130 ECONOMIC ESSAYS IN HONOR OF JOHN BATES CLARK 
ily, 
Wise 
Normally all costs are expected to be paid eventually out of 
he income from the use of land. With land, however, we observe 
hat many people are induced to meet the ripening costs by the 
xpectation of recoupment out of an increment in land value. 
Do this observation is formulated the so-called law of ripening 
costs in land utilization. The costs falling upon the holder of 
land during a period of ripening use are soctally mecessary and 
are properly chargeable to the increment in land value resulting 
rom the change in use.* = 
Valuation of Land. The valuation of land implies the making 
of an estimate of the expected net income from the use of land 
over a period of years. In England the value of land is often 
expressed as “twenty or twenty-five years purchase” of an annual 
income. In the United States the expected series of annual 
incomes is summarized in one figure which represents the present 
alue of the succession of incomes and is called the capital value 
or selling value of the land. This process of capitalizing land 
income into a capital value is considered the heart of the problem 
f land valuation. 
he value of land is the sum of the present worth of future 
ncomes. Since men are so constituted that they are impatient 
or income, these future incomes are less desirable than a present 
one, and consequently are discounted. The rate of discount or 
rate of impatience for the community is usually the prevailing 
rate of interest. However, the rate of impatience may vary with 
practically every individual. Usually complicated methods of 
calculation are dispensed with and the annual income is divided 
by the rate of discount, the quotient being the capital or selling 
alue of the land. 
urther complications in the valuation process are introduced 
hen the future incomes or the rate of discount are expected to 
increase or decrease as time goes on. Moreover, it is recognized 
that market values do not always coincide with values determined 
by this method of capitalizing the net income, because various 
ersonal and psychological factors sometimes disturb the cal- 
A parallel in public utility economics is found in the “net deficit 
theory” by which losses sustained during the period of developing a going 
usiness are capitalized into the rate base. 
e should examine also whether the recoupment of ripening costs out 
of value increments is not merely another way of saying that the common 
practice is to discount income expectations in order to meet the heavy 
expenses of developing the services of land into a going business