a classification, while convenient from certain points of view, is inadequate for a detailed analysis of the business problems involved.

General view.

The original value of the land will represent, in many cases, but a small proportion of its actual value, since improvements which belong to the land as such, including wells, underdrains, roads, orchards, the cost of removing rocks, and the like, may come to represent a much greater value than the first cost. This is particularly true when the land is originally rough and stony, requiring a heavy outlay to bring it into productive condition.

The dwelling does not properly form a part of the farm capital, except in so far as it may be used for conducting farm operations. Circumstances combine the farmer's dwelling with his business; but, strictly speaking, this is a personal expense, the outlay for which may be much or little, according to the financial ability and taste of the owner, without materially influencing the results of the business. The farm investment properly includes all farm buildings, such as barns, granaries, hog-houses, poultryhouses and windmills. Connected with the buildings are the features of building equipment, or accessories, such as silos connected with the barns, special equipment for dairy or other work, improved stalls for live-stock, pulleys and shafting for use of power, and similar addenda. These improve


Fig. 172. A case in which land improvement must represent the chief land value. This area must be cleared of rocks and brush, and be underdrained before it can be considered as agricultural land.

merits may come to be a prominent feature, representing a considerable part of the capital invested in buildings. The above forms of capital, all being included under the term real estate, are fixed capital in the sense of being immovable; but fixed capital in the sense used by economists includes also the permanent equipment demanded in conducting the business. This will embrace teams, implements and live-stock retained from year to year for purposes of breeding, or for other forms of production.

The circulating or working capital properly includes that part of the capital that is used up and replaced from time to time in the conduct of the business. This will include seed, feed for animals (whether purchased or grown on the farm), fertilizer and other supplies. It will also include market crops and market live-stock growing or unsold. Such live-stock is represented by animals that are being grown for meat or for any other purpose that contemplates the sale of the animal itself, rather than retaining it for some form of labor or production. The circulating capital also includes a certain amount of ready money for conducting the business. This will be constantly passing over into forms, such as those already mentioned. It will also be needed in paying for repairs, supplies and incidental expenses.

The proper apportionment of the investment among these different forms of capital is a difficult but most important financial problem. The apportionment will vary with the character of the business, the location and the attendant conditions. No fixed rules can be given, but one fundamental principle should be kept steadily in mind, viz.: Production will be limited by the minimum amount of the weakest phase of the investment. If land is deficient, production cannot be carried beyond a certain point. With improper buildings, it is likewise hampered. With insufficient equipment, neither the land nor the buildings can be utilized to their full capacity. If labor, or other forms of circulating capital are deficient, production is governed by this factor, not by those that are abundant. The general law is that extensive farming demands the heaviest investment at the fixed end of the line, while intensive farming calls for an increase at the other end. The man who starts with little capital usually begins with a proportionately heavier investment at the fixed end. As the business increases and his conditions improve, or as competition forces more careful management, there is a gradual movement of the proportionate investment down the line from the more stable forms of fixed capital represented by the land itself, to buildings, equipment and working capital. More money is invested in drains or other land improvements, the buildings are improved and rendered more convenient by improved accessories and equipment; the movable equipment, represented by teams, implements and live-stock is increased; more labor is employed, and more money is used in the conduct of the business.

Census figures throw some light on the average proportionate investment on farms in the United States, but do not give a satisfactory answer to the question of what this investment should be. The average farm values in the United States as given by the census of 1900, are as follows:

Total investment $3,574 00

Land and improvements other than buildings 2,285 00

Buildings 620 00

Implements and machinery 133 00

Live-stock 536 00

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A case in which land improvement is e
incorporated in the purchase price.

The average expenditure for labor is given at $64, and that for fertilizers as $10. This, of course, does not include the labor of the farm owners. In the northeastern section of the United States, including New England, New York, New Jersey and Pennsylvania, the proportionate investment in farm buildings is much higher than in the United States as a whole. These figures show that, including the whole United States, for each one thousand dollars invested in land and improvements other than buildings, the amount expended in other ways is as follows:

Buildings $271 33

Implements and machinery 58 20

Live-stock 234 57

Paid for labor 28 00

Paid for fertilizers 4 38

For each one thousand dollars invested in land, therefore, about five hundred and sixty-four dollars are invested in buildings and equipment. The two items showing the amounts paid for extra labor, in addition to that supplied by the farmer's family, and for fertilizers, represent but a small part of the incidental expenses demanded, and fail to give any clue regarding the amount of working capital involved. In the northeastern section, the proportion invested in buildings and equipment is much larger, being about equal to the amount invested in land.

Figures from a number of successful farms are available, showing the proportionate outlay and returns from those farms. An average from twenty-four farms, which may be classified as mixed farms, located in different parts of the United States, is as follows:

Average Proportionate amount for each outlay $1,000 Invested in land

Land and improvements other than buildings $7,935 87 $1,000 00

Dwelling 1,754 35 221 00+

Farm buildings 2,088 04 263 00+

Live-stock 1,342 31 169 00+

Team and tools 1,019 35 128 00+

Operating expenses 1,725 63 217 00+

Among these twenty-four farms were five that did not show a profit after adding to the operating expenses a charge of 5 per cent for interest on the capital invested, 5 per cent for depreciation, repairs and insurance on buildings, and 10 per cent for depreciation on teams and tools. On these five farms the figures were as follows:

Average Proportionate amount for each outlay $1,000 invested in land

Land and improvements other than buildings $5,154 00 $1,000 00

Dwelling 1,160 00 225 00

Farm buildings 1,045 00 203 00

Live-stock 627 50 122 00

Teams and tools 737 00 143 00

Operating expenses 1,014 45 197 00

Nine of the farms show a net profit of over one thousand dollars per year after adding similar charges to the operating expenses. On these farms the outlays average as follows:

Average Proportionate amount for each outlay $1,000 invested in land

Land and improvements other than buildings $11,000 00 $1,000 00

Dwelling 2,133 00 194 00

Farm buildings 3,061 00 278 00

Live-stock 1,745 80 159 00

Teams and tools 1,360 55 124 00

Operating expenses 2,495 04 227 00

These figures show the outlay to have been larger on the most profitable farms and smaller than the average on the unprofitable ones. The amount invested in farm buildings is proportionately larger on the profitable ones. The amount invested in live-stock is also larger on the profitable than on the unprofitable ones, but not larger than the total average. The proportionate amount invested in teams and tools is less on the most profitable farms than on the unprofitable ones, while the operating expenses are larger.

Figures are available from fourteen farms that may be classed as stock and dairy farms. The average outlay for these is as follows:

Average Proportionate amount for each outlay $1,000 invested in land

Land and improvements other than buildings $15,965 71 $1,000 00

Dwelling 2,171 43 136 00

Farm buildings 2,554 65 160 00

Live-stock 4,060 28 254 00+

Teams and tools 1,297 14 81 00

Operating expenses 2,119 20 133 00—

The above figures show that on these farms, which are managed by successful, wide-awake men, for each $1,000 invested in land, between $630 and $800 is invested in buildings and equipment, the average of all being about $715. Exclusive of dwellings, the amount ranges from approximately $450 to $600, the average being about $520. Farm buildings alone require $160 to $275 per $1,000 of land investment, and teams and tools $80 to $150, the larger proportion being on the smaller farms. The operating expenses range from about $135 to $225 for each $1,000 of land investment, the average being nearly $200. While it is seldom necessary that the total operating expense of the entire year be on hand at any one time, there is great advantage in having a liberal supply of money available in order to be able to embrace opportunities for buying supplies at the most favorable time or to hold products until market conditions are right for their sale.

On the basis of the amount invested per acre, these farms show the following average investments for each acre available for farm purposes, excluding the amount occupied by buildings, waste land and woodland:

Mixed farms Stock and dairy farms

Dwelling $8 20 $9 28

Farm buildings 9 76 10 85

Live-stock 6 27 17 28

Teams and tools 4 76 5 52

Operating expenses 8 06 9 02

A study of such figures as these should prove useful to any man contemplating investment in farm property. It may help him to avoid too heavy investment in land and the more stable forms of fixed capital, with too little in the less stable forms and in circulating capital. It is on the working capital that he must place his chief dependence for profit.

Special farming possesses an advantage over mixed-farming in the amount of equipment demanded, for the reason that less money will suffice thoroughly to equip a farm for a single line of production than for several lines. Not only is this true, but production on the special farm is likely to be conducted on a larger scale than on the mixed farm, so that implements that it would not be economical to own in the one case may be profitably employed in the other. The farmer who grows twenty-five acres of potatoes can afford to employ the best potato-growing machinery. The farmer who grows two acres must do without the more expensive implements or employ them at a loss, because the proportion of the fixed charges incident to ownership which must be borne by each acre is so great that it will exceed the saving effected in using the machine.

Further discussion of buildings. Fences. Trees.

Buildings represent a large part of the farm equipment. On stock farms they are relatively more important than on other types, though in mixed-farming the value represented is proportionately greater for the amount of stock kept than on stock and dairy farms. The dwelling, though naturally included in all census figures showing the value of farm buildings, is not really a part of the business. The ratio of the value of the buildings to land in the United States, as shown by the census of 1900, is about one to three and seven-tenths. In the northeastern section, including the Middle States and New England, it is one to one and five-tenths. These figures include the dwelling as well as the farm buildings proper. This means that in the United States as a whole one dollar is invested in buildings for each three dollars and seventy cents invested in land, while in New England and the Middle States one dollar is invested in buildings for each one dollar and fifty cents invested in land. On the twenty-four farms previously referred to the ratio is about one to two and one-third.

The building investment should be carefully studied. Buildings adequate in size and convenience are

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