VALUE  OF  LAND  AN  UNTAXED  VALUE  39

you  would  purchase  the  lot  for  $6,000,  because  interest
upon  that  sum  would  amount  to  the  stipulated  $300  a
year.  But  if,  on  the  contrary,  the  lot  hears  a  mortgage
of  $2,000,  upon  which  the  annual  interest  charge  is  $100,
then  the  lot  will  cost  you  $4,000.
(a)  The  mortgage  interest  charge  of  $100  reduces
the  selling  price  of  the  land  by  the  amount  of  the  mortgage, ­
  $2,000,  and  you  will  buy  the  land,  not  at  $6,000,
but  at  $4,000,  the  value  of  the  equity  remaining  after
mortgage  interest  has  been  paid.
(b)  By  purchasing  title  you  will  assume  the  mortgage ­
  and  will  pay  the  mortgage  interest,  |ioo,  but
that  $100  will  not  come  out  of  your  $200.  the  net
income  from  your  investment  of  $4,000;  it  will  come
out  of  the  gross  income,  the  ground  rent,  $300.  It  is
a  part  of,  and  not  an  addition  to,  the  ground  rent.
You  will  pay  the  interest,  but  you  will  not  bear  it,
because  you  will  have  bought  yourself  clear  of  the
burden.
(c)  The  lot  will  thus  cost  you  annually  for  use,
interest  on  your  purchase  price  ($4,000  at  5  per  cent)
I200,  plus  mortgage  interest  ($2,000  at  5  per  cent)
1100,  equal  in  all  to  $300,  all  that  the  land  is  worth
for  use,  use  being  the  only  relation  of  land  to  man  with
Which  economics  has  reasonable  concern.
Proposition  3.  —  But,  besides  being  subject  to  a
mortgage  of  $2,000,  assume  further  that  this  lot  of  land
P  subject  also  to  an  old  tax*  of  $100,  which  charge  the
purchaser  must  also  assume.  You  will  then  purchase
the  land  not  at  $4,000,  but  at  $2,000.
(a)  As  already  seen,  the  mortgage  interest  charge  of

*  By  the  term  “old  tax”  is  intended  the  tax  in  force  at  time  of  last  purchase;
“new  tax”  one  imposed  since  last  change  of  ownership.