(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.

[A]

Profit is sometimes defined as that part of the product which the producer can consume without reducing his means of production.