,,american ,,society ,,of ,,civil ,,engineers ,,instituted #aheb ,,transactions ,paper ,no4 #aaij ,,the ,,valuation ,,of ,,public ,,service ,,corporation ,,property4#a ,,by ,,henry ,,earle ,,riggs1 ,m4 ,,am4 ,,soc4 ,c4 ,e4 ,,with ,,discussion ,,by ,,messrs4 ,f4 ,,lavis1 ,,charles ,h4 ,,higgins1 ,s4 ,d4 ,,newton1 ,,william ,v4 ,,polleys1 ,c4 ,p4 ,,howard1 ,j4 ,e4 ,,willoughby1 ,,henry ,c4 ,,adams1 ,,carl ,c4 ,,witt1 ,r4 ,a4 ,,thompson1 ,,charles ,h4 ,,ledlie1 ,,william ,g4 ,,raymond1 ,w4 ,h4 ,,williams1 ,p4 ,e4 ,,green1 ,e4 ,,kuichling1 ,,richard ,t4 ,,dana1 ,,george ,t4 ,,hammond1 ,,leonard ,,metcalf1 ,,charles ,,hansel1 ,j4 ,,martin ,,schreiber1 ,,clinton ,s4 ,,burns1 ,,halbert ,p4 ,,gillette1 ,,arthur ,l4 ,,adams1 ,c4 ,d4 ,,purdon1 ,a4 ,,mordecai1 ,w4 ,b4 ,,ruggles1 ,,and ,,henry ,,earle ,,riggs4 ,,introductory4 ,the industrial and economic development of the past two decades has opened many new lines of special work in the ,profession of ,engineering1 none of which is more difficult and complicated or of greater ultimate value to the public at large than that of the appraisal or valuation of the property owned and operated by public service corporations2 and none of the fields of engineering specialization requires greater care or calls for more skill1 experience1 integrity1 or sound judgment4 ,the individual engineer1 or commission of engineers1 entering upon an appraisal of large magnitude1 particularly one including properties of more than one company1 will find conditions varying in every one1 and each property presenting new1 complex1 and confusing elements of value to pass upon and determine4 ,prior to #aijj there had been few calls on engineers for large appraisals1 and the literature descriptive of engineering effort along this line was practically nothing4 ,since #aijj many extensive appraisals have been undertaken by ,states1 by railroad and banking corporations1 and by cities2 certain well-defined lines of practice have been developed2 many differing opinions as to certain methods and principles have been brought out2 and enough has been added to the printed literature to enable one to compare methods of work and to fix with reasonable certainty upon some as correct1 and to discard others as improper4 ,there are so many complex factors entering into the problem of valuation1 so many widely different plans have been presented1 and there are so many thinking men who have opposed and do honestly and sincerely oppose any form of valuation1 that a most thorough study of the subject should be made4 ,it should be examined from all angles1 and every possibility of danger from legislation regarding it should be weighed with utmost care4 ,the question of railroad valuation1 involving as it does the largest industry of the nation1 naturally takes first place in such a discussion1 but so many of the general principles of railroad valuation are applicable to the appraisement of corporate property1 so many arguments have been advanced by engineers and others1 and so many judgments of the ,courts have been rendered in connection with water-works and gas-works valuations1 that it is not desirable to limit this discussion wholly to the problem of railroad valuations4 ,the reasons for requiring that valuations be made may be broadly divided into two general classes3 ,first4--,as a ,matter of ,public ,interest4--,the public1 and particularly the investing public1 requires valuations in order to guard against unworthy and dishonest corporation securities1 to be assured that corporations are bearing their legitimate and proper share of the burden of taxation1 and to furnish a proper basis for fixing equitable and just rates for the services rendered by the corporation4 ,under this class would come all appraisals made for information to be used as a basis for legislation relative to3 7a7 ,taxation of ,corporations4--,such were the valuations in ,michigan and ,wisconsin4 7b7 ,rate ,regulation4--,this was the reason which prompted the work in ,minnesota and ,nebraska4 7c7 ,limitation of ,capitalization4--,the regulation of issue of stocks and bonds was the purpose of the ,texas valuation4 7d7 ,fixing a ,price for ,sale4--,many of the water-works and electric light valuations were made in order to determine a fair price to be paid for the property at the expiration of the franchise4 7e7 ,the ,general ,information of the ,public4--,to be used in connection with the fixing of terms for franchise renewals1 etc41 etc4 ,second4--,as a ,matter of ,corporation ,necessity or ,expediency4--,valuations are made in order to guide large investors1 to secure a safe and up-to-date basis on which to negotiate a sale1 a purchase1 or a reorganization of the property1 or a consolidation with other like properties1 and to secure justice to honestly administered corporations4 ,the great majority of appraisals under this head have been in accordance with some other methods than those adopted in the ,state valuations4 ,it is not intended in this paper to engage in any argument as to the various purposes of appraisals1 or even to urge the necessity or desirability of a general appraisal of properties4 ,an absolutely accurate and correct statement of the cost of reproduction of all the physical properties of the railroads of the country1 a correct statement of the actual capital needed to reproduce these properties as they exist1 and1 along with this1 a statement of the actual physical depreciation1 would be a document of vital interest4 ,this paper is confined to a discussion of the methods which should be used in arriving at a correct figure of cost of reproduction and depreciation--it does not take up questions involving the propriety of those figures when reached4 ,the propriety or legality of using such figures as a basis for an assessed valuation1 as a basis for rate-making 7rate-making being an art in itself involving complications as great as those encountered in valuation71 or any arguments as to the justice or injustice of legislation restricting issues of stocks or bonds1 will be conceded no place in this paper4 ,it is assumed that all these questions would have been taken up and a satisfactory answer reached before a valuation could have been ordered4 ,the different elements of value in property1 the relations of this property to the public1 the method of determining the worth of these elements of value which have been adopted in the past by men engaged on valuation work1 a comparison of these methods1 a discussion of the objections that have been made to them1 and a presentation1 not only of the writer's views as to proper methods1 but those in which he disagrees with usages adopted by others--these define the scope of this paper4 ,no matter what particular end is to be served by a valuation1 the commission engaged upon it will be asked to furnish a fair value1 perhaps with reasonable limitations in the instructions1 perhaps with a general and indefinite instruction to find the value4 ,they will encounter1 among other difficulties3 ,first4--,the fact that human machines are not exact duplicates1 and that allowance must be made for a large measure of error1 on account of the personal equation of the men engaged on the work1 as individual errors of judgment are frequent on any work of magnitude4 ,this personal element must be corrected by uniformity of method1 by constant checking1 and1 as far as possible1 by subordination of personality to system4 ,second4--,the fact that human selfishness is a dominant quality--the railroad manager who opposes methods which he believes will increase values in an appraisal for taxation1 or who1 on the other hand1 uses every possible argument to increase values if the work be as a basis for rate-making or for restriction of bond issues1 or the ,state official who is desirous of using original cost on a valuation to be used for rate-making in order to keep the valuation down to a minimum1 and the politician who depends on an unenlightened public opinion to create sufficient outcry to influence the work to his advantage--are all actuated by a perfectly human wish to attain ends which seem to them desirable1 and are but typical of men who will endeavor to influence every appraisal4 ,in view of these considerations1 it is a question whether results are not frequently affected by the knowledge of their intended use1 and whether a system which will entirely remove such causes of error can be applied to the work4 ,if an engineer1 or a commission of engineers1 is directed to examine a certain property and report the true cost of reproduction1 depreciation1 or present value1 taking into account all facts connected therewith1 the final figures should not differ1 whether the report is to be used as a basis for reorganization1 sale to another corporation1 or is to be used by a ,state legislature as a basis for formulating a rate bill1 or as a basis for a value for taxation4 ,the result secured is a necessary preliminary on which depends the accuracy1 fairness1 and justice of the other work which is to follow4 ,this is an engineering work1 a statement of certain physical property1 the estimated cost of reproducing it new1 less the estimated depreciation1 and1 beyond the differences due to personal judgment1 these figures may not vary4 ,the word value is in common use1 and yet1 in the minds of many people1 its exact meaning is vague4 ,it is true that the value of a property is an unstable figure1 subject to fluctuations due to natural or artificial causes1 and that a material change in value may occur suddenly1 but the value of any given property on any given date is1 or should be1 from an engineering standpoint1 a definite sum which may not be varied or changed to suit the whim or will of the people for whom the work is done4 ,in all the subsequent discussion of values and methods of obtaining values1 it is assumed that1 unless specifically limited to a determination of cost of reproduction and depreciation1 a valuation commission should be governed by the following rules3 #a4--,no account may be taken of the purpose for which the resultant figure of value is to be used2 and the result should not vary1 no matter what that purpose may be4 #b4--,the resultant figure should be the honest judgment of the men composing the commission1 as to the actual cost of reproduction1 present physical value1 or fair value1 and should be ascertained by a systematic and scientific method which takes into account all the facts concerning the property1 its physical value1 its strategic location1 its operating revenues and expenses1 and its franchises1 rights1 competition1 opposition1 and all other tangible or intangible elements which would affect values4 ,the method of valuation should be such as to minimize or entirely eliminate all differences due to errors of personal judgment4 #c4--;,all properties being appraised are considered as operating properties4 ,one which is dead1 inert1 and not in use1 cannot be considered as coming under such a discussion as this1 and such properties are not treated in this paper4 ,the term going concern is not used in connection with the physical property1 any element of value implied by the term1 over and above the overhead charges1 being treated as an intangible or non-physical element of value4 ,in stating this position1 the writer is aware that it is a difficult matter indeed to get away from the fact that some specific purpose--taxation1 for example--is the definite end in view in every valuation1 and that1 instinctively1 men engaged on the appraisal will find themselves modifying their figures to meet some real or fancied condition which they conceive might arise1 or to prevent some injustice which they believe might be done4 ,every subordinate employee needs to be watched1 every man in charge must watch himself1 or he will find himself unwittingly1 almost instinctively1 coloring his results by some old prejudice of his early years of employment1 or some loyalty to his own ideas of governmental or economic policy4 ,the writer has noted this in every appraisal on which he has been engaged1 and calls particular attention to it as the first difficulty which must be overcome in the organization of the force for a large appraisal4 ,in the following pages all complications which might arise from the purpose of the appraisement are considered as eliminated1 and the possibility of erroneous conclusions being reached by reason of the personal factor 7while recognized as being ever present7 will not be specially emphasized4 ----- ,footnote #a3 ,presented at the meeting of ,january #dth1 #aiaa4 ,,the ,,relation ,,of ,,public ,,service1 ,,or ,,quasi-,,public ,,corporations1 ,,to ,,the ,,people4 ,in reference to questions of value1 the engineering commission must hear1 consider1 and reconcile arguments advanced by adverse and often hostile interests4 ,on the one side stand the corporations1 with large financial interests involved1 often with an excessive amount of stock and bonds issued on the property1 the existence of which issues the corporation wishes to justify1 and1 whether properly capitalized or not1 the management being imbued with the perfectly human desire to defend corporate interests from attack of any kind2 on the other side is public opinion1 often unreasonable1 often misinformed1 and frequently prejudiced4 ,it appears necessary1 therefore1 to consider briefly the relation which these interests bear to one another1 to study the causes which have led to mutual misunderstandings1 and to note the proper relations which should1 if possible1 be established and maintained between the people and those corporations organized to perform certain of the functions of the ,state4 ,a public service or quasi-public corporation is a corporation which is operating under the terms of rights1 grants1 or franchises given by the public1 either to this particular corporation direct or granted by statute to a class of corporations4 ,the property of the corporation is used to render certain services to the public1 with the expectation of financial gain4 ,it is not material whether the grant be a franchise permitting a water-works company to use the streets and alleys of a city for its mains1 and the service be the pumping of water for domestic service and fire protection1 or whether the grant be the statutory rights of corporate existence and eminent domain1 and the service rendered be the transportation of freight and passengers2 the general principle is the same2 the company has secured from the people certain rights which enable it to do business1 and the people are directly benefited by the services rendered by the company4 ,the increased comfort of living makes for the growth of the city2 the increased transportation facilities build and develop the country traversed by the railroad2 and this growth and development1 not only operate to the advantage of the people1 but also to that of the company in the way of increased business and increased revenues4 ,the capital required to build and develop these properties was furnished in the hope of1 and with the expectation of1 a proper financial reward4 ,it has frequently happened that such properties have been built years in advance of sufficient development to support the enterprise1 built1 in fact1 without expectation of immediate returns1 and long periods of time have often elapsed before any profit has been secured4 ,it has also frequently happened that corporations have been aided to a very large extent by public funds1 by the voting of aid bonds1 by the donation of large tracts of land1 by payment for certain service at such rates as would largely relieve the company from loss in operation1 by the remission of taxes1 or by the direct donation of funds4 ,the company is clearly entitled to earn a reasonable profit on the actual capital invested1 in addition to the legitimate cost of operation1 payment of taxes1 and sinking funds to cover depreciation and obsolescence4 ,the public is clearly entitled to good service at the lowest rates that will permit the company to earn its reasonable profit and expenses4 ,increases in tonnage1 population1 and consequent net earnings of the corporation should entitle the public to a benefit in reduced charges for service1 when the increased earning is of a permanent character4 ,the general tendency of the ,courts has been to treat a franchise as a contract1 and to be governed closely by the language and evident intent of the makers1 but to safeguard the rights of the public to the fullest extent consistent with justice4 ,a franchise requires specific performance of specific acts4 ,nothing will be assumed or implied4 ,the ,courts recognize that the investors are entitled to reasonable returns1 and that the public is entitled to fair rates4 ,in the case of ,los ,angeles ,water ,company vs4 ,city of ,los ,angeles 7#ajc ,u4 ,s41 #gaa71 the ,united ,states ,courts held that at the expiration of a #cj-year franchise1 which provided that the city was to pay for the value of all improvements1 when the city failed to agree upon1 tender1 or pay such value1 so long as the company complied with the terms of the contract1 and until the city terminated it by making or tendering payment1 the passage of an ordinance by the city fixing rates was void4 ,in the case of ,weatherly vs4 ,capital ,city ,water ,company 7,ala4 #bb ,so41 #adj71 the ,alabama ,courts held that the acceptance of a franchise involved a grave responsibility1 and that the company could not stop furnishing water and fire protection1 even if the work was done at a loss4 ,in the case of ,myer vs4 ,brown 7#fe ,cal41 #ehi71 the ,court said3 ,it is well occasionally to recall the fact that there is no more reason to permit a municipal government to repudiate its obligations entered into for value1 than to permit an individual to do so4 ,good faith and fair dealing should be exacted of one equally with the other4 ,judge ,brewer1 in the ,kansas ,city ,water-,works case 7#fb ,fed4 ,rep41 #hec71 said3 ,all contracts involving property rights and obligations1 between municipalities and individuals1 must be presumed to be based upon and to recognize the ordinary laws of business transactions4 ,in #aijc the ,maine ,supreme ,court issued a set of instructions to appraisers appointed to fix values of certain properties4 ,the ,court set forth its views as follows3 ,summarized1 these elemental principles are1 the right of the company to derive a fair income based upon the fair value of the property at the time it is being used for the public1 taking into account the cost of maintenance and depreciation and the current operating expenses1 and the right of the public to demand that the rates shall be no higher than the services are worth to them1 not in the aggregate1 but as individuals4 ,the ,supreme ,court of the ,united ,states has again and again given its views1 which may be summarized as follows3 ,it cannot be said that a corporation is entitled1 as of right1 without reference to the interests of the public1 to realize a given per cent4 upon its capital stock4 ,when a question arises whether the legislature has exceeded its constitutional powers in prescribing rates to be charged by a corporation controlling a public highway1 stockholders are not the only persons whose rights and interests are to be considered4 ,the rights of the public are not to be ignored4 99 99 99 99 99 ,the public cannot properly be subjected to unreasonable rates in order simply that stockholders may earn dividends4 ,the legislature has the authority in every case1 where its power has not been restrained by contract1 to proceed upon the ground that the public may not rightfully be required to submit to unreasonable exactions for the use of a public highway established and maintained under legislative authority4 7#afd ,u4 ,s41 #egh47 ,it is not to be inferred that the power of limitation or regulation is itself without limit4 ,this power to regulate is not a power to destroy1 and limitation is not the equivalent of confiscation4 ,under pretense of regulating fares and freights the ,state cannot require a railroad corporation to carry persons or property without reward1 neither can it do that which in law amounts to the taking of private property for public use without just compensation4 99 99 99 7#aaf ,u4 ,s41 #cjg47 ,in the case of ,smyth vs4 ,ames 7#afi ,u4 ,s41 #dff71 the ,court said3 ,if a railroad corporation has bonded its property for an amount that exceeds its fair value1 or if its capitalization is largely fictitious1 it may not impose upon the public the burden of such increased rates as may be required for the purpose of realizing profits upon such excessive valuation or fictitious capitalizations2 and the apparent value of the property and franchises used by the corporations1 as represented by its stocks1 bonds and obligations1 is not alone to be considered when determining the rates that may reasonably be charged4 99 99 99 ,we hold1 however1 that the basis of all calculations as to the reasonableness of rates to be charged by a corporation maintaining a highway under legislative sanction must be the fair value of the property being used by it for the convenience of the public4 99 99 99 99 99 ,what the company is entitled to ask is a fair return upon the value of that which it employs for the public convenience4 ,on the other hand1 what the public is entitled to demand is that no more be exacted from it for the use of a public highway than the services rendered by it are reasonably worth4 ,the relations between the corporations and the public that they serve have been clearly defined by the ,courts1 as the foregoing quotations show4 ,that the mutual relations existing between the management of the corporations and the public are far from what they should be1 there can be no doubt4 ,on the one hand1 the great mass of the voting public is uninformed as to actual revenues1 disbursements1 and operations of the corporations1 as to whether their income is unreasonably large1 or whether they are struggling to exist4 ,the sums of money involved in the dealings of the corporations are so stupendous in comparison with the amounts used in an ordinary private business--even in one of considerable magnitude--that the majority of the public cannot comprehend them4 ,the published statistics are in such form that only the careful student of affairs can understand or analyze them1 and but few of the public officials who receive them are able to read the reports of the properties and comprehend them4 ,as a consequence1 the corporation1 as a political issue1 has been the subject of jest1 gibe1 and cartoon2 there has not been an intelligent public discussion of available reports and statistics1 and it may be said that1 generally1 the mass of the public has come to class all corporations as grasping1 overbearing1 and unjust1 and to consider them all as exceedingly prosperous4 ,this has been taken advantage of by politicians for their own selfish ends1 and has led to sundry legislation1 some of which has been unreasonable and unjust to the corporations1 and much of which is aimed at real abuses that never ought to have existed4 ,the reasonableness of a rate depends1 not alone on the amount of capital invested1 but on the volume of traffic1 the density of population1 the actual cost of service1 and many other elements4 ,rate legislation has been attempted without full investigation4 ,acts have been passed compelling the establishment of stations and terminals1 the improvement of roadway and structures1 the purchase of new equipment1 the installation of safety appliances and block signals1 and many other requirements have been made1 some 7but by no means all7 of which are unreasonable and burdensome4 ,nearly one-half the ,states of the ,union have by law required a #b-;cent1 or #b-;cent1 passenger fare1 regardless of density of population1 amount of traffic1 or other considerations which might render such rates unreasonable4 ,the regulation of the carriers1 by legislature1 by railroad commissions1 by ,state officials1 and by ,courts1 the addition of burdens of expense1 and the cutting off of revenue1 all give considerable ground for the opposition of the carriers to anything that looks like hostile legislation1 and compels the student of affairs to admit that there is justice in the claim of the managements1 that there is grave danger1 not only of seriously crippling many roads1 but of so impairing the credit of the railroads as a class that it will be increasingly difficult to secure capital to provide for the necessary extensions and development of the transportation facilities of the country4 ,on the other hand1 perfect frankness compels the admission that the state of public opinion which compelled the passage of these laws has been caused largely by the corporation officials themselves4 ,there is probably no more loyal body of men in ,america to-day than the officials and employees of railroads4 ,their loyalty1 however1 is all to our company4 ,they enter its service as boys or young men2 they grow up to the full strength of manhood working for its good2 they take little or no part in public affairs2 they have no time for the study of public questions4 ,their friends are almost exclusively among their own associates in the service of the road1 and their development is along the lines of their own special work in the service4 ,as a body of honest1 honorable1 and worthy men1 absolutely loyal to their employers1 they have few equals2 but it is doubtful if any equal number of men1 of equal intelligence1 have as limited a knowledge of the fundamental truths of government1 or knowledge so colored by bias4 ,it is also doubtful whether any equal number of men have in their ranks so few who bear an active part in the duties and activities of citizenship1 or who exercise large influence on their neighbors4 ,while the foregoing statement is believed to be absolutely true1 it will not do to pass over the notable exceptions4 ,such men as ,james ,j4 ,hill1 ,f4 ,am4 ,soc4 ,c4 ,e41 ,m4 ,e4 ,ingalls1 and others of the higher officials1 who have taken an active part in public affairs1 have had commanding influence4 ,theirs has been the sound policy1 as the property in their hands has not suffered4 ,the short-sighted policy which1 in ,december1 #aiji1 induced the management of one road to compel all its employees holding municipal offices to resign1 is bound to react and create hostile feeling on the part of the public4 ,the entire trend of a training in railway service is to fill a man with prejudice against all things that undertake to regulate or control the corporations1 and often goes so far as to enable him to do1 willingly and as a matter of right1 things which with a broader view of the interest of the whole community he would not agree with at all4 ,the result of this intensive training is that the railway service has in it thousands of men who become impatient with any effort to regulate or control2 who permit their irritation to show2 and who1 by their own attitude1 create unnecessary hostility4 ,f4 ,a4 ,delano1 ,m4 ,am4 ,soc4 ,c4 ,e41 ,president of the ,wabash1 in an address#b at ,hannibal1 ,mo41 on ,march #beth1 #aiji1 said3 ,in ordinary manufacturing or commercial undertakings1 every man has his own notions about the conduct of his business1 and does not want to be interfered with1 or dictated to by people who know less about his business than he does himself4 ,now1 while it may be argued in the case of public service corporations that the people who have put their money into these enterprises1 have done it with their eyes open and with full knowledge that they were subject to governmental regulation and control1 there is nothing in that argument which makes public interference any more palatable to the man or group of men who are interfered with4 ,this address well expresses the spirit of the railway managers and employees toward all forms of investigation1 and the complete lack of understanding1 on the part of these managers1 of the legal and moral relations which they bear to the communities which they serve4 ,it is extremely unfortunate that railway and corporation people have not taken the public fully into their confidence1 and fully and freely given out correct information as to the operation and depreciation of their properties2 also1 it is unfortunate that1 when a corporation official does feel a grievance1 he permits himself to make a partisan speech1 or write an unwise article for publication4 ,much hostility is traceable to foolish1 undiplomatic sayings or writings of corporation managers 7which are often but half quoted71 or to equally foolish speeches or newspaper editorials in opposition to the corporations1 which are taken seriously by the managers4 ,whatever may be the cause1 there is a regrettable hostility1 and1 on the part of the corporation officials1 there is an apparent unwillingness to admit right motives to anyone advancing theories regarding corporate regulation and control1 due largely to the training and atmosphere surrounding the corporate service4 ,the public has a large bill of particulars1 one of which is the promotion of wildcat companies1 such1 for instance1 as the ,new ,york and ,chicago ,air ,line project which1 only a year or so ago1 drew from #b1jjj1jjj to #c1jjj1jjj from the people in a limited territory4 ,these people were investing in railway stocks4 ,a ,federal control of the issue of stocks and bonds would have prevented this and hundreds of like swindles4 ,any move to secure such a law has always been opposed by the management of large and legitimately operated corporations1 under the impression that they are about to be persecuted1 and1 naturally1 the victim classes these corporations with the alleged one that secured his money4 ,the issue of stocks and bonds far in excess of any possible cost or value of railroad1 street railroad1 and other properties1 and the making of large personal fortunes by the promoters1 are matters of such frequent occurrence that it is difficult1 indeed1 to dismiss them with a mere denial4 ,there is hardly a community of any size which has not had its example of consolidation1 combine1 or merger1 which has resulted in the issue of excessive securities2 and there is hardly a citizen of any intelligence who has not either seen or had experience with some form of corporation promotion carried on strictly within the law1 but which1 nevertheless1 in plain language1 was a swindle4 ,these1 to say nothing of some gigantic deals involving millions1 will sooner or later compel some form of regulation of the issues of stocks and bonds4 ,in the last analysis1 it is the money of the people1 the hundreds of thousands of small investors1 depositors in banks1 and owners of life insurance1 whose money goes into corporation securities1 and1 until the officers of the great railroads co-operate in securing such forms of control of stock and bond issues as will make impossible the purely speculative wildcat corporations1 and thus safeguard minor corporations1 as to furnish at least reasonable security to those whose money is invested1 all forms of corporation security must be under suspicion with the public1 and the agitation for control must continue4 ,it is not1 as ,mr4 ,delano says1 a case of put your money in with your eyes wide open2 it is an effort on the part of the people to safeguard this form of corporate security in such a way that it can be treated as any other form of sound investment4 ,it should not be necessary to require that all investors in corporate securities be financial experts4 ,it is the writer's opinion1 based on his observation and professional practice1 that the railroads are not generally open to charges of over-capitalization4 ,while there are flagrant instances1 the chief culprits are among other classes of corporations4 ,if such be the fact1 it would seem that the interests of the great railway corporations would be in no wise jeopardized by sane and reasonable control4 ,the theory of taxation is that every one shall bear his proportionate burden of the cost of maintaining the government4 ,regardless of any opinions that may be held as to the propriety of the methods adopted in the ,interstate ,commerce ,commission's commercial valuation of railroad properties1 it will be conceded that the results gave a set of figures for all the ,states of the ,union1 secured by a uniform method of computation and distribution4 ,table #a1 which is a compilation from ,tables #a to #aa of ,bulletin #ba1 shows clearly why1 in certain ,states1 corporate taxation is a live issue1 and if 7as suggested by ,mr4 ,williams in his article1 elsewhere referred to7 amendment of the ,constitutions of some of the ,states is necessary1 it is safe to assume that the condition of inequality shown by this table is such as to compel these changes4 ,it is needless to cite further instances2 enough has been said to indicate3 ,first4--,that the corporations and the public have such intimate business relations that a blow at either must necessarily injure the other seriously2 ,second4--,that the ,courts have defined quite clearly the legal relation existing between the two interests2 ,third4--,that there is lacking a proper spirit of mutual confidence1 and the two interests at the present time are generally hostile2 ,fourth4--,that there have been errors and abuses on the part of both corporations and public2 and ,fifth4--,that capital invested in corporations is1 and should be1 the money of the people1 and should be safeguarded so as to prevent its loss by manipulation1 and insure a fair return4 ,,table #a4--;,,comparison ,,of ,,assessed ,,valuation ,,and ,,commercial ,,value ,,of ,,railway ,,properties4 ,state or ,miles of ,commercial ,,valuation ,,for ,ratio of territory4 single value3 ,june ,,assessment4 assessed to track4 #cjth1 #aijd4 commercial valuation3 ,percentage4 ,year4 ,amount4 ,alabama #d1ffi4ce #aej1baa1jjj #aijeec1ibf1jbf #ce4i ,arkansas #d1abf4dd #abd1fbf1jjj #aijd #cd1gji1fbc #bg4h ,california #f1bfb4ed #cej1fid1jjj #aijd #ib1cgh1eej #bf4c ,colorado #d1igf4bd #aih1bfa1jjj #aijc #di1dib1ace #be4j ,connecticut #a1jag4gb #aje1cfi1jjj #aijdabj1dic1fdh #aad4d ,florida #c1eee4hd #hj1dfg1jjj #aijd #ba1hag1dgh #bg4a ,georgia #f1cjd4gb #aef1fjc1jjj #aijc #fc1aje1haj #dj4c ,idaho #a1dfa4ec #ia1hgg1jjj #aijd #aj1aae1cgh #aa4j ,illinois #aa1fbb4gd #hje1jeg1jjj #aijddbe1gji1jee #fc4h ,indiana #f1iag4he #cge1eda1jjj #aijdafe1hfc1cfg #dd4b ,iowa #i1hei4bc #cdd1hdg1jjj #aijd #eg1ece1afj #af4g ,kansas #h1haa4dc #cef1cef1jjj #aijd #fj1jic1ecd #af4i ,kentucky #c1bec4jj #aee1ggb1jjj #aijd #gg1feh1jdj #di4i ,louisiana #c1hih4gd #abc1dja1jjj #aijd #bi1jdd1aie #bh4i ,michigan #h1ffj4bi #bgg1eig1jjj #aijdaif1gie1jjj #gj4i ,minnesota #g1haa4jd #dff1gcd1jjj ,mississippi #c1dhj4be #ajg1hhd1jjj #aijb #bi1hdg1fdj #bg4g ,missouri #g1gaa4je #cji1gfh1jjj #aijc #ig1iaf1hfi #ca4f ,montana #c1bfg4aj #aif1bji1jjj #aijd #cf1gei1hbg #ah4g ,nebraska #e1hbj4hh #bfc1agj1jjj #aijd #df1jhb1hec #ah4e ,nevada #ihf4ef #dc1gde1jjj #aijd #ac1ggh1jdi #ca4e ,new ,hampshire #a1bge4ig #gi1ghf1jjj #aijd #bb1fbe1jjj #bh4c ,new ,jersey #b1bgg4he #ccc1efh1jjj #aijdbca1fee1ebe #fi4e ,new ,york #h1big4bi #hih1bbb1jjj #aijcbbi1ehb1jfd #be4f ,north ,carolina #d1jge4jj #aac1adf1jjj #aijd #fi1dhj1igd #fa4d ,north ,dakota #c1aij4gg #fhi1gig1jjj #aijdacc1heh1ide #ai4d ,oklahoma #b1faa4jc #gh1ffh1jjj #aije #aa1icf1cag #ae4b ,pennsylvania #aa1jbc4bd #a1dbj1fhj1jjj ,rhode ,island #baa4hi #be1gai1jjj #aijd #ae1hcb1jjc #fa4f ,south ,carolina #c1age4bh #ge1ejj1jjj #aijc #bi1dfg1gaf #ci4j ,south ,dakota #c1jdg4ad #di1fdf1jjj #aijd #ad1ced1icj #bh4i ,tennessee #c1dhj4hc #aca1aff1jjj #aijc #eh1ecf1eff #df4f ,texas #aa1hdh4jc #bcg1gah1jjj #aijd #ie1bji1ghe #dj4j ,utah #a1ggi4fi #ij1cbe1jjj #aijd #bj1fhb1dfa #bb4i ,vermont #a1jfc4be #cg1caa1jjj #aijb #bg1cdd1jbj #gc4c ,virginia #c1icb4cc #baa1cae1jjj #aijd #fc1bfi1fbc #cg4g ,west ,virginia #b1hcf4hc #bja1gii1jjj #aijd #bh1gga1ceh #ad4b ,washington #c1cee4hc #ahb1hcg1jjj #aijd #bf1jff1idi #ad4c ,wisconsin #g1jdh4gf #bhd1eaj1jjj #aijdbah1jbd1ijj #gf4f ,wyoming #a1bdg4gj #ajj1cjg1jjj #aijd #g1dih1bcb #g4e ,arizona #a1gea4ce #fh1cef1jjj #aijd #f1ffg1cdi #i4g ,district of #cb4jj #e1egh1jjj #aijd #b1dhf1jbd #dd4f ,columbia ,new ,mexico #b1ejd4ff #h1fdj1jjj #aijd #h1eaa1ech #i4i ,total1 ,u4,s4,a4 #bac1icb4acaa1bdd1heb1jjj ,in concluding this subject1 it may not be amiss to quote the language of the ,supreme ,court in the ,knoxville ,water ,case 7#bab ,u4 ,s41 #a71 as follows3 ,regulation of public service corporations1 which perform their duties under conditions of necessary monopoly1 will occur with greater and greater frequency as time goes on4 ,it is a delicate and dangerous function1 and ought to be exercised with a keen sense of justice on the part of the regulating body1 met by a frank disclosure on the part of the company to be regulated4 ,the ,courts ought not to bear the whole burden of saving property from confiscation1 though they will not be found wanting when the proof is clear4 ,the legislatures and subordinate bodies to whom the legislative power has been delegated ought to do their part4 ,our social system rests largely upon the sanctity of private property1 and that ,state or community which seeks to invade it will soon discover the error1 in the disaster that follows4 ,the slight gain to the consumer1 which he would obtain from a reduction in the rates charged by ,public ,service ,corporations1 is as nothing compared with his share in the ruin which would be brought about by denying to private property its just reward1 thus unsettling values and destroying confidence4 ,on the other hand1 the companies to be regulated will find it to their lasting interest to furnish freely the information upon which a just regulation can be based4 ----- ,footnote #b3 ,railroad ,age ,gazette1 ,april #afth1 #aiji1 p4 #heg4 ,,explanation ,,of ,,terms4 ,in order that there may be no doubt as to the exact meaning of the terms used throughout this paper1 a few definitions or explanations are submitted3 ,appraisal1 or ,valuation4--,these words are used interchangeably1 and refer to the engineering work of determining the present worth of both physical and intangible properties of corporations4 ,cost of ,reproduction4--,this expression refers to the estimate of cost of reproducing the physical properties as they exist on the date of the appraisal1 all elements entering into the cost being considered as new and not affected by the elements of depreciation or obsolescence4 ,cost1 or ,original ,cost4--,these terms refer to the actual amount of money paid for the property1 either when it was originally constructed1 or in its condition at the time of appraisal1 the latter case being the original cost plus the cost of additions and betterments1 less abandoned1 replaced1 or worn-out property4 ,this figure ought to be represented by the book cost1 but it is not often that book cost and actual cost are the same4 ,present ,value1 or ,present ,physical ,value4#c--,these terms are used in describing the physical property as reproduced after it is affected by all elements of depreciation or appreciation4 ,the use of the word value in this expression is unfortunate1 as it may lead to some confusion4 ,it must be kept clearly in mind that1 where this term is used1 it refers only to physical property as depreciated1 and is in no case intended to refer to the final or fair value of the property4 ,non-physical1 or ,intangible1 ,value4--,these terms are used to represent those elements1 entering into the final worth of the property as a business concern1 which arise out of the operation of the property and are not attachable to the physical property4 ,all the foregoing terms have to do with the determination of the elements which enter into the final value4 ,what is value8 ,in defining the exact meaning of this term1 as applied to the property of a public service corporation1 many elements must be taken into account4 ,standard authorities give many definitions of value1 none of which appears to meet fully the requirements of the term as used herein4 ,before considering the elements which enter into the value of corporation property1 or attempting to determine the methods to be used in fixing proper figures of worth for each of these elements1 it is proper and necessary to obtain a clear definition of value1 the thing sought to be ascertained by the inquiry4 ,the term1 commercial value1 has been considered in place of value1 but is not used because it is held to be more properly applicable to the selling or exchanging value of fractional interests in the property1 and the methods of computing the commercial value of securities which are in common use cannot be adopted in an engineering valuation4 ,the ,standard ,dictionary definition of commercial value is3 ,the source of commercial value1 according to different schools of economists1 is 7#a7 the degree of want felt for a commodity as shown in the relation of supply and demand1 7#b7 the amount of labor embodied in it1 or 7#c7 the cost of reproduction4 ,practically1 commercial value is that for which a thing can be sold or exchanged at a given time and place4 ,the definition given by ,professor ,adams is3 ,the estimate placed upon the worth of a property1 regarded as a business proposition4 ,both these definitions are in a measure involved1 and the writer considers that the term1 ,commercial ,value1 is too narrow and restricted to be properly used4 ,as a definition of that estimate of worth which an engineering commission should report as the result of a complete appraisal1 the writer submits the following3 ,the value of a property is its estimated worth at a given time1 measured in money1 taking into account all the elements which add to its usefulness or desirability as a business or profit-earning proposition4 ,there are two classes of elements entering into the final value3 7#a7 ,the ,physical ,property ,element of ,value4--,this consists of those things which are visible and tangible1 capable of being inventoried1 their cost of reproduction determined1 their depreciation measured1 and without which the property would be unable to produce the commodity on the sale of which income depends4 ,this physical property is considered as an operating entity1 and not as collateral of inert and partly worn-out equipment1 and1 being so considered1 carries1 as part of the physical value1 those costs and charges which are an inseparable part of the cost of construction but do not appear in the inventory of the completed property4 7#b7 ,the ,non-,physical or ,intangible ,elements of ,value4--,these are those things which1 added to or taken from the worth of the physical property1 make up the value1 and include whatever accrues to the property by reason of its operation1 or by reason of grants1 contract rights1 competition1 or location1 which at the time of appraisal affect favorably or unfavorably the worth of the property4 ,the worth of the physical property is primarily that on which the value of the whole property rests4 ,while it is clear that the worth of the physical property1 being the cost of reproduction less depreciation1 is not necessarily the value of the property1 it is equally clear that the physical worth must bear some very definite relation to value1 and the writer is strongly of the conviction that this relation is such that value cannot be ascertained without a determination of physical worth4 ,the physical property element represents the investment on which a fair return is to be earned1 and in most cases an appraisal is necessary for the determination of the amount of money actually invested4 ,as illustration of the fact that physical value and value are not the same1 the case of two railroads actually existing and in operation between two cities in ,michigan may be cited4 ,road ,a occupies a narrow valley through high and abrupt hills4 ,its alignment is fair for hilly country2 its maximum grade is #a per cent4 ,it has a number of bridges1 all short and low4 ,its cost of reproduction might reasonably be placed at #bh1jjj per mile4 ,a mining town at one end ships a heavy tonnage down grade to a lake port at the other4 ,road ,b was constructed several years later1 and1 being barred from the only valley1 built a line across the hills1 involving heavy grading1 very long and high steel trestles1 a longer line1 maximum grades of #b1 and a heavy climb from the mining town to the summit before starting to drop to the lake4 ,the cost of construction was more than double that of ,line ,a1 and the tonnage which can be hauled in either direction is but a small fraction of that which can be hauled with the same power by ,road ,a4 ,a reasonable figure for cost of reproduction may be given as #fj1jjj per mile4#d ,here is clearly a case where the older1 less expensively built road has a value as an earning proposition far in excess of that of the new road4 ,the rate on commodities does not affect the relative difference4 ,a higher rate1 while permitting ,road ,b to live1 greatly adds to the value of ,road ,a1 while the latter can operate at a profit on rates which would not permit ,road ,b to pay expenses4 ,this example indicates the existence of non-physical values1 not only positive in the case of ,road ,a1 but also negative as to ,road ,b4 ,many properties have been built in the ,united ,states1 representing large investments of capital1 which are not1 and some of which can never be1 profitable business investments4 ,in all such the physical valuation will exceed the final value where the property is considered as an operating concern1 and a negative factor to cover improper location1 uneconomical design1 ill-advised investment1 or whatever the trouble may be1 should be applied4 ,the physical property is that which enables the corporation to do business4 ,without physical property it could not produce the commodity which it sells4 ,the amount of money actually invested in acquiring that physical property represents the measure of capital on which it is morally entitled to earn interest and profit2 and1 in the stage of promoting and financing the enterprise1 all hope of earnings is based on the amount of money required to construct the property4 ,these considerations lead the writer to contend that the true method of valuing a corporate property is first to determine the cost of reproduction of the property and its depreciation1 and modify this figure by any applicable positive or negative non-physical elements of value4 ----- ,footnote #c3 ,the term present value1 as used in this paper1 should not be confounded with its use by bankers or accountants1 or with the present worth of a sum of money due at some future time4 ,footnote #d3 ,in this case1 traffic as to ,line ,b is limited1 and as it is feasible to double-track ,line ,a at less cost than ,line ,b1 no advantage can be assigned to ,line ,b on account of development of future business4 ,,the ,,michigan ,,state ,,appraisals4 ,organization4 ,the ,state ,legislature of ,michigan1 at the session of #ahii1 passed an act creating a ,board of ,state ,tax ,commissioners and outlining and prescribing their duties4 ,this act authorized the board to inquire into and ascertain the value of the property of corporations paying specific taxes under any of the laws of this ,state4 ,the object of this valuation was to determine the rate at which the corporations were paying taxes1 to the end that necessary laws should be passed so that all taxable properties in the ,state might be taxed uniformly4 ,on ,september #ast1 #aijj1 the ,board of ,tax ,commissioners appointed ,professor ,mortimer ,e4 ,cooley ,appraiser of ,properties4 ,immediately thereafter the general organization was mapped out along the following lines of division of labor and responsibility3 #a4--;,administration4--,all matters of general policy in regard to the conduct of the work1 all matters relating to negotiations and conferences with officials of corporations1 all transactions with the ,state ,tax ,commission1 the ,governor1 or the ,board of ,state ,auditors1 and the entire direction of all relations with the public through newspapers and other channels1 were retained by the appraiser1 who was the final arbiter on all matters referred to him regarding the details of the work4 #b4--;,civil ,engineering4--,the appraisal of all property which in the course of construction would fall under the supervision of the civil engineering department of a road1 including land1 roadway1 bridges1 and structures1 was in charge of the writer4 #c4--,mechanical ,engineering4--,the appraisal of all motive power1 rolling stock1 and property which in the course of construction would fall under the supervision of the mechanical engineer1 including power and electric plants1 shop tools and machinery1 water stations1 etc41 was in charge of ,mr4 ,theodore ,h4 ,hinchman1 ,jr41 of ,detroit1 ,mich4 ,in the matter of the final assembling of figures1 computation of percentage values1 and compilation of final results1 ,mr4 ,hinchman and the writer worked together with joint general supervision4 #d4--,telegraphs4--,the inspection and appraisal of all telegraph properties was under charge of ,mr4 ,william ,s4 ,conant1 of ,detroit1 ,mich4 #e4--,telephones4--,the appraisal of all telephone properties was directed by ,mr4 ,william ,j4 ,rice1 of ,new ,york4 #f4--,vessel ,properties4--,all vessels belonging to companies whose property was involved by the appraisal were inspected and appraised by ,herbert ,c4 ,sadler1 ,professor of ,naval ,architecture and ,marine ,engineering at the ,university of ,michigan4 ,in the following narrative1 no special mention is made of the work executed under the direction of ,messrs4 ,conant1 ,rice1 and ,sadler1 because they really had charge of independent appraisals which were conducted on lines similar to those adopted in the railroad appraisal1 and their methods were not different from those of the latter2 hence any description of their work would be in a large measure repetition4 ,this omission is in no wise to be construed as any reflection on the importance or high character of their work4 ,the organization as just outlined1 while necessarily touching and overlapping at points1 was generally defined so clearly that there was no duplication of work4 ,each head of department was responsible for the work of his special division1 and directed the laying out and execution of the work done by his men4 ,the first task1 after deciding on the general organization1 was to determine the general methods to be adopted and the manner of getting the necessary detailed information4 ,the magnitude of the work was appalling4 ,there were seventy-eight different incorporated companies1 owning some #aj1jjj miles of railroad1 scattered over #ed1jjj sq4 miles of territory4 ,in addition1 there were a number of small unincorporated railroads1 telegraph1 telephone1 plank road1 and other corporations1 many of which had no records1 no complete inventory1 and no department organized so that the information could be readily secured4 ,it was determined3 7#a7 ,to make or secure a complete detailed inventory of every piece or parcel of property belonging to each company2 7#b7 ,to examine each separate thing1 place on it an estimate of cost of reproduction and depreciation2 7#c7 ,to prepare1 as a basis for the final figure of value1 an estimate of the present value1 being the cost of reproduction less the depreciation4 ,having determined on a detailed physical inventory and appraisal1 the next step was to outline the work so as to secure absolute uniformity4 ,the difficulties which confronted the appraiser at this period were many1 chief among which were3 7a7 ,lack of ,complete ,understanding on the ,part of the ,state ,officials4--,the ,governor and ,board of ,tax ,commissioners rendered every possible assistance1 but the ,board of ,state ,auditors was not at first fully committed to the work1 and the uncertainty as to whether or not bills would be paid1 delayed seriously the employment of men and the full commencement of work for #c or #d weeks after the first organization was made4 7b7 ,the ,attitude of the ,railroad ,corporation ,managers4--,while this was not actively hostile1 it was a serious cause of delay1 as they could not foresee what effect the work might have on the interests in their charge1 and1 while not refusing access to their records1 they delayed and held back information2 in fact1 a long time elapsed before all the companies opened their records to the appraiser and his staff4 7c7 ,the ,confused ,condition of the ,records4 ,many small corporations had absolutely nothing in the way of records of buildings1 bridges1 land1 or other properties4 ,others had very complete records in certain departments and very imperfect ones in others2 still others had records which had every appearance of being complete1 but they were not up-to-date4 ,facing an appraisal of this magnitude1 with a time limit of only #d months for the entire work1 with delays at the outset which seriously hampered the organization for #b or #c weeks1 the appraiser was compelled to occupy this time in preparing the blank forms to be used on the work1 and in conducting correspondence with the men who were to make up the working force1 investigating their references1 etc4 ,the blank forms1 ,figs4 #a to #aj1 were the result of a series of conferences between the members of the staff4 ,by this time it was quite evident that no great amount of help could be hoped for from the corporations4 ,had it been possible to secure access to the records of such railroad companies as the ,michigan ,central or the ,lake ,shore and ,michigan ,southern before the final drafts of the forms were prepared1 the writer believes that several might have been simplified and many improvements could have been made4 ,however1 this was not possible1 and the forms were prepared and printed before access to any railroad office had been granted4 ,illustration3 ,,fig4 #a4 ,,michigan ,,railroad ,t4 ,c4 ,form ,r4,r4#i ,,appraisal ,office ,inspector ,railroad ,,alignment ,,and ,,profile ,,in ,date ,,michigan ,field ,inspector ,,divisions ,,alignment ,,of ,,road ,,from ,,to ,length,number,aggregate,number ,total ,what is ,miles of ,length of of ,curvature,degree ,curves ,curved ,curves over #c of ,line over #c ,degrees ,maximum ,miles ,degrees ,curves ,,profile ,aggregate,sum of ,sum of ,number,number,what is ,length of,ascents,descents of of rate ,level ,feet ,feet ,miles ,miles ,your ,grades ,grade ,grade ,maximum #j4d ,over ,grades to #a #a and what their length ,miles ,,michigan ,,railroad ,t4 ,c4 ,form ,r4,r4#d ,,appraisal ,office ,inspector ,railroad ,,right ,,of ,,way ,,and ,,real ,,estate ,date ,field ,inspector ,,in ,,filling ,,out ,,statement ,,kindly ,,separate ,,lands ,,and ,,right ,,of ,,way ,,by ,,counties ,,as ,,far ,,as ,,possible ,,county,trackage ,,width ,,of ,,right ,,of ,,way ,,in ,,feet ,total ,total ,right ,acreage,acreage only of ,lands ,miles ,right own'd of ,way by ,company other than ,right of ,way ,less #dj to#fj to#gj to #ajj ,over than #fj #gj #ii ,miles #ajj #dj ,miles,miles,miles ,miles ,miles ,,total ,,real ,,estate ,,michigan ,,railroad ,t4 ,c4 ,form ,r4,r4#h ,,appraisal ,office ,inspector ,railroad ,,mileage1 ,,rail ,,and ,,ties ,date ,field ,inspector ,total ,total ,yard ,double,rail ,rail ,rail ,rail ,rail ,length,number,tracks,track #dj #dj to#dj to#fj to#gj to ,miles of ,miles ,miles lbs4 #di #di #fi #gi ,side per lbs4 lbs4 lbs4 lbs4 ,tracks yard per per per per or ,milesyard yard yard yard ,spurs ,miles,miles,miles,miles ,main to ,track from ,rail ,rail ,rail ,number,percentage,percentage,percentage #hj to#ij toover of of ,oak of ,hemlock of other #hi #ajj #ajj ,ties ,ties ,ties ,ties lbs4 lbs4 lbs4 per per per per mile yard yard yard ,miles,miles,miles ,illustration3 ,,fig4 #b4 ,,michigan ,,railroad ,t4,c4 ,form ,r4,r4#ah ,,appraisal ,office ,inspector ,railroad ,,interlocking ,,plants ,,in ,,michigan ,date ,field ,inspector ,include all ,electric ,crossings having full ,interlockers4 ,,location,crossing ,style ,wheel,connections1,number of ,levers or with of or ,pipe or ,wheels ,machine,lever ,cable ,working,space,total ,by ,whom ,date ,proportion,proportion ,erected,put in of ,cost of ,service ,paid by ,maintenance this ,co4 ,paid by this ,co4 ,,michigan ,,railroad ,t4 ,c4 ,form ,r4,r4#h ,,appraisal ,office ,inspector ,railroad ,,statement ,,of ,,crossing ,date ,,protection ,,in ,,michigan ,field ,inspector ,,divisions ,total ,number ,number ,total ,total ,,of ,,road ,number ,grade ,grade ,number of,number of ,unprotected,crossings,crossings ,highway ,highway ,grade ,protected,protected ,under ,over ,crossings by ,alarm by ,gates ,crossings,crossings ,bells ,what ,what ,device is ,device is ,used ,used ,from ,to ,total ,number of,number of ,what ,number of ,electric ,electric ,proportion ,unprotected ,railway ,railway do ,you ,pay ,electric ,crossings,crossings of ,railway ,protected,protected,installation ,crossings by by or ,derailer ,derailer ,maintenance without with of ,electric ,signals ,signals ,railway on ,steam on ,steam ,crossings ,r4,r4 ,r4,r4 ,,michigan ,,railroad ,t4,c4 ,form ,r4,r4#a ,,appraisal ,office ,inspector ,railroad ,,engine ,,houses ,,and ,,turn ,,tables ,date ,field ,inspector ,,location ,,engine ,,houses ,kind of ,no4 ,no4 ,pit ,when ,structure,stalls,pits,dimensions,built ,feet ,,turn ,,tables ,length,,kind ,foundation,,curbing,when ,feet ,,of ,built ,,table ,illustration3 ,,fig4 #c4 ,,michigan ,,railroad ,t4,c4 ,form ,r4,r4#b ,,appraisal ,office ,inspector ,railroad ,,field ,,inspection ,,report ,date ,between and ,miles ,number of ,tracks ,ties1 ,c4 to ,c4 ,highest schedule passenger train miles per hour1 ,freight miles per hour1 ,inspector ,,mile ,,grade ,,ties ,,rail ,yardage,classification,kind,condition,w eight,condition ,,ballast ,,fence ,,frogs ,,and ,,switches ,,crossings ,kind,condition,kind,condition,number,ki nd,condition,number,condition ,,drainage,,alignment,,remarks ,,michigan ,,railroad ,t4 ,c4 ,form ,r4,r4#g ,,appraisal ,office ,inspector ,railroad ,,bridges ,date ,field ,inspector ,include all wooden1 steel or combination trusses1 all girders and ,i beams spans - if solid floor and ballast please so state4 ,,foundation ,bridge,,location ,,name ,frame or ,stone or ,,piers ,approx4 ,number ,number ,,of ,pile ,concrete ,cu4 ,ft4 of ,ft4 ,,stream,abutments,abutments ,masonry ,bridge ,piers and ,seat ,abutments to ,water ,,superstructure ,number,,kind,length,specification ,no4 ,no41 ,size,size ,how of out to for ,loading ,panelsand ,kind and ,supported ,spans out ,required ,stringers,kind of ,beams ,size,date of ,built ,ties ,,michigan ,,railroad ,t4,c4 ,form ,r4,r4#ag ,,appraisal ,office ,inspector ,railroad ,,draw ,,bridges ,date ,field ,inspector ,in this table furnish data as to draw span and pivot piers only - other spans in other bridge record4 ,bridge,,location ,name ,date of ,,foundation ,no4 of ,erection ,stream ,material,size,approx4,height ,cubic ,above ,feet ,water ,masonry ,,superstructure ,approx4 ,length,kind,material,,specification ,what ,kind ,depth ,draw of ,,for ,,loading kind of of ,footings ,span ,power ,turn ,below used for,tables ,water swinging ,illustration3 ,,fig4 #d4 ,,michigan ,,railroad ,t4 ,c4 ,form ,r4,r4#aj ,,appraisal ,office ,inspector ,railroad ,,culverts ,date ,field ,inspector ,,division ,total ,total ,total #ah in4 or #bd inch ,iron ,number ,number ,number smaller ,iron ,pipe ,stone ,wooden ,wooden ,pipe ,box ,box ,open ,culverts,culverts,culverts ,from,to ,no4 ,approx4 ,no4 ,approx4 of ,no4 of ,no4 ,lines,feet of,lines,feet of ,pipe ,pipe #cj inch ,iron #cf inch ,iron #dh inch ,iron #fj inch ,iron ,pipe ,pipe ,pipe ,pipe ,no4 ,approx4 ,no4 ,approx4 ,no4 ,approx4 ,no4 ,approx4 of ,no4 of ,no4 of ,no4 of ,no4 ,lines,feet of,lines,feet of,lines,feet of,lines,feet of ,pipe ,pipe ,pipe ,pipe ,iron ,pipe ,over #fj ,total ,total ,total ,total inch ,no4 ,no4 ,no4 ,no4 ,sewer ,sewer ,pit ,surface ,pipe ,pipe ,cattle,cattle ,culverts,culverts,guards,guards under #bdbd inch inch and over ,no4 ,size,approx4 of ,no4 ,lines ,feet of ,pipe ,,michigan ,,railroad ,t4 ,c4 ,form ,r4,r4#aa ,,appraisal ,office ,inspector ,railroad ,,arches ,date ,field ,inspector ,bridge ,,location ,,stream ,date ,length of,length of ,no4 ,built ,span ,arch in ,feet ,face to ,face ,,this ,,space ,,for ,,binding ,height ,approx4 ,,kind ,,of ,,kind ,,of ,feet ,no4 ,cubic ,,arch ,,material ,feet ,masonry ,,michigan ,,railroad ,t4,c4 ,form ,r4,r4#bi ,,appraisal ,office ,inspector ,railroad ,,car ,,ferry ,,terminals ,date ,field ,inspector ,,general ,,description ,items,owner,used,location,date ,type ,no4 ,dimensions ,struc4 by ,built ,tracks ,steel ,iron and ,mech4 furnished by ,,quantities ,,values ,,remarks ,iron ,bolts ,piles,lumber,excavation,estimated and and lin4 feet ,fill1 ,cost ,steel ,nails feet b4m4 ,dredging ,pounds,pounds,kind ,kind ,cu4 ,yds4 ,illustration3 ,,fig4 #e4 ,,michigan ,,railroad ,t4 ,c4 ,form ,r4,r4#bj ,,appraisal ,office ,inspector ,railroad ,,coal ,,chutes ,date ,field ,inspector ,,location,length ,kind of,foundations,size of ,number ,capacity of ,trestle ,building of of ,trestle ,pockets,pockets ,date ,name of ,if ,built,builder,hoisting or ,conveying ,machine in use1 ,state ,what ,kind ,,michigan ,,railroad ,t4 ,c4 ,form ,r4,r4#ai ,,appraisal ,office ,inspector ,railroad ,,water ,,stations ,date ,field ,inspector ,state whether ,power is ,steam1 ,gasoline1 ,wind1 ,gravity1 or ,hydraulic ,ram4 ,,location,source ,,pump ,,boiler ,,pump ,,house of ,water ,supply ,kind,size ,kind,size ,kind,size ,date ,built ,,tank ,length and ,size of ,suction and ,discharge ,size,capacity,foundations,date ,gallons ,built ,,michigan ,,railroad ,t4,c4 ,form ,r4,r4#bh ,,appraisal ,office ,inspector ,railroad ,,ore ,,docks ,date ,field ,inspector ,,general ,,description ,,item,owned,location,date ,type ,,dimensions and ,built ,used by ,no4 ,cap4 ,hgt4 ,hgt4 ,width ,pkts4,tons,water to,water ,c4,l4,hge4 to ,dock ,,quantities ,,values ,,remarks ,rods1 ,piles,lumber,fill and,estimated ,bolts1,lin4 ,feet ,dredging ,cost ,iron1 ,feet ,b4,m4 ,pounds,kind ,kind ,l'gth of ,chutes ,illustration3 ,,fig4 #f4 ,,michigan ,,railroad ,t4,c4 ,form ,r4,r4#ae ,,appraisal ,office ,inspector ,railroad ,,stock ,,yards ,date ,field ,inspector ,,location,number,size of ,date of ,,wells of ,yards ,completion ,pens ,feet ,depth,diameter ,feet ,,michigan ,,railroad ,t4 ,c4 ,form ,r4,r4#ad ,,appraisal ,office ,inspector ,railroad ,,track ,,and ,,stock ,,scales ,date ,field ,inspector ,,location,,name ,,of,capacity ,length ,date ,,scales ,tons ,built ,illustration3 ,,fig4 #g4 ,,michigan ,,railroad ,t4,c4 ,form ,r4,r4#ac ,,appraisal ,office ,inspector ,railroad ,,statement ,,of ,,miscellaneous ,date ,,buildings ,field ,inspector ,include in this report all shops1 warehouses1 car houses1 watchmen's shanties1 flagmen's buildings1 elevators1 general office buildings and all other structures not specifically asked for in other reports4 ,,location,,description ,,size ,kind of ,date of ,,of ,,building ,bldg41 ,brick1,completion ,stone or ,frame ,,michigan ,,railroad ,t4 ,c4 ,form ,r4,r4#ab ,,appraisal ,office ,inspector ,railroad ,,station ,,buildings ,date ,field ,inspector ,,location ,,description ,,size ,kind of ,date of ,,stations ,,of ,,building ,bldg41 ,brick1,completion ,stone or ,frame ,illustration3 ,,fig4 #h4 ,,this ,,space ,,for ,,binding ,,michigan ,,railroad ,t4 ,c4 ,form ,r4,r4#bb ,,appraisal ,office ,inspector ,railroad ,,real ,,estate ,date ,,not ,,used ,,for ,,railroad ,,purposes ,field ,inspector ,,location ,,description ,assessed ,value ,,total ,,taxes ,,county ,,assessment ,,amount ,,amount ,,district ,,paid ,,this ,,space ,,for ,,binding ,,michigan ,,railroad ,t4 ,c4 ,form ,r4,r4#bc ,,appraisal ,office ,inspector ,railroad ,,miscellaneous ,,equipment ,date ,,rolling ,,stock ,field ,inspector ,location ,no4 ,name ,description,capacity ,date ,cost ,when,remarks ,built ,new ,illustration3 ,,fig4 #i4 ,,this ,,space ,,for ,,binding ,,michigan ,,railroad ,t4 ,c4 ,form ,r4,r4#bd ,,appraisal ,office ,inspector ,railroad ,,shop ,,machinery ,,and ,,tools ,date ,field ,inspector ,description ,maker ,date ,built ,size ,cost ,when ,new ,remarks ,,michigan ,,railroad ,t4 ,c4 ,form ,r4,r4#be ,,appraisal ,office ,inspector ,railroad ,,steam ,,shovels1 ,,dredges1 ,,pile ,date ,,drivers ,field ,inspector ,,make ,,of,,property ,date ,size of ,shop ,cost ,present ,,remarks ,,shovel ,,of ,built ,dipper ,number ,when ,value ,cu4 ,yds4 ,new of ,new ,,michigan ,,railroad ,t4 ,c4 ,form ,r4,r4#bf ,,appraisal ,office ,inspector ,railroad ,,docks ,,and ,,wharves ,date ,field ,inspector ,,general ,,description ,,items,owner,used,location,date ,type,dimensions by ,built ,,quantities ,,values ,,remarks ,rods1 ,piles,lumber,excavation ,estimated ,bolts1,lin4 ,feet ,fill ,cost ,nails1,feet ,b4,m4 ,dredging1 etc4 ,kind ,kind ,cu4 ,yds4 ,pounds ,illustration3 ,,fig4 #aj4 ,,michigan ,,railroad ,t4,c4 ,form ,r4,r4 #ba ,,appraisal ,office ,inspector ,railroad ,,classification ,,of ,,freight ,,cars ,date ,field ,inspector ,,note3--,under remarks specify whether box cars are ventilated1 stock cars are single or double deck1 gondolas are plain1 hopper or drop bottom2 also any other special features4 ,,groups ,class1 ,capacity,total ,,dimensions ,,of ,,car ,,body ,,by as in lbs4 weight ,,numbers ,stock1 of car ,gondola1 and ,flat1 trucks etc4 in lbs4 ,outside ,inside ,length ,length,width ,height over end sills #a,no4 to ,no4 ,superstructure ,under ,,trucks ,brakes1,coupler1 wood1 steel1 frame ,manual1 ,kind or composite wood1 or air steel1 or and composite sand ,kind,size of ,bolsters1 journal wood or steel ,body,trucks ,date ,number ,cost of ,,remarks built ,in each car servicecomplete when new ,,michigan ,,railroad ,t4,c4 ,form ,r4,r4 #bg ,,appraisal ,office ,inspector ,railroad ,,passenger ,,equipment ,division ,field ,inspector ,date ,,number ,class ,,dimension ,,trucks ,coach #a1 ,,inside #b1 #c1 ,mail ,express1 ,comb4 ,,wheels ,,springs ,frame1 ,wood1 ,steel or ,comb4 ,no4,size,kind,roleter,equalizer ,size ,size ,,interior ,,finish ,head ,,seats ,lights1 ,closet ,,sash ,curtains lining number and or ,wood1 and ,lavatory ,blinds ,steel ,kind or ,canvas ,comb4 ,no4,kind ,double,glass or ,plate ,singleor ,d4 ,s4 ,,platform ,heat1 ,,builders,date ,number ,direct ,builtnow in ,steam ,service or ,heater ,decoration,steel ,vestibule ,coupler or ,ventilator1or ,hook ,wood ,wide or ,narrow ,cost,,remarks when new ,,michigan ,,railroad ,t4,c4 ,form ,r4,r4 #e ,,appraisal ,office ,inspector ,railroad ,,locomotives ,division ,field ,inspector ,date ,,note3-,cost when new should include original cost of engine and tender plus original cost of all accessories1 as brakes1 bell ringer1 sander1 water scoop etc4 added when engine was purchased4 ,,place ,,of ,no4 of ,type ,builder,size of ,weight ,pass41 ,,inspection,engines of and ,cylinder without ,frt4 ,engine ,class ,tender1 lbs4 or ,switch ,p4,f4 or ,s4 ,working,empty ,order #a #b ,when ,new ,last ,coupled ,drivers ,kind of ,heavy ,headlight ,repairs ,date,cost,date,cost,number ,centres ,tires ,diam4,steel,diam4,maker or iron ,,boiler ,bell ,sander ,ringer ,kind,steam ,total,g4,s4,last ,new ,steam ,press4,h4,s4 ,sq4 ,boiler ,heater ,built ,sq4 ,ft4 ,for ,ft4 ,date,cost ,,brake ,,tender ,,remarks ,size,kind ,train ,water ,coal1,weight,water of of ,signal,gallons,tons ,empty ,scoop ,pump,brake lbs4 ,that a few changes were made in #aijd was to have been expected2 that these forms were almost in their entirety made a basis for the similar work of the ,wisconsin appraiser1 some three years later1 was in the nature of a high compliment and goes far toward answering the criticisms of this part of the work1 generally to the effect that the forms call for much more information than could possibly be used1 and that they show lack of care in arrangement4 ,it may be said here1 properly1 that the uncertainty as to the final attitude of the companies made it essential that the appraiser prepare1 if need be1 to make his inventory by personal inspection in the field4 ,indeed1 this was done in the case of several roads1 and1 while most of the companies finally accorded every courtesy1 either giving the appraiser access to their records1 or furnishing the information desired1 it is not probable that the shortness of the time limit would have enabled the appraiser to secure any sort of result had a modified plan been adopted4 ,the law provided no requirement that the companies should furnish any information4 ,in order to secure the data1 it would have been necessary to employ a large number of men1 and this would have been such a serious expense to the companies that refusal to comply would probably have followed such a request4 ,many of the companies had no men in their service able to prepare the required data2 and1 finally1 eight or ten men after having worked in the files of companies owning reasonably full records1 were much better able to take off the desired data intelligently from the records of other companies than men unfamiliar with the needs of the appraiser and with no prior experience4 ,then1 too1 the work secured was that of one body of technical men1 all experienced in different phases of railway work1 and thus was uniform and consistent4 ,had seventy-five or eighty different men or sets of men prepared these inventories1 there would certainly have been a great variation in their worth and reliability4 ,it must be kept clearly in mind that lack of time was the main feature which kept the appraiser from considering any such plan of co-operation with the railroads as was adopted later in ,wisconsin and ,minnesota1 and that no distrust of the railroads1 or lack of desire to co-operate1 had anything to do with the appraiser's decision to use the method which was adopted4 ,shortly after the preparation of the blanks1 access was granted to the records of the ,ann ,arbor ,railroad1 and almost immediately thereafter several other companies opened their files to the appraiser2 the ,state ,board of ,auditors determined to pay the bills1 as approved by the appraiser2 and the initial difficulties were so far removed that it was possible to carry out1 without any further delays1 the plan of organization which had been perfected4 ,the personnel of the staff was considered to be of the greatest importance1 and1 in the selection of men1 the requirements desired were3 experience in the construction and operation of railroads1 thorough technical training1 high standing in the ,profession1 as shown by membership in the ,american ,societies of ,civil or ,mechanical ,engineers1 or of other ,societies of high standing1 and high moral character4 ,politics1 residence in the ,state1 or local influence1 had absolutely no weight in the selection of any of the men4 ,in a number of cases men were secured who had for some years occupied the position of ,chief ,engineer of important lines4 ,in a very large number of cases men who were engaged on this work have since its completion held the position of ,chief or ,principal ,assistant ,engineer of important railroads1 and practically all of them returned to railway service4 ,dozens of these men are well known1 and their work deserves that full credit should be given to each1 but it is impossible to do so within the limits of this paper4 ,the minor positions1 such as assistants in the field and in the computing and compiling rooms1 were assigned to younger men1 generally with some railroad experience1 and in many cases they were graduates of technical schools1 ,cornell1 ,yale1 ,rensselaer1 ,michigan1 ,ohio ,state1 and other schools having representatives4 ,the writer believes that no more harmonious or loyal organization was ever gathered together before1 or has been since4 ,men who had held ,chief ,engineer-ships trudged miles in the wilds of ,michigan on foot1 inspecting and inventorying property1 and came into the office and worked long hours at the computing tables with the utmost cheerfulness and camaraderie4 ,there was complete harmony1 absolute loyalty1 and as perfect a spirit of unselfish devotion to the work as the writer has ever seen in any organization4 ,the fact that such a staff of engineers1 of wide experience in railroad construction and maintenance1 had been assembled1 made it feasible to carry out a plan of the appraiser which proved to be of great value4 ,at frequent intervals1 during the progress of the work1 conferences were held which were attended by all the heads of departments and by many of the older and more experienced engineers4 ,matters of policy1 details1 general principles1 and rules and methods for conducting the appraisal1 were fully discussed1 and stenographic records were made of the discussion and conclusions4 ,these conferences covered practically every question that arose2 they were of such a nature as to draw out the opinions of the men fully and freely2 and their effect was to eliminate the error due to individual judgment1 and harmonize and unify the methods and results of the appraisal4 ,special emphasis has been laid on the organization of the staff1 because the criticism has been made that this work was lacking in care1 was hurriedly done1 and was unreliable4 ,the work must be judged by its results1 but the criticism that it did not receive proper care is absolutely unjustified in fact4 ,the men engaged were of the highest type of experienced1 technically educated1 and highly qualified engineers2 they entered the work unreservedly1 and gave the best there was in them4 ,the ,michigan appraisal was not a one-man job2 it was the work of many men1 and all are entitled to credit4 ,that some men in an organization such as this1 gathered from all over the ,united ,states1 should prove to be lacking1 and should fail to hold their place with their fellows1 was to have been expected4 ,that the number of such men should not exceed half a dozen was remarkable4 ,in fact1 almost every such case was found when the first notes were returned to the office1 and in only two or three instances was it necessary to send a second man to do work which had been once covered4 ,in several cases men were sent over certain sections which had been inspected by some one else1 with a view of getting an idea of the personal judgment of the different men1 but in such cases the results were astonishingly close1 and created the greatest confidence in the figures of depreciation which were being received4 ,looking back on this work1 after the lapse of #aj years1 after having fully reviewed it twice1 and examined all records1 after having heard the men engaged on it testify in court1 and knowing the record of these men since the completion of the work1 the writer believes himself fully justified in stating that1 no matter what opinion may be held as to the accuracy1 reliability1 or value of the result1 no charge of carelessness1 neglect1 undue haste1 or lack of consideration can be sustained as against the staff4 ,to strengthen the work further1 to eliminate the element of personal error1 to guard against the danger of dulled perceptions due to constant application to the work1 and to forestall1 if possible1 every point of objection to methods1 a ,board of ,review was chosen by ,appraiser ,cooley to whom were referred3 7a7 ,the methods of inventory and valuation1 as determined by the staff2 7b7 ,all points on which special discussion or difference of opinion were noted in the working conferences2 7c7 ,questions as to elements of value in the physical property which were in themselves not tangible or capable of inventory2 and finally1 7d7 ,the results of the whole work4 ,the members of this board were chosen on account of pre-eminent standing in the ,profession1 and on account of experience and prominence in railway engineering4 ,the board was composed of four men1 as follows3 ,chairman1 ,octave ,chanute1 ,past-,president1 ,am4 ,soc4 ,c4 ,e41 former ,consulting ,engineer1 ,atchison1 ,topeka1 and ,santa ,fe ,railway1 but at the time not engaged in active railway work4 ,george ,w4 ,vaughn1 ,m4 ,am4 ,soc4 ,c4 ,e41 ,engineer in charge of ,track ,elevation in ,chicago4 ,charles ,e4 ,greene1 ,m4 ,am4 ,soc4 ,c4 ,e41 ,dean of the ,school of ,engineering1 ,university of ,michigan4 ,charles ,hansel1 ,m4 ,am4 ,soc4 ,c4 ,e41 former ,engineer1 ,wabash ,railroad1 former ,chief ,engineer1 ,illinois ,railway and ,warehouse ,commission1 and at that time ,general ,manager of the ,national ,switch and ,signal ,company4 ,these gentlemen were not engaged in any detailed work on the appraisal2 they came to the work for one week each month with minds entirely clear of all confusion raised by issues of detail1 and were thus enabled to pass as a court upon all matters laid before them4 ,their association was of inestimable value in giving confidence to the members of the staff4 ,the many years of railway service of ,messrs4 ,chanute and ,vaughn1 and their unquestioned ability in that special field of engineering1 gave the stamp of finality to points decided by them4 ,the special knowledge of ,mr4 ,hansel in the field of signal engineering1 and his known ability as an expert in organization and administration1 were of the greatest value4 ,the service of ,professor ,greene was that of the analyst and logician2 his clear and judicial mind enabled him to formulate the final arguments in many cases under consideration4 ,the writer wishes to make it perfectly clear that he has not attempted to minimize the work of ,professor ,cooley by stating the exact relation of the many engineers on the staff to this work1 but to bring out and emphasize the fact that no one man1 or no two or three men1 were responsible for any single part1 but that the whole represents the best efforts of sixty or seventy experienced men working to secure a fair1 honest1 unprejudiced1 engineering estimate along such lines as would eliminate1 as far as possible1 all errors of individual judgment4 ,it has never been claimed for the work that it was perfect1 or that it was entirely free from errors4 ,it has been and is claimed for it that it probably represents as close and conservative an estimate of cost of reproduction and depreciation as it would be possible for any set of men to make under the conditions then existing4 ,professor ,cooley was in constant touch with the work1 knew its every detail1 passed upon and approved every rule and order1 presided at every conference1 and nothing more than his activity1 optimism1 and constant watchful care and tireless energy kept the force at work day and night and brought about the prompt completion of the details4 ,his recognized high standing1 his remarkable ability as an executive and organizer1 and his powers of diplomacy1 more than anything else1 brought about the final acquiescence of the railroad managers and kept up the confidence of the ,state authorities2 his personality pervades the entire work4 ,after giving all due credit to the staff1 and they were entitled to much credit1 the real honor must go to ,professor ,cooley4 ,it was his conception1 his plan1 and the brunt of the battle was his4 ,office and ,field ,methods4 ,the preliminaries of the organization having been completed1 and the forms prepared1 a portion of the working force was brought on the ground1 and the work was actively commenced4 ,it was subdivided into four parts3 7#a7 ,office inspection1 or inventory2 7#b7 ,field inspection2 7#c7 ,computation2 7#d7 ,compilation for the permanent record4 ,the men chosen as field inspectors were old and experienced railroad engineers4 ,as far as possible1 they were assigned for a short period to office inspection1 then they were sent into the field1 after which they worked at the computation of values2 so that each man was engaged on many different phases of the work1 and handled the notes of many of his fellows1 and no one man made up one complete appraisal1 except as specially noted4 ,making the ,inventories4--,office inspection1 or the preparation of inventories1 was assigned to parties usually of one or two experienced men with from two to four younger engineers as assistants in the computing-room4 ,these men went to the general offices of the railroad companies and made a complete examination of maps1 profiles1 bridge and building records1 records of motive power1 rolling stock1 etc4 ,in short1 they prepared1 as far as it was possible to do so1 a complete inventory of every building1 structure1 or piece of property owned by the road2 they took off complete abstracts of real estate and right-of-way records2 they noted principal yards and terminals1 and secured maps of such as were most complex1 or furnished lists of such maps and records as were most essential for the field men1 and they made as complete a report as possible of the corporate history of the road and the general condition of its engineering records4 ,no effort whatever was made to examine or audit the financial books of any company1 or to secure from such books any data as to cost of property2 the work was entirely limited to the listing of physical property4 ,most of the railroad companies co-operated1 and gave access to their records2 one or two filled in the forms2 a number had practically no records1 and only one or two companies withheld information4 ,requests for blue prints of large yards and terminals1 and of plans of standard structures were generally granted cheerfully1 and1 although there was no such spirit of co-operation as was shown later by the ,wisconsin roads1 much labor was saved by the data furnished4 ,the result of the office inspection was the filing of inventories1 which were generally quite complete1 the securing of maps and plans1 the gathering of data as to prevailing prices of labor and material1 and the securing of some very valuable cost data as to special structures and classes of structures4 ,all inventories were made up for roads1 or for divisions of roads1 with each class of property listed separately1 for example1 station buildings1 interlocking plants1 bridges1 etc41 so that1 if necessary1 any special class of inspection might be assigned to one man1 while to others could be assigned the remainder of the work on that particular road or division4 ,office ,inspection as a ,check on ,field ,work4--,the office inspection furnished many valuable data for checking the judgment of the field men4 ,for example1 the number of cubic yards of excavation and embankment on probably the greater part of the mileage had to be secured by the field inspectors1 either because the records had not been kept or the changes of line and grade had been so extensive as to destroy their reliability4 ,every field inspector1 therefore1 made his own estimate of the yardage of pay earth4 ,the office inspection reports1 however1 gave reliable data 7from profiles or original contract estimate files7 of the actual yardage on possibly #bjjj or #cjjj miles of line1 so widely scattered that it constituted a check on the work of a majority of the field men4 ,this work of office inspection disclosed the following points1 which will be practically common to all large valuation jobs3 7a7 ,there was no uniformity of method in the keeping of records of permanent way and structures2 7b7 ,there was a vast amount of carelessness in keeping records up to date1 even on the larger roads2 7c7 ,the smaller roads1 not only had little or nothing in the way of records1 but had in many cases no department with employees qualified to make or keep such records2 7d7 ,the purchase of new equipment1 the construction of new buildings and bridges1 and the destruction1 sale1 or removal of old property1 create a condition of continuous change which is seldom recorded by either operating or accounting officials1 and makes book inventories derived from the roads of very doubtful value for use in an appraisal4 ,field ,inspection4--,the decision had been reached1 after careful discussion1 not to permit the field inspectors to place a money value on any structure1 but to examine it1 make a full description of it in all particulars1 and assign to it a percentage which should represent the present value1 or the depreciation from a similar new structure rated at #ajj per cent4 ,the field inspectors were furnished with the records of the office inspection covering the district assigned4 ,they were given notebooks1 tape lines1 and various blanks for reporting progress and recording original estimates in the field4 ,provision was made for inspection by the field men1 either by the use of hand-cars1 gasoline inspection cars1 or velocipede cars1 although1 with one or two of the roads1 no satisfactory arrangement could be made1 and the men were compelled to go on foot4 ,a careful inspection of every structure was made4 ,if any correction to the office inspection record was necessary1 it was made2 if the structure was new1 it was carefully measured and described1 and everything noted which would be of service in estimating its value4 ,side-tracks were measured1 and the weight and type of rail noted4 ,all culverts and bridges were examined1 described1 and their condition noted4 ,estimates were made of excavation and embankment1 clearing and grubbing1 etc4 7based on the standing timber at the time of the examination71 and careful estimates were made of classifications of material4 ,the records of the field inspector generally contained only the description and the percentage1 but1 occasionally1 when apparently valuable information as to cost of any particular structure was available it was noted1 as was special information of local matters affecting the value of any part of the work4 ,it was the plan 7carried out with but few exceptions7 to complete the record with the field inspector so that from his notes a full and accurate descriptive inventory might be made4 ,there were a few exceptions to the general method of field inspection work as outlined1 which were3 ,special ,work on the ,chicago and ,northwestern ,railway4--,the ,chicago and ,northwestern ,railway had no records of any sort1 all construction papers having been destroyed by fire4 ,this company organized and placed in the field four complete engineering parties1 each under one of its own engineers1 and with each party was sent one field inspector4 ,the line was carefully surveyed and cross-sectioned1 and complete records of every building and structure were made1 side-tracks were measured1 and data taken for rail and ballast charts1 etc4 ,all work was done in the presence of the field inspector1 and he was given copies of all notes4 ,he placed his own percentage of depreciation on everything4 ,the estimates1 made up independently by the ,chicago and ,northwestern engineers and the appraisal staff1 using in the latter case the same unit prices as applied elsewhere in the ,upper ,peninsula1 varied less than #b per cent4 ,special ,valuations4--,certain special structures1 such as ore docks and ore and coal handling machinery1 were of such a character as to require expert appraisal4 ,these were examined in the field1 appraised1 and valued by ,g4 ,h4 ,hutchinson1 ,m4 ,am4 ,soc4 ,c4 ,e41 whose special training and experience in such work had qualified him perhaps better than any other man4 ,interlocking and signaling plants were specially appraised by the late ,elliot ,f4 ,moore1 who for #aj years had been ,engineer of the ,michigan ,railroad ,commission1 and whose intimate personal knowledge of almost every plant in the ,state specially qualified him for this work4 ,some of the bridges were of such a character as to require expert knowledge1 and this inspection was assigned to ,william ,dunbar ,jenkins1 ,m4 ,am4 ,soc4 ,c4 ,e41 a man of ripe experience and sound judgment4 ,the larger and more elaborate station buildings were examined and appraised1 and values finally placed by ,mr4 ,f4 ,g4 ,susemihl1 ,chief ,architect of the ,michigan ,central ,system1 whose special work in railway buildings made him thoroughly familiar with these values4 ,work equipment and special equipment were appraised by ,mr4 ,g4 ,l4 ,lewis1 who had been connected with the ,marion ,steam ,shovel ,company for many years4 ,except for these special assignments1 all the field inspection was handled in accordance with the appraiser's plan4 ,as stated previously1 in only two or three cases was it necessary to re-inspect1 and1 while several sections were intentionally gone over a second time1 without letting the field inspector know who had done the work previously1 or what his percentages had been1 the result of all these checks was to justify the figures in the earlier inspection and to strengthen confidence in the work4 ,the field inspection of the ,mechanical ,department involved examining and placing a percentage value on each locomotive1 passenger car1 and piece of special equipment1 and on all shop machinery4 ,inasmuch as several points of special interest are involved in this inspection1 it will be discussed at more length in the section of the paper relating to the methods of work of the ,mechanical ,department4 ,computation4--,after the completion of the field inspection1 all notes were placed in the hands of the computing force4 ,this organization consisted of two classes of men1 engineers brought in from field inspection1 and younger engineers4 ,all computations were made independently by two men1 and all work was checked carefully4 ,every man in the computing room was furnished a large bound blank-book1 in which he was required to make all his notes and computations1 no figures of any sort being made on loose paper4 ,the name of each man was placed on his notebook1 and each set of field and office inspection notes worked upon by him was signed with his initials4 ,it was easy to trace the work of every man1 and in the subsequent trial of the ,tax ,cases1 every man in the service returned1 and1 not only testified as to his office and field inspection1 but was able to turn to and identify all the computations made by him1 and produce his original figures and memoranda4 ,very soon it became evident that such a volume of reports1 notebooks1 memoranda1 maps1 plans1 pamphlets1 and other data was being accumulated that1 unless a special system was developed for filing and handling in the office1 the confusion would be serious and costly4 ,filing in ,office4--,the system of filing and record keeping had the merit of being simple and inexpensive4 ,there was borne in mind1 in devising this plan1 the necessity of keeping all papers connected with one division of any road together1 the need for reducing to a minimum the labor of filing and indexing1 the constant use of papers1 and their frequent withdrawal from the files1 making it necessary that they could be at once located when they were not in the files4 ,the vault in the appraisers' office was arranged so that large manilla envelopes1 each of sufficient size to hold all the reports1 notes1 maps1 etc41 of each road or division1 could be filed vertically4 ,each road was given a number2 if there were several divisions1 each division was given a letter1 as #ae-;,a1 #ae-;,b1 etc41 and each division was filed separately4 ,every report1 book1 map1 or other paper was stamped with its road or division number and letter1 and given a sheet number4 ,in this manner every paper was identified1 and could be at once placed4 ,a record was kept in a book1 describing every paper filed in each envelope4 ,in issuing papers for work1 the entire file was taken and kept together at all times4 ,one man had charge of the filing and recording1 and no one else was permitted to enter the vault4 ,when a file was withdrawn1 a receipt was taken1 and was put in the place of this file2 and when the papers were restored to the vault the receipt was destroyed4 ,the system proved adequate1 and was much less cumbersome than a more elaborate system of card indexing of separate papers could possibly have been4 ,the net result of office and field inspection had been an inventory based on the railroad records1 checked by a man in the field1 with a percentage representing the field inspector's judgment as to depreciation1 together with a considerable number of special data as to original cost1 etc4 ,it was now necessary to place figures of estimated cost of reproduction and depreciation in terms of money4 ,the ,state of ,michigan is made up of two peninsulas1 widely separated1 with radically different conditions prevailing as to certain items of the cost of construction4 ,computation ,tables4--,this appraisal involved seventy-eight incorporated and forty-seven unincorporated railroads4 ,it was necessary to adopt such a system as would apply uniform methods and prices to all like property4 ,accordingly1 the field inspectors were assembled1 and1 after conference1 it was determined to prepare a set of tables1 covering all classes of railway construction1 material1 and structures1 values being computed for #ajj value1 and for each #aj depreciation4 ,these tables covered different weights1 sizes1 and types of structures and material1 and were all computed on the basis of the agreed estimated cost4 ,unit ,prices4--,the unit prices were the result of a most careful study and discussion4 ,for many items1 such as clearing1 grubbing1 earthwork1 masonry1 etc41 the price was fixed by agreement during the discussion at a figure which represented the fair average cost of this particular item during the #e-year period preceding the appraisal4 ,for rails and rail structures1 an average price was secured from market quotations for a period of #aj years1 a price was determined as the value of scrap1 and the percentage of depreciation was applied to the wearing value of the rail4 ,the unit price was #bh2 the agreed scrap value was #ab1 leaving #af as the wearing value of the rail4 ,if an inspector reported rail at #ij1 or at #cj1 this percentage was taken from the #af wearing value and to this was added the scrap value4 ,the tables were arranged so that1 for any weight of rail and any percentage1 the cost of reproduction and the present value could be taken from the tables in dollars per mile4 ,the same was true of bolts1 spikes1 angle-bars1 fish-plates1 and frogs and switches4 ,in the case of material such as ties1 where no scrap value could be attached1 the percentage was applied directly to the first cost4 ,in the case of bridges1 the tables gave weights per foot and per span for various lengths1 types of structures1 and loadings1 and only the cost of reproduction was estimated4 ,estimated costs per cubic foot were deduced for buildings of various standard railroad types and per square foot for depot platforms4 ,these figures were obtained by reducing to this basis the cost of a large number of buildings of known cost1 by comparison with data obtained from railroad companies and from a number of engineers who had kept such records1 and by consultation with architects4 ,these building tables did not apply to the more elaborate and costly structures1 all of which were appraised specially4 ,ballasting1 track laying1 and surfacing were divided into three and four classes1 in order to cover the different general types of railroads1 and prices per mile were fixed4 ,on ,upper ,peninsula roads ballasting was estimated at a higher price than on ,lower ,peninsula roads1 while ties and timber construction were estimated at a lower figure4 ,in addition to these prices1 secured by averaging several years' quotations1 or by agreement of experienced construction engineers1 many valuable figures were obtained from manufacturers of locomotives1 cars1 mechanical equipment1 and bridges2 and in several cases access was given to the mechanical cost data of the larger roads4 ,specifications for locomotives1 cars1 and shop tools were sent out to builders with a request that they give average prices for a period of years4 ,from all this mass of data the unit prices for the valuation were determined4 ,for locomotives1 values were plotted for engines of different weights1 in order to establish a curve1 and curves representing deterioration1 scrap value1 and major repairs were also plotted1 so as to ascertain diagrammatically the value of an engine of given weight and stated condition4 ,the tables and diagrams proved of incalculable benefit in reducing the work1 and in securing that absolute uniformity of method necessary to give the appraisal standing4 ,it may not be amiss to state here that in such a work no set of unit prices could possibly be adopted which would not work some apparent injustice4 ,a number of ,michigan lumber roads were of the cheapest possible type of construction1 and any unit price applied to ties or timber1 which would be at all reasonable for such roads as the ,michigan ,central1 ,grand ,rapids and ,indiana1 ,pere ,marquette1 and others1 would be far in excess of the actual money paid out by these little roads4 ,a few individual instances of such apparent discrepancy were cause of complaint and criticism1 but1 on analysis1 very generally1 these did not appear to be anything but a disagreement with book values1 in which ties cut off the right of way were treated as having no cost2 or in some similar item certain local conditions may have made the first cost so low as to amount to a donation of property4 ,conceding the propriety of the objections1 the reason for making the appraisal was to furnish information on which the legislature might determine whether the ,state should go from a specific to an ad valorem basis1 and in view of this purpose the objections became unimportant1 as they applied to but a few miles of road4 ,classification4--,all work of computation was classified in strict accordance with the ,interstate ,commerce ,commission's classification of construction accounts1 to which were added one or two classifications not recognized by that ,commission1 and final summaries were returned on sheets similar to those illustrated by ,figs4 #a to #aj4 ,in computing1 the staff made use of all data of every nature which was before them1 checked the judgment of the field inspector wherever any reliable data were furnished1 took into account age1 special notes1 or costs1 and1 in case of any serious discrepancy in his percentage1 reported to the head of the department for either a re-inspection or for a conference with the appraiser and inspector4 ,in this department every possible safeguard was thrown around the work to insure its absolute mathematical correctness1 and to guard against errors in the personal equation4 ,compilation4--,after the calculations were checked and completed they passed to the compilers1 who arranged and classified them1 and prepared the form of the final report4 ,this consisted of a detailed list of every piece of property and every structure1 with a short description and specification1 and a statement of estimated cost of reproduction and present value4 ,the division is made by roads1 by divisions of roads1 and by counties4 ,this was done after the completion of all other work1 and the disbanding of the organization1 a small force being retained by the ,state to compile and put in permanent form all the papers of the appraisal4 ,this work was done under the direction of ,messrs4 ,james ,walker and ,o4 ,c4 ,le ,suer in consultation with ,professor ,cooley4 ,the final compilations were typewritten on large sheets and bound1 and constitute the final record of the physical valuation4 ,after the completion of the #aijj appraisal1 all papers connected with the work of the computing office were arranged in proper order and bound4 ,special ,problems of the ,mechanical ,department4 ,the ,civil ,engineering section dealt wholly with fixed property located entirely within the ,state2 and the work offered no special difficulties in the way of assignment of values4 ,it is true that1 when the question of terminal values was under discussion1 the ,wisconsin and ,michigan ,railroad offered a very pretty example1 in that the revenue-producing half of its mileage lay in ,michigan1 while its shops1 yards1 docks1 and car ferries1 comprising the great bulk of its physical property1 were in ,wisconsin4 ,this instance merely emphasized the fact that no ,state valuation of an interstate property can settle finally and definitely all the questions that arise4 ,assignment of ,value to ,states4--,the ,mechanical ,department was compelled to handle the valuation of moving property1 and to assign values as between the ,states on such a basis as would be fair to all parties4 ,the ,courts have been inclined to view the distribution of values between territorial units on the track-mileage basis as being a fair one4 ,the study of the problem in ,michigan indicates that while this method1 perhaps1 is just in most cases1 it will not hold in all4 ,assignment was made upon several bases1 as follows3 7a7 ,main-line mileage2 7b7 ,total track-mileage2 7c7 ,car- and locomotive-mileage of equipment operating in ,michigan2 7d7 ,car- and locomotive-mileage1 entire equipment2 7e7 ,freight-car mileage of the entire system4 ,the results secured by these different methods show1 in many cases1 very little difference2 all are close1 and no injustice is worked by any method1 while1 in other cases1 the figures are widely divergent4 ,the ,lake ,shore and ,michigan ,southern ,railway owns a high-class main line between ,chicago and ,buffalo1 and for part of the way there are two lines several miles apart2 the entire line is double-tracked1 and there is much third track4 ,none of this line is located in ,michigan1 except some #hj miles of single-track main line of the ,michigan ,division between ,toledo and ,elkhart4 ,the company1 however1 has several hundred miles of branch line in ,michigan1 which comprises most of the branch-line mileage of its system4 ,these lines1 generally1 are far inferior to its main line4 ,any apportionment of its equipment between ,states on the basis of either line-mileage1 total track-mileage1 or locomotive- and equipment-mileage of total equipment will result in the assignment to ,michigan of a value far in excess of a proper or fair amount4 ,an apportionment of locomotive and passenger-car equipment on the basis of equipment-mileage or equipment operating in the ,state1 and for freight cars on the basis of car-mileage of total equipment1 was found to be most fair4 ,in making the assignment of values1 this study was made for all interstate roads1 and such basis used as was apparently most fair in each case1 the department making a special effort not to assign to ,michigan undue values or those which could not be sustained4 ,freight ,car ,inspection4--,one of the most perplexing problems which was faced by the ,mechanical ,department was the proper and satisfactory inspection and valuation of freight equipment4 ,the freight cars owned by the companies were scattered over the ,united ,states and ,canada1 and the inspection of any considerable percentage of those owned by any company was1 of course1 an impossibility4 ,the fact that these cars had been purchased in series1 so that there were considerable numbers in a group1 all of the same age1 and built according to the same specifications1 made possible a valuation by groups4 ,the acceptance1 however1 of any arbitrary percentage of depreciation by years1 or the acceptance of the rules of depreciation of the ,master ,car ,builders ,association1 without making independent investigation with a view of establishing the correctness of the rule1 appeared to be unwise4 ,the several companies submitted carefully prepared statements of equipment4 ,these statements were compared with the equipment register and the reports to the ,commissioner of ,railroads4 ,the prices used were those of the rules of interchange of the ,master ,car ,builders ,association wherever applicable4 ,prices were furnished by the leading manufacturers1 and in many cases were secured from the books of the railroad company4 ,in order to determine the condition of the equipment1 the inspectors of the department personally examined #cb1jjj freight cars in ,michigan and adjoining ,states4 ,their reports were separated1 classified1 and analyzed by groups1 with the result that the inspection fully confirmed and justified the use of the rule for depreciation of the ,master ,car ,builders ,association1 which was therefore applied4 ,in the #aijb appraisal this rule was accepted without any inspection or further study of the problem4 ,the criticism of this part of the work by the appraiser of the ,state of ,washington is wholly unjustified1 as the work was necessary in order to qualify in ,court and defend the rule adopted1 and the actual cost of the work was small4 ,locomotives4--,the inventory of locomotive equipment was secured from the companies1 and checked against reports and the equipment register4 ,personal inspection was made of every locomotive in the ,state1 then a complete description was prepared1 and the percentage of depreciation assigned4 ,curves of depreciation had been computed and plotted1 and the figures of the inspectors were compared carefully with the curve in order to eliminate possible errors4 ,vessels4--,professor ,sadler's appraisal of vessels involved a personal examination of every vessel4 ,this survey included3 7a7 ,the hull of the vessel and general equipment2 7b7 ,the machinery and boilers4 ,an independent estimate of the cost of reproduction and depreciation was made1 and1 wherever possible1 this was checked by comparison with the detailed original cost4 ,in case of material difference1 various shipbuilders were consulted1 and independent estimates of cost were secured4 ,in every case these latter estimates were confirmatory of the estimated cost of reproduction1 which figures were used throughout the appraisal4 ,overhead ,charges4 ,there are certain expenses connected inseparably with the construction of any public work1 which1 on the completion of that work1 are not capable of physical identification1 but which1 nevertheless1 belong to and must be a part of the cost of the physical property4 ,these expenses are legitimate2 and1 as long as the property is operated1 a very large part1 if not all1 of the entire expense remains in the present value of the property as a going concern4 ,appraiser ,cooley and his staff took up the discussion of these items and disposed of those which were carried into the valuation by the placing of a percentage4 ,these items are3 ,engineering4--,this covered all the cost of preliminary and location surveys1 design1 and supervision of construction of the work1 and all expenses connected therewith4 ,this was covered by a charge of #d of the cost of reproducing the permanent way and structure1 but not the equipment4 ,legal ,expense4--,this item is inseparable from the construction work1 and was fixed at one-half of #a of the cost of the same items as affected by the engineering charge4 ,organization ,expense4--,this covered the cost of promotion1 financing1 and general supervision of construction1 together with general office expense4 ,these items were covered by an application of #a of the cost of the above items4 ,interest4--,this item is intended to cover interest on money during the period of construction4 ,the length of time taken to build would1 of course1 be variable4 ,it was assumed that #c on the entire cost of construction and equipment would be conservative1 and this figure was used4 ,discount on ,bonds4--,this was not included1 for the reason that it was considered1 not as a proper capital charge1 but rather as an adjustment of the interest rate to the existing market condition1 and as chargeable to interest account and not capital4 ,the discussion among members of the staff indicated such a wide range of opinion as to the proper percentages to apply1 that the final determination of the rates was passed upon by the ,board of ,review4 ,there can be no question as to the propriety of these items as proper elements in the first cost of construction of a new railroad4 ,on the theory that the cost of reproduction of the physical property should include every item of expense which would enter into the cost of reproducing the property as it existed on the date of the appraisal1 they are proper terms to include in the appraisal4 ,as to whether the fixed rates were high enough in every case1 is an open question4 ,the ,charge of ,ten ,per ,cent4 for ,contingencies4--,perhaps no single feature of the ,michigan appraisal of physical property has been so generally criticised as the charge of #aj of the entire estimated cost1 including all the percentage charges1 to cover contingencies4 ,at the time the first appraisal was made1 the writer was not at all satisfied that such an item1 in such amount1 should be included4 ,the reasons advanced were so strong that it was done1 and the writer's subsequent work has fully convinced him that it was proper and justifiable1 because3 7a7 ,the conditions under which this particular inventory and appraisal were made1 as to time and lack of co-operation of the companies1 made it practically certain that some items of value were missed in the appraisal1 such as station and miscellaneous equipment1 frogs1 switches1 track structures1 buildings owned by the companies and occupied by others1 etc4 7b7 ,that there were many and large elements of physical cost not ascertainable by a physical inspection1 such as deep foundations1 many thousands of yards of earth in swamps and sink holes 7a very general condition of roads in the ,southern ,peninsula71 concealed classification due to growth of grass or washing of banks1 and many other cases of work actually done1 invisible after a lapse of years4 ,the writer knows of many such instances on property which was in his charge many years ago2 in several cases there were expenditures of from #j1jjj to #ej1jjj which are now entirely invisible to an engineer passing over the line4 7c7 ,the failure on the part of railroad companies to keep anything like a complete history of construction operations1 and the changes of operating officials from year to year1 cause the loss of record of practically all the expense due to extra hazard and risk which the construction engineer provides for by his contingencies4 7d7 ,the inclusion in operating expense1 every year1 of sums which are properly construction1 and which1 if added to unit prices of construction work1 would cause the cry that such unit prices were too high4 ,for instance1 the appraisal estimate on earth was #ag cents per cu4 yd41 with no allowance for overhaul4 ,very much of the grade in the ,state had actual costs far in excess of this figure1 and practically every road spends a large sum annually for the first four or five years1 which is charged to operation but is in reality a part of the cost of completing the roadbed4 7e7 ,no account was taken of appreciation of any of the elements entering into a road4 ,there is no doubt that roadbed1 for example1 does appreciate1 due to ballasting and track work4 ,these items go far toward accounting for the contingencies item on an old road such as the ,michigan ,central4 7f7 ,there is a considerable amount of cost1 which cannot be taken out of capital1 where facilities are abandoned or line or grade changed4 ,these changes are common to all growing roads2 they are due to the demands for greater traffic2 they are necessary to the welfare of the community served2 they are often made at points where no charge of defective design will apply4 ,they might be termed expenses due to the development of the ,state1 and1 in the development of the railroad business1 they were absolutely necessary for its present standard of efficiency4 ,they are incapable of exact and definite determination1 and must of necessity be included as contingent expenses4 ,in the case of a new road1 where the exact cost is ascertainable1 the records have been fully kept1 the original plans are on file1 and the history is fresh in the minds of the officials1 it will be readily admitted that a charge for contingencies in large amount would not be justifiable2 but1 in the case of the ,michigan ,central ,railroad1 a line more than #ej years old1 which has changed1 rebuilt1 and added largely to its property2 in the case of the ,pere ,marquette ,railroad1 made up of the union of a dozen lesser properties1 without any complete history2 in the case of dozens of little lines1 without maps1 profiles1 or records1 some such allowance is fully justified and proper4 ,the experience of the writer1 in the years that have passed since these appraisals1 leads him to the opinion that the difficulty of estimating values on an old property are such that in many cases an appraiser might add1 with perfect propriety1 even more than #aj for the contingency item4 ,in computing overhead charges1 no allowance was made for working capital1 and no addition to the physical valuation was made to cover any such element as going concern value4 ,right-of-,way ,values4 ,land values were the subject of a great deal of discussion during the appraisal of #aijj1 but subsequent investigations as to actual railroad purchases resulted in quite radical changes in some of the figures in the later valuations4 ,in view of the fact that many criticisms of these values have been made by railway attorneys1 special emphasis is here given to the subject4 ,the conclusions reached in ,michigan in #aijb agree so closely with the conclusions of ,taylor in ,wisconsin and ,morgan in ,minnesota that it is thought advisable to give a rather full account of the methods used in both appraisals1 and the line of reasoning which brought about the changes made in #aijb4 ,the #aijj appraisals methods were as follows3 ,work in ,detroit1 ,grand ,rapids1 ,saginaw1 ,bay ,city1 and some other large cities was assigned to special appraisers1 who visited the cities1 examined critically all the property1 conferred with leading real estate men and experts in values1 and placed an estimate per acre or per square foot4 ,this part of the work was done with great care1 and was substantially unchanged in the later appraisals4 ,in all other land valuations1 in cities and villages1 and country right of way1 a personal examination was out of the question without making a very large and expensive addition to the staff1 as the field engineers generally were not familiar with realty values1 and could not take the time to make the large number of inquiries4 ,the appraiser did not see his way clear to organize a special department1 therefore the matter was turned over to a sub-department of the ,civil ,engineering ,section1 the work of which may be briefly outlined1 as follows3 ,lands were classified as3 7#a7 ,farm land1 7#b7 ,barren land1 7#c7 ,villages having a population of less than #ejj1 7#d7 ,villages from #ejj to #c1jjj1 7#e7 ,cities having less than #aj1jjj1 7#f7 ,cities having more than #aj1jjj4 ,the percentage of waste land was fixed as a result of interviews with roadmasters1 superintendents1 and other officials and employees of the roads1 by reports from field inspectors and others4 ,letters of inquiry were sent to real estate men and bankers in every county in the ,state 7some #ejj being communicated with71 as to land values in the town or county of each4 ,the responses1 which were numerous and indicated considerable care in preparation1 were classified1 and on these data1 supplemented by as much personal inspection as it was possible for a few men to give in a limited time1 the values of the various classes of land were determined by a system of averages4 ,the naked land values were then taken1 and to them were added1 as follows3 ,south of a line east and west through ,saginaw1 #abe plus a fixed charge varying from #h4ej per acre downward was added to the so-called naked land values for farm land4 ,no waste land values were considered in this district4 ,north of this east and west line3 ,farm land1 #ajj and a fixed charge of #c per acre and upward2 waste land1 #bjj plus a fixed charge of #c per acre2 for all village lands1 #abe plus #h4ej1 fixed charge2 for all city lands1 #ajj plus #h4ej1 fixed charge4 ,the fixed charges were intended to cover the expense of acquiring abstracts1 recording deeds1 etc4 ,slightly different figures were made for the ,upper ,peninsula4 ,the result of this work was a set of very low figures in many counties1 the average price per acre hardly reaching the going price of improved farm lands4 ,there was so little time to review these figures after they were in shape that they were used in #aijj1 although the appraiser was convinced that they were generally too low4 ,in the appraisal of #aijb a very careful study of real estate values was made4 ,the offices of ,registers of ,deeds in ten or twelve counties were visited1 a careful abstract of all railway transfers for a period of #aj years was taken off1 the acreage determined1 the average price per acre for different classes of land computed1 and then a very careful study of transfers of adjacent improved and unimproved lands was made4 ,as a result1 material increases were made in the farm land values1 waste land values were eliminated1 the #aijj valuation1 made by special appraisers in large cities1 was practically unchanged1 while very radical changes in the way of equalization of values of lands in villages and small cities were made4 ,inasmuch as the #aijb valuation was at issue in the ,courts1 the writer believes he is justified in discussing at some length the deduction of the staff on the conclusion of the #aijb preliminary studies1 which led to the final adoption of the new figures4 ,one would fall into error if country values for farm purposes were conflicted with country values for railroad purposes4 ,there is1 undoubtedly1 a close relationship between the two classes of values2 this the writer has endeavored to discover1 and it is indicated in ,tables #b to #f4 ,the use to which land is put can and does change its value4 ,farm land in a certain township may be worth #ej per acre for farming1 but the discovery of oil would affect values1 as far as oil purposes are concerned4 ,the presence of a vein of coal would give a distinct value for mining purposes4 ,farm prices would not govern values for any special use1 such as oil drilling1 mining1 or railroad operation4 ,in the case of city business property1 farm prices cannot be applied1 as the use to which the land is put and the buildings placed on it give it a greatly increased earning power1 and hence increased value4 ,thus1 with a railroad right of way1 the continuity of the strip of land1 the severance of lands crossed by it1 the greater earning power it derives from the construction placed on it1 in short1 the uses to which it is put1 give it a value far in excess of adjoining lands4 ,an excellent proof of this is found in the fact that many thousands of miles of right of way have been bought by promoters and either sold to a company1 which built the lines1 or used in financing the road4 ,in no case has the selling price been based on farm values4 ,it is not contended that railroad land values do not bear a direct relation to land values for other purposes1 as those things which tend to increase general values usually make the construction of a railroad profitable1 and the better and more fully developed the country1 the greater is the need for transportation facilities and the higher the prices of land for all purposes4 ,this is shown in the figures submitted herewith4 ,for purposes of appraisal1 therefore1 in #aijb the average value1 as derived from the #aijj appraisal1 was taken1 and1 by comparison with actual purchases1 an attempt was made to ascertain the relation existing between the appraisal figures of #aijj and the usual purchase price for railroad properties1 as determined by actual transfers4 ,in making these figures the appraiser was forced to the following conclusions3 7#a7 ,that the naked land value is not a proper one to use in country lands1 but that the going value of country lands with all improvements should be used as a basis for computing the added increment due to railway use2 7#b7 ,that a classification of farm land and waste land should not be made1 except as a basis for arriving at the relative differences in quality of land in different sections of a county2 7#c7 ,that the added value for railroad purposes is due to the three elements3 7a7 ,continuity1 7b7 ,severance or damages1 7c7 ,changed earning power1 all of which the farmer or owner has cognizance of in making his price2 7#d7 ,that in making up land values1 account should be taken of3 7a7 ,the cost of acquiring the land1 or expense1 7b7 ,the cost of the land itself4 ,the reasons are3 ,i4--,in making a price on a #dj-;acre farm1 the owner does not make two prices1 one on land and one on improvements4 ,he arrives at a flat price per acre for the entire farm1 and usually asks more per acre for a part than the whole4 ,a man who valued his land at #ajj per acre1 with improvements1 would hardly sell #e acres from a corner of his land1 even for residence purposes1 at naked land prices4 ,the #aijj appraisal was based on naked land prices1 as estimated by a number of citizens of each county1 and this flat rate was used in making figures for the so-called ,market ,value of ,right-of-,way4 ,it is fair to assume that a railroad company can purchase large tracts of land for gravel pits1 or a narrow strip adjoining and widening its existing right of way1 at about market prices1 as the elements of severance1 abutting damages1 etc41 are absent4 ,prices for this class of land ought to be1 and usually are1 lower than those paid for a new right of way4 ,,table #b4--;,,country ,,land4--,,additional ,,strip ,,for ,,widening ,,right ,,of ,,way1 ,,gravel ,,pits1 ,,etc4 ,county4 ,description3 ,road and purpose4 ,average ,average per acre1 per acre1 #aijj transfer4 appraisal4 ,jackson ,michigan ,central4 ,widening right of way #hd4dg #aef4jh ,kalamazoo,michigan ,central4 ,additional right of #hi4da #adj4jj way near ,augusta ,kalamazoo,grand ,trunk ,western4 ,additional strip #id4ei #abj4ej for double tracking ,cass ,michigan ,central4 ,gravel pit #hd4ig #id4ae ,cass ,grand ,trunk ,western4 ,additional strip #ga4gi #bjc4ec for double-tracking ,berrien ,michigan ,central4 ,additional right of #aji4dj #aac4ff way ,washtenaw,michigan ,central4 ,additional right of #di4ce #acj4fh way ,washtenaw,ann ,arbor4 ,additional right of way #hh4fj #aaf4ab ,ionia ,pere ,marquette4 ,gravel pit #gg4ej #abe4jj ,actual purchases are averaged from recent transfers1 and represent consideration paid owners1 but not cost of acquiring4 ,the #aijj appraisal averages show country land after fixed charges and percentages are added4 ,the tables given herewith are summarized from a very large mass of information introduced as evidence in a suit of ,michigan ,central ,railroad et al4 vs4 ,powers 7,the ,michigan ,tax ,cases71 and are selected as average examples of conditions throughout the ,southern ,peninsula4 ,it is evident from the figures in ,table #b that no such naked land values as those used in #aijj were considered by the farmers in placing values on their lands1 as the sales covered in that table do not involve any large element of damages4 ,all transfers are of a strip a rod or more in width adjoining an existing right of way4 ,,ii4--,it is true that in some sections of ,michigan there are large tracts of barren or low-priced land4 ,in #aijj barren land prices were used1 and were much lower than farm land2 in the poorer parts of the ,state large percentages of barren land were used4 ,this fact brought the average per acre of country land1 as applied in the appraisal1 very low in many of the counties1 and justified the appraiser in using the average country price of #aijj as the base price for a re-valuation4 ,generally1 the #aijj appraisal averages for country lands were fair indices of the difference in actual value in different parts of the ,state4 ,in the #aijj appraisal1 the ,michigan ,central was credited with having1 in ,jackson ,county1 #cji4a acres of farm land 7naked value1 #ch1 average rate #ic4cj71 and #cd4ce acres of barren land at #e per acre4 ,the field inspectors reported that part of the district between ,parma and ,albion1 in the vicinity of ,bath ,mills1 was waste or barren land4 ,the ,jackson and ,battle ,creek ,traction ,company parallels and adjoins the ,michigan ,central ,railroad right of way from ,parma to ,bath ,mills4 ,an investigation of records of deeds showed that they bought #be4jb acres of land in this district at #fe4gi per acre1 and that the average price of all their land in the county was #bci4eb per acre4 ,while there was a marked difference in the rates of different grades of country land1 no one would be justified in putting any land south of a line drawn from ,saginaw to ,muskegon at prices as low as #b to #aj per acre4 ,an average based on the #aijj classification of lands would probably eliminate all waste land classifications1 without doing any injustice4 ,,table #c4--;,,average ,,values ,,per ,,acre ,,of ,,country ,,lands1 ,,of ,,the #aijj ,,appraisal1 ,,of ,,the ,,jackson1 ,,lansing ,,and ,,saginaw ,,railroad1 ,,after ,,all ,,the ,,percentages ,,and ,,fixed ,,charges ,,were ,,added4 ,county4 ,price4 ,jackson #ge4ga ,ingham #gd4ij ,clinton #db4ch ,shiawassee #fg4ah ,saginaw #dj4hj ,bay #ch4fi ,arenac #cb4dg ,ogemaw #h4fi ,roscommon #aj4gd ,crawford #h4da ,otsego #ae4fb ,montmorency #ab4ch ,cheboygan #ag4ac ,table #c illustrates quite clearly the extremely low figures applied in many counties in the #aijj appraisal1 and also represents quite well the relative difference in value in the different counties4 ,that the #aijj rate varies about as the purchase price1 is shown by the fact that the ,pere ,marquette ,railroad built a line in ,montcalm ,county1 buying #aee4c acres at an average price of #ace4ai per acre1 while the #aijj appraisal showed an average of #bi on the #iah acres appraised4 ,the purchase price was #d4ff times the #aijj appraisal4 ,in ,calhoun ,county1 the ,grand ,trunk ,railroad bought #fc4b acres at #dia4ac per acre1 while the #aijj appraisal was #fa4dd on all the country land in the county1 or only one-eighth of the actual purchase price4 ,,iii4--,there can be no doubt that a railroad right of way costs much more than an equal acreage of farm lands4 ,the writer has always been inclined to hold the view that an ordinary right of way through good farming country would cost from two to three times farm prices1 no matter how much care is used in the acquisition of the land4 ,in recent years the price of right of way has been greatly increased4 ,the ,newton and ,northwestern ,railroad right of way1 in ,iowa1 cost #bfg per acre1 on a line #hj miles long4 ,this is nearly all country land1 about #a mile in the outskirts of ,boone 7population #ab1jjj71 and about mile in ,newton 7population #f1ejj71 being the only city land to increase the average4 ,the ,rock ,island ,system and the ,chicago ,great ,western paid higher country prices in the same territory4 ,this line is in such country as ,southern ,michigan1 and land is held at from #fe to #ajj per acre4 ,the ,toledo ,urban and ,interurban right of way1 in ,lucas ,county1 ,ohio1 was bought by the writer in #aija at an average net price of #cbi4ba per acre4 ,the average assessed valuation is #ee per acre4 ,the going value of farm lands will range from #ajj to #bbe2 probably a fair average is #ace per acre4 ,the prices paid by ,michigan railroads are fully sustained by these personal experiences4 ,the figures in ,table #d show that the actual average price paid for new right of way is greater than the average of the #aijj appraisal1 after the #abe and fixed charges are added1 by from #bcj to #gbf per cent4 ,the argument that a change of line costs more than a new line is not sustained by ,table #d4 ,in ,jackson ,county1 the ,michigan ,central ,railroad changed its line at an average cost of #afe4fg per acre4 ,the ,jackson and ,battle ,creek1 a new line1 parallel with and adjoining the ,michigan ,central1 paid #bci4ec2 the ,jackson and ,suburban1 a new electric line1 paid #bic4cd1 and the ,ypsi-,ann ,electric paid #cic4gd4 ,all the new lines in ,monroe ,county are higher than any changes of line in similar country4 ,the ,ann ,arbor change in ,washtenaw ,county1 located by the writer1 is at one point #c miles from the old right of way1 and only at the two ends of the #g-mile line does it run on farms owned by parties crossed by the old road2 therefore1 to all intents and purposes1 it is a new line4 ,the naked land values used in #aijj1 being clearly too low1 were of no use and were dropped4 ,the so-called market price of right of way as given in #aijj was misleading4 ,,table #d4--;,,comparison ,,of ,,country ,,land ,,values4 ,the actual purchases are averaged from recent transfers1 and represent consideration paid to land owners1 but not the cost of acquiring4 ,the #aijj appraisal averages show all country land after fixed charges and percentages were added1 per rule of #aijj4 ,county4 ,railroad4 #aijj ,railroad4 ,actual ,appraisal1 transfer1 average average per acre4 per acre4 ,jackson ,michigan ,central4 #ga4cf,michigan ,central #afe4fg ,air ,line ,air ,line4 ,new ,line ,michigan ,central4 #hh4dg;,jackson and ,battle #bci4ec ,creek4 ,average entire county ,michigan ,central4 #e4jj;,jackson and ,battle #fe4gi ,waste land ,creek4 ,wasteland ,michigan ,central4 #ic4cj;,jackson and ,battle #bih4ea ,first-class farm ,creek4 ,first-class farm ,jackson1 ,lansing #ge4gb;,jackson and #bic4cd and ,saginaw4 ,suburban4 ,average country values ,detroit1 ,ypsilanti #cic4gd and ,ann ,arbor ,monroe ,flint and ,pere #ic4cj;,flint and ,pere #bae4ba ,marquette4 ,marquette4 ,monroe to ,toledo ,michigan ,central4 #ic4cj,toledo and ,monroe4 #dfa4ac ,electric ,lake ,shore and #ic4cj;,detroit and ,toledo #bad4ch ,michigan ,southern4 ,shore ,line4 7,duffy7 ,detroit and ,toledo #bfb4di ,shore ,line4 7,burt7 ,kalamazoo,michigan ,central4 #hi4da,michigan ,central4 #bcf4bb ,kalamazoo to ,mattawan ,van ,buren,michigan ,central4 #ff4ed,michigan ,central4 #aif4jj ,kalamazoo to ,mattawan ,cass ,michigan ,central4 #hd4ig,michigan ,central4 #bfj4fa ,cut-off near ,pokagon ,michigan ,central4 #aj4jj,michigan ,central4 #fj4jj ,wasteland ,waste on cut-off ,genesee ,grand ,trunk #ih4aj;,grand ,trunk #ccg4ef ,western4 ,western4 ,improved line ,genesee ,pere ,marquette4 #hj4ha;,flint and ,pere #bcd4jj ,marquette4 ,change of line ,montcalm ,pere ,marquette4 #bi4jj,pere ,marquette- #ace4ha ,greenville-,stanton4 ,calhoun ,grand ,trunk #fa4dd;,grand ,trunk #dia4ac ,western4 ,western4 ,change of line west of ,battle ,creek ,calhoun ,michigan ,central4 #gd4ch;,jackson and ,battle #bah4gd ,creek4 ,electric ,tuscoia ,michigan ,central4 #fj4ge,michigan ,central4 #gc4jd ,caro-,owendale ,st4 ,clair,pere ,marquette4 #dc4ah,rapid4 #bhg4je ,anchorville-,marine ,city ,washtenaw,ann ,arbor4 #ch4fj;,ann ,arbor4 ,change #bhe4ej of line near ,ann ,arbor ,ionia ,pere ,marquette4 #gg4ej,pere ,marquette4 #aab4cj ,lowell-,belding ,manistee ,ann ,arbor4 #be4dj;,ann ,arbor4 ,change #dg4cc line near ,harlan ,osceola ,pere ,marquette4 #dj4jc,pere ,marquette4 #eg4ic ,change line near ,evart ,having shown that there is an increase in cost of railroad over farm land1 the question arises3 ,is it legitimate8 ,if it is a proper item of cost1 has it a place in the present value column8 ,in building a new railroad1 engineers prepare their estimates of cost1 including grading1 rail and fastenings1 ties1 bridges1 and1 among other items1 right of way4 ,their clients provide funds to build the line1 and furnish1 among other items1 cash for the right of way4 ,the right-of-way account in no wise differs from that of any other item of physical cost4 ,the right of way1 with all its hold-ups1 items for damages1 court costs1 legal expenses1 bills for personal services and expenses in securing it1 abstracts and recording of deeds1 is just as much an element of physical cost as the rails4 ,the cost of acquiring the right of way is as proper an element as charges for inspecting the rails1 freight charges on them1 the loading and unloading1 or any other charges that enter into the cost of rails delivered to the track-laying contractor4 ,should the cost of reproduction of right of way be carried to the present value column8 ,clearly1 yes4 ,if a road is unfortunate enough to buy its rails when they are at a price of #fj per ton1 the full price is charged to capital account2 and when the line is sold to some large corporation1 no reduction is made1 even though the price of rails be much less at the time1 but the selling price is based on the construction account as a whole4 ,the same is true of the right of way4 ,in no case which has come under the writer's notice has a new company1 or a set of promoters disposing of a new line or a new right of way1 ever consented to deal except on the basis of construction account1 plus promoters' profit4 ,the cost of a right of way is increased on account of continuity4 ,a farmer is justified in increasing his price per acre by reason of the fact that the road must have a continuous line1 regardless of how it affects the individual4 ,he must rearrange his fields1 replant his orchard1 change his fences1 ditches1 and tile lines1 and re-adjust his entire property to accommodate the necessity of the road4 ,he must also take into account severance or damages4 ,he is compelled to cross the line at an inconvenient place1 open and close two gates in every lane or at every crossing1 drive his cattle back and forth to water1 haul his produce over a short heavy grade across the track1 and he must not interfere with the railroad4 ,he is in constant danger of loss of property from fire or from accident1 and he is in personal danger every time he passes from his own land on one side of the railroad to his own land on the other side4 ,every one who has bought right of way knows these arguments1 and is aware that the farmer knows them and charges extra on account of them4 ,the law provides that1 in condemnation1 the jury shall take into account two elements1 the value of the land1 and damages4 ,the railroad pays them1 and very promptly charges the entire cost to the right-of-way account4 ,no one will question the propriety of the farmer taking them into account in fixing his price4 ,the value of continuity to the railroad can hardly be measured in dollars and cents4 ,a fair illustration of continuity may be found in coal lands4 ,a promoter will secure option on a large acreage4 ,as long as his holdings are disconnected and widely separated they are of no more value than adjoining lands1 but let him close options on a large block of land all in one body1 and immediately he can add from #ajj to #bjj to the value of his land for mining purposes4 ,this added percentage is due to continuity4 ,the conditions surrounding the purchase of railway lands in ,michigan have changed materially in the past few years4 ,in a new country1 without means of transportation1 land values are low1 and1 in order to open new markets1 land owners can afford to donate the right of way4 ,undoubtedly1 a very large percentage of the total right of way on the older lines was either donated or bought at very low prices4 ,as a community grows and develops1 acquires new industries1 and receives new improvements1 property values increase2 and1 along with a general appreciation of other values1 those of railroad property must increase4 ,it would certainly be true that the present value of the site of the ,majestic ,building1 in ,detroit1 is not the same as it was in #ahej2 the argument that its actual cost in #ahej was1 say1 #bjj1 would not be any justification for such a value to-day4 ,equally is it true that the value of property owned by the ,michigan ,central ,railroad is not to be measured by the price paid for it #ej years ago4 ,the greater business1 and the larger income derived from that business1 make the ,detroit of to-day a much more valuable terminal for the road than the ,detroit of #ej years ago4 ,the same argument will apply to any city which has grown up after the construction of railroads4 ,the original right of way was farm land and may have been a donation1 but the change from farm to city certainly increases the value of the railroad land just in proportion as the surrounding land increases4 ,the same reasoning is properly applicable to lands which decrease in value4 ,where a railroad buys right of way to gain access to valuable timber lands1 and1 after the removal of the timber1 the land is too poor to support a population1 the present value should depreciate in the same ratio as the surrounding land1 and immediately on its abandonment as a right of way it would cease to have a railroad value4 ,in an appraisal1 it appears to be fair to base the cost of reproduction on the cost of building a new line on the location of the road under appraisal1 all other means of transportation remaining as they are to-day1 so as to secure as nearly as possible the conditions that would be encountered by a new company building a new line on this location4 ,the argument was made in #aijj1 and reiterated frequently1 that railroad companies secure many donations4 ,it may safely be said that1 in a developed country1 such as in the south half of the ,lower ,peninsula1 the donations are of little account4 ,few donations were found in an examination of records of deeds covering #aj years2 and in some cases the conditions were so burdensome that it may be said that the gift land was the most expensive4 ,a condition for a cattle-pass costing from #djj to #fjj1 a side-track costing from #a to #a4ej per ft41 and other like specifications are found2 and in many deeds where a liberal consideration is named conditions which add greatly to the cost are not infrequent4 ,the recent new lines in ,southern ,michigan secured but few donations1 although all considerations of #a and other good and valuable considerations were classed as donations unless the contrary was susceptible of proof4 ,in the case of the ,ann ,arbor ,railroad1 in ,washtenaw ,county1 the #a consideration represents a higher price than the average1 this being known by the writer1 as he bought it4 ,the same is true of the ,detroit and ,toledo ,shore ,line1 in ,monroe ,county4 ,in making an appraisal1 no deductions should be made for donations1 if there are any1 as the fact that land is donated does not indicate absence of value2 nor should an addition be made to the appraisal value on account of the fact that a road has been held up and compelled to pay exorbitant prices in certain localities4 ,in some counties the base values of land in villages and small towns were given at ridiculously low prices in #aijj2 some are as low as from #ej to #ajj per acre in towns of from #a1jjj to #c1jjj population4 ,when one stops to consider that a lot #d by #h rods contains acre1 and that such lots in a town of considerable size range from #ej to #cjj each1 it is readily seen that from #bej to #a1ejj per acre are not excessive figures4 ,the figures for an adjoining county were often very high1 and village values were put up to substantially full value4 ,the result of adding percentages in #aijj was to magnify discrepancies1 and little villages of from #bjj to #ejj population in one county were appraised at a higher rate than towns of from #b1jjj to #e1jjj in the next4 ,in #aijb the appraiser undertook to equalize all such discrepancies1 and found that no hard-and-fast rule would apply4 ,a comparison of village values1 as determined by actual purchase1 with the #aijj appraisal1 is given in ,table #e4 ,the #aijj appraisal for city lands1 outside of ,detroit and ,grand ,rapids1 was generally very conservative or low4 ,in some cases the figures were extremely low4 ,,table #e4--;,,average ,,price ,,per ,,acre ,,for ,,village ,,land4 ,actual purchases are averaged from recent transfers4 ,the #aijj appraisal averages are averages of prices as applied after all percentages and fixed charges are added4 ,county4 ,name of road4 ,name of ,appraisal1 ,actual village4 #aijj4 transfer4 ,average per ,average per acre4 acre4 ,jackson ,michigan ,central ,parma #agg4be #a1aff4fe ,van ,buren ,michigan ,central ,mattawan #ega4jj #b1dci4jd ,tuscola ,michigan ,central ,caro #ega4jj #gcc4db ,oakland ,pere ,marquette ,clyde #cdf4jj #ccc4jj ,oakland ,pere ,marquette ,milford #ega4jj #a1acf4cg ,genesee ,pere ,marquette ,grand ,blanc #aba4jj #cbg4hg ,kent ,pere ,marquette ,lowell #ega4jj #a1eeb4bf ,ionia ,pere ,marquette ,belding #a1jjj4jj #ifg4gg ,washtenaw ,michigan ,central ,dexter #ega4jj #gah4ge ,washtenaw ,michigan ,central ,delphi #bcc4ej #b1chc4cd ,cass ,grand ,trunk ,western ,cassopolis #deh4ej #a1fjj4jj ,cass ,grand ,trunk ,western ,edwardsburg #bbb4be #dff4fg ,the conclusion reached by the appraiser in #aijb was that1 for railroad purposes1 right of way is worth what it costs to produce it4 ,it would be just as consistent to claim that a railroad has a misfortune in having a river to cross1 and that no value should be placed on the bridge which spans it1 as to claim that right of way1 which costs three times farm-land values1 should not be valued at a higher figure than farm land4 ,,table #f4--;,,comparison ,,of ,,valuation ,,figures ,,with ,,actual ,,considerations--,,comparison ,,of ,,immediately ,,adjoining ,,properties1 ,,grand ,,rapids1 ,,michigan4 ,the prices are per square foot or per acre4 ,location4 ,size of ,michigan ,pere ,actual lots4 ,central ,marquette transfer4 appraisal4 appraisal4 ft4 deepper sq4 ft4per sq4 ft4 ,fulton to ,island ,street #ej by #ajj #b4jj #a4dj ,island to ,oakes ,street #ej by #ajj #b4jj #a4bb ,oakes to ,cherry ,street #b4jj #a4cc ,cherry ,street ,frontage #acj deep #a4bc #a4bc ,cherry to ,williams ,street #ej by #acj #a4ee ,williams ,street ,frontage #acj deep #j4ib #j4ed ,williams to ,bartlett ,street #j4gf ,bartlett ,street ,frontage #acj deep #j4gg #j4df ,bartlett to ,goodrich ,street #j4fbe ,goodrich ,street ,frontage #acj deep #j4fb #j4ch ,goodrich ,street to #j4cie ,wealthy ,avenue ,prescott to ,first ,street #j4be #j4ed ,first to ,second ,street #j4be #j4af per acre4 per acre4 ,land on ,hall ,street #a1ejj #a1cei #c4ge ,north side of ,hall ,street #a1jjjper acre4 ,hall to ,stevens ,street #a1ejj #hjj #a1cea4aa ,on ,crofton ,street #djj #djj4jj ,the problem of an appraiser is to determine1 with the best evidence at hand1 what land is fairly worth for railroad purposes at the time of appraisal4 ,he must take into account the railway-purpose increment1 if he is consistent in his appraisal4 ,non-,physical ,values4 ,the foregoing narrative account of the general field and office handling of the ,michigan appraisal of physical property1 while not touching on matters of principle of valuation1 except as to land values1 is submitted as describing briefly the machinery of the appraisal4 ,a number of very important issues were raised which have to do with the theory of valuation4 ,these are worthy of discussion at length1 in the subsequent consideration of the method of determination of a fair value1 but are not here referred to4 ,within any short limits it is impossible to give a comprehensive description in detail of all the work of the ,michigan appraisal4 ,several articles descriptive of this work have been written1 giving quite full extracts from the various sets of rules which were promulgated1 and describing some phases of the work in much more detail than is here attempted4 ,the physical valuation1 as represented by two figures--the cost of reproduction of the physical property1 and its present value--was submitted to the ,board of ,state ,tax ,commissioners as the work of ,professor ,cooley1 and in most of the literature descriptive of it1 it has been termed the ,cooley ,appraisal4 ,after the completion of ,professor ,cooley's work1 his figures were submitted to ,professor ,henry ,c4 ,adams1 who had been making a study of the income accounts of the various companies1 and to whom had been assigned the duty of determining the non-physical or franchise values of the properties4 ,professor ,adams has described#e very fully the plan adopted for this work1 and this plan has been commented on so fully that any lengthy description is deemed unnecessary4 ,it appears to be perfectly proper1 however1 to correct certain misstatements regarding this work4 ,when it was first determined to make the appraisal1 ,professor ,cooley--not ,professor ,adams--was requested to take charge4 ,the assignment to ,professor ,adams of the non-physical valuation was made after the physical valuation was well under way4 ,the use of a negative or subtractive non-physical value was considered1 and advised by ,professor ,adams4 ,the work was not undertaken with a view of increasing the assessments1 but to put the ,tax ,commission in possession of a figure which would represent the business value of the property as well as the physical value4 ,professor ,adams held that the non-physical element of value was not a simple commercial element1 but included3 to be a corporation1 ,the franchise to use public property1 ,the possession of traffic not exposed to competition1 ,the possession of traffic through connections1 ,the benefit of economies due to density of traffic1 ,the value due to organization and vitality of industries served4 ,he also held that1 as nothing visible or tangible gave support to this value1 it must be determined on the basis of information secured from the income accounts of the company4 ,without going into any complete description of ,professor ,adams' method1 it may be said that he made an analysis of the income accounts1 and1 after providing for operating expenses and taxes1 he deducted1 as an annuity properly chargeable to capital1 a certain percentage of the appraised value of the physical properties4 ,any remainder was capitalized to give the true value of the immaterial element1 or the business value4 ,in the rates of capitalization and annuity used in #aijb1 there were certain changes1 making them differ from those used in #aijj1 and certain changes in the detail of analysis of income accounts and methods of determining the rates of interest which are entirely immaterial to the present narrative4 ,the work was of great importance as being the first exposition of this method of obtaining non-physical values4 ,it was a fair1 logical1 and business-like attempt to determine those elements which give a well-designed1 economically-built1 or advantageously-located property a greater value as a money-earning concern than the actual capital invested1 or than the actual value remaining in its physical property4 ,it will be seen that1 in the case of a property in which the surplus earnings depend on excessive rates for service1 it will fail as a method of determining a value for use as a basis of rate-making2 and it fails1 in the form in which it was used in #aijj and #aijb1 to bring out those negative or subtractive elements which may be determined from the income accounts1 in the case of properties which do not earn a fair return on the investment4 ,this1 however1 was due to the fact that the taxation laws of ,michigan made no provision for any reduction of value because property was idle or non-productive1 and any such deduction in the case of corporation property would place it on a different basis from other property4 ,professor ,adams and his associates1 therefore1 applied only positive values1 where any such were found1 although advocating the use of negative values4 ,the writer has seen no criticism of ,professor ,adams' work which is not apparently incited by1 either the direct interest of corporations in lowering valuations for taxation1 or by an effort to confuse the subject of valuation so as to discredit the work in the eyes of taxing authorities4 ,any person competent to discuss the matter1 who has given ,professor ,adams' method careful thought1 will be forced to the conclusion that this was a long step in the direction of the final solution of these important and perplexing elements of value4 ,history and ,results of the ,michigan ,appraisal4 ,based on the valuation of #aijj1 the ,board of ,state ,tax ,commissioners was enabled to comply with the statute in reporting to the ,legislature4 ,new laws were passed1 sundry suits were brought1 and1 finally1 the case of the ,michigan ,central ,railroad vs4 ,perry ,f4 ,powers1 ,auditor-,general1 and a number of other cases in behalf of other roads1 were brought to trial before the ,united ,states ,court for the ,western ,district of ,michigan4 ,this ,michigan ,central case was a suit to restrain the collection of taxes based on the new assessment1 the railroads claiming that their property was assessed at full value1 while general properties of the ,state were assessed at a considerably lower percentage than full value4 ,this suit was essentially a valuation of the railroad properties as of ,april1 #aijb4 ,this work was done along the same line as the former valuation1 by a portion of the same staff4 ,the old work was brought down to date1 and certain special studies were made1 which resulted in a change of right-of-way valuation1 as has been related4 ,in the trial of the case of ,michigan ,central ,railroad vs4 ,powers1 the two valuations were fully testified to by all the men engaged1 and the record relative to the appraisal fills several volumes4 ,subsequently1 in #aijf1 ,professor ,cooley was engaged by the ,attorney-,general1 and1 re-assembling the staff1 brought the work down to date as of ,april1 #aijf4 ,there has been no permanent force engaged on the work in ,michigan1 and the re-appraisals have only been made as actual necessity demanded4 ,market ,value of ,stocks and ,bonds4--,during the progress of the appraisal of #aijj an independent force of men was engaged in studying the market values of stocks and bonds of ,michigan roads with a view to securing information on every possible line that would aid the appraiser in reaching proper conclusions1 or enable him to check his figures4 ,these figures were used only as a check1 and no report of the details of this work was submitted4 ,error in ,published ,reports as to ,michigan ,work4--,in several articles descriptive of the ,michigan work1 one quite serious misstatement of fact has inadvertently been made4 ,the writer is not quite sure how or where the wrong impression originated1 but it has been noted in several articles and editorials4 ,substantially1 all accounts are similar to that of ,professor ,taylor1#f which is3 ,in looking over the notes and results of the work done in ,michigan1 it was noticed that ,mr4 ,cooley's engineers1 car-men and other experts went over the property of each railway company and enumerated and valued the same1 and then the railway company generally had its own men perform the same work in order to check up the appraisal made by the ,state authorities4 ,thus1 this expensive work was unnecessarily duplicated4 ,undoubtedly this statement was made in good faith1 and has gained currency by not having been corrected1 but it is not the fact4 ,the ,chicago and ,northwestern ,railway took immediate steps to make surveys and secure data1 as has been described1 and made a complete appraisal1 using the ,michigan forms4 ,the result of this appraisal was3 ,chicago and ,northwestern1 present value #h1eea1ecj ,state appraisal1 present value #h1bha1jij ,in this case the railroad had no records1 and the work was of value to them1 not only as a check on the work of the ,state1 but also as giving them complete records of permanent way4 ,it was not done independently of1 and after1 the ,state work1 but was organized so that the field work of both railroad company and ,state was done at the same time4 ,no other complete work of valuation was done by the railroad companies4 ,during the trial of the cases1 no contrary or different valuations were set up4 ,no special attack was made on the work1 except to select here and there some specific example of a building which was appraised at a higher figure than cost1 perhaps half a dozen in all1 and to introduce expert evidence1 particularly on land and right-of-way values4 ,aside from the money expended on the litigation1 there were no expenditures by the roads in checking up the work4 ,on the contrary1 a number of managers1 at their own expense1 had typewritten copies of the final report as to their own lines made1 in order to file in their records4 ,it is a fact that only one of the seventy-eight roads made a complete appraisal1 covering #chg4h miles of main line1 and none of the other roads or mileage went to any considerable expense4 ,the ,cost of the ,work4--,no complete statement of the total cost of the work of valuation in ,michigan has ever been issued as a public document4 ,the cost of the work1 including salaries of appraiser1 engineers1 assistants1 clerks1 all expenses of the ,board of ,review1 all expenses connected with ,professor ,adams' non-physical appraisal1 also all office rent1 stationery1 supplies1 telegraph1 telephone1 and railroad expenses1 printing and binding--in short every dollar chargeable to the ,michigan railroad appraisal of #aijj--;footed up to #gj1fjd4ba4 ,the exact mileage of roads in the ,state was3 ,main track #g1jhb4ce miles4 ,second track #afd4hc ,branches #gcj4ib ,spurs and sidings #b1ijd4gj ,total #aj1hhb4hj miles4 ,average cost per main-line mile #i4ig total-track #f4ej ,the exact figures of cost of the subsequent work of appraisal1 or the costs of the litigation1 are not available to the writer4 ,in a general way1 it may be said that the cost to the ,state of the railroad tax cases was not far from #ge1jjj1 and that the expenses of the second and third appraisals were less than #ej1jjj1 so that1 to date1 the entire cost to the ,state of ,michigan is less than #bjj1jjj for the three appraisals and the litigation growing out of them4 ,some information as to details of costs may not be out of place4 ,all employees were paid a salary and required to provide their own subsistence4 ,salaries ranged from #bej to #ejj per month for experienced men1 from #abe to #bej for men with only a few years of experience1 and from #ge to #abe for assistants and clerks4 ,all traveling expenses 7except hotel and subsistence7 were paid1 the ,state issuing mileage books to all employees1 and receiving a complete check on the movements of every man through the mileage bureau4 ,the telegraph and long-distance telephone were used almost exclusively in communication between the office and the men in the field1 all bills being paid by the ,state4 ,all expenses of inspection by hand-car1 velocipede-car1 etc41 were paid by the ,state1 except as the roadmasters made trips with the inspectors4 ,the unvarying policy of the appraiser was to reimburse the companies for all extra expenses incurred on account of the work1 and to accept no transportation or favors from any company4 ,,table #g4--;,,grand ,,summary ,,of ,,railroad ,,appraisal ,,of #aijj ,,as ,,to ,,seventy-,,eight ,,incorporated ,,railroads4 ,,physical ,,appraisal4 ,item ,subject4 ,cost of ,present ,no4 reproduction4 value4 #a;,engineering1 #d on items #b to #be1 #e1chf1ggb #e1chf1ggb inclusive1 and on item #cc #b,right of way and station grounds #bg1gde1cac #bg1gde1cac #c,real estate #hfc1ccg #hfc1ccg #d;,grading #ba1fii1iie #ba1fic1jbd #e,tunnels #a1adh1jgj #a1jic1dde #f;,bridges1 trestles1 and culverts #h1jbg1aai #f1ccg1hai #g,ties 7cross- and switch-ties7 #aa1aci1ibd #f1adh1gdh #h,rails #bh1gjc1jab #ba1hfe1iid #i,track fastenings #c1hde1jcj #b1ihg1ihb #aj;,frogs1 switches1 and crossings #a1dfi1gha #a1jdj1abj #aa;,ballast #c1gbc1eeh #c1gbc1eeh #ab,track laying and surfacing #f1eee1fch #f1djj1igb #ac;,fencing #b1gfc1eie #a1fbg1gij #ad;,crossings1 cattle guards1 and signs #fjg1edb #dbh1dgd #ae;,interlocking and signal apparatus #eja1hhc #ddh1fhf #af,telegraph 7#cj7 telephones #beh1ihe #acd1gig #ag,station buildings and fixtures #d1ajh1gcf #c1aaa1ajc #ah,shops1 round-houses1 and turn-tables #b1aeg1bbh #a1dfg1efi #ai,shop machinery and tools #a1ajg1iaj #hhb1fcd #bj,water stations #gbe1fgj #ebb1ace #ba;,fuel stations #cjc1bhi #bja1dfa #bb;,grain elevators #a1ccf1gid #a1fji1jdc #bc,warehouses #beh1fdf #ahc1iaj #bd;,docks and wharfs #e1eca1iai #c1hca1icd #be,miscellaneous structures #a1bcd1cde #hef1bec #bf,locomotives #i1jba1eag #e1jib1jec #bg,passenger equipment #c1aig1dgc #b1bgg1bga #bh;,freight equipment #ai1gcd1bdj #ac1fij1ehg #bi,miscellaneous equipment #gjb1idj #dbc1fhi #ca;,ferries and steamships #a1gbe1jjj #a1jie1ejj #cb;,electric plants #ic1jfa #hi1hih #cc,terminals4 ,included in ,items #a to #cb #cd,legal expenses1 #j4e on items #b to #be1 #fgc1cdi #fgc1cdi inclusive1 and on item #cc #ce;,interest1 #c on items #a to #cd1 #e1bij1edi #e1bij1edi inclusive #cf,miscellaneous,organization1 #a4e on #b1fde1bgg #b1fde1bgg expenses items #a to #cd1 inclusive ,contingencies1 #aj on #ah1dbh1gei #ae1abg1aaj items #a to #cd1 inclusive ,,total ,,cost ,,of ,,construction ,,and #bjb1gaf1bfb #aff1cih1aef ,,equipment4 #cg,stores and supplies #a1dgd1hbi #a1dgd1hbi ,average per main-line mile #bh1bfc #bc1die total-track mile #ah1fbg #ae1bij ,,total ,,value ,,of ,,non-,,physical ,,element #ce1had1jdc 7,h4 ,c4 ,,adams7 ,the ,result of the ,michigan ,work4--,any undertaking must be judged by its results4 ,the ,attorney-,general's report for #aijf1 on pages #ba and #bc1 states3 ,these cases are among the most important in the history of the ,state4 ,they constitute the last step in subjecting railroad property in ,michigan to taxation on the same basis and at the same rate as other property is taxed1 and secure practical uniformity and equality of taxation between railroad and other property4 ,as a result of these cases the various railroad corporations paid in taxes #d1ghg1dgh4ae1 and as penalty thereon #a1aeh1cba4ah1 a total amount of #e1ide1gii4dc for the years #aijb1 #aijc and #aijd4 ,the #aije tax being paid soon after the decision of the ,supreme ,court1 nothing was paid under the former law 7specific tax on earnings7 and1 of course1 there was no penalty on the #aije taxes as they were paid before ,may #a1 #aijf4 ,in short1 the roads are paying to the ,state of ,michigan an average of #a1eie1hbf4je more per year than they paid under the old law1 and to date the ,state has received about #aj1gej1jjj more from taxes than it would have received under the old specific tax law4 ,railroad development in ,michigan has received no appreciable check1 and notwithstanding a #b-;cent fare and the bearing of an equal burden of taxation1 the properties are maintained1 and improvements1 double-tracking and betterment of general standards fully keep pace with similar work in other ,states4 ,of course1 it must be recognized that other forces besides the appraisal helped to bring this about4 ,the appraisal of #aijj furnished the information4 ,public opinion compelled the passage of the needed laws1 and the magnificent legal work of ,attorneys-,general ,blair and ,bird1 ,congressman ,townsend1 and ,judge ,knappen1 and their associates1 loyally supported by ,professors ,cooley and ,adams and the appraisal staff1 were all factors in securing the decision of the ,supreme ,court of the ,united ,states4 ----- ,footnote #e3 ,bulletin #ba1 ,u4 ,s4 ,bureau of the ,census1 p4 #gh4 ,footnote #f3 ,bulletin #ba1 ,u4 ,s4 ,bureau of the ,census4 ,,railroad ,,appraisal ,,of ,,the ,,state ,,of ,,texas4 ,authority for the ,work4--,in #ahic the ,legislature of ,texas enacted what is known as the ,stock and ,bond ,law1 which was designed to control and limit the total amount of stocks and bonds that may be issued on any railroad property to the reasonable value of said railroad property4 ,this law further provides that3 ,it shall be the duty of the ,railroad ,commission to ascertain1 and in writing report to the ,secretary of ,state1 the value of each railroad in this ,state including all its franchises1 appurtenances and property4 ,the work of valuation in ,texas antedates that in ,michigan1 and offers some interesting opportunities for comparison of methods under somewhat similar conditions1 as far as the existing roads were concerned4 ,the work being in the hands of a permanent commission with very broad powers1 it has been possible to secure from recently built roads very full and specific data as to construction1 but with these later valuations and with the current work of the department1 this paper will not deal4 ,the ,commission of ,texas interpreted the law to mean the estimated cost of reproducing or duplicating the properties at the date of valuation1 allowing current market prices for all material and fair valuations on all real property4 ,method of ,physical ,appraisal4--,the ,commission duly appointed engineers to make these valuations4 ,the railroads of the ,state were unfavorably disposed toward the work1 and were inclined to withhold information4 ,the ,texas staff encountered the difficulty due to destruction or loss of construction records1 maps1 and profiles4 ,they had for their guidance only the profiles1 filed under a prior law1 and were thus compelled to depend wholly on original field work to secure their data4 ,from a paper by ,r4 ,a4 ,thompson1 ,m4 ,am4 ,soc4 ,c4 ,e41#g the following description is taken3 ,they the engineers with the profiles 444 in hand1 made a detailed inspection of the railroads on the ground4 ,the quantities of excavation and embankment1 where the actual quantities could not be obtained1 were estimated approximately from the profiles1 using the center heights of the cross-sections4 ,the classification of the materials in excavation was determined by inspection4 ,where original plans and estimates of cost of the bridges1 buildings and structures of all kinds could not be obtained from the records of the railroads1 their value was estimated from measurements taken on the ground4 ,the extent and acreage of the right of way1 the depot and terminal grounds1 were determined by actual measurement1 or from maps furnished by railroads1 or from city and county tax records4 ,after an examination of a railroad had been made by the engineers of the ,commission1 its valuation was prepared on estimate sheets4 ,upon sheets marked ,estimate ,sheet ,a 444 were recorded the values of the right of way and depot grounds1 roadbed1 track1 bridges1 structures and way building for each mile1 the value of ten miles being recorded on each sheet4444 ,on these sheets space was provided for the units and prices1 and columns for carrying out the values for each mile and the totals4 ,the value of all rolling stock and equipment1 and the value of such properties as were properly applicable and chargeable to the entire railroad1 were recorded on a separate estimate sheet1 only one sheet being used for a railroad4 ,it thus appears that the general methods of securing the data and making the field examination were quite similar to those adopted on the ,michigan work4 ,the classification of items on the sheets is rather more full than on the ,michigan summary sheets1 but apparently not so completely in detail as the final compilation of work4 ,in general1 however1 the physical items included are complete in both cases4 ,the form in which the results are finally put up is radically different4 ,the following points of variations from the practices of the ,michigan appraisal are noted3 7a7 ,the unit prices were current market prices4 7b7 ,the value applied to right of way and real estate used for railway purposes was in accordance with the current market value of other property immediately adjoining1 disregarding donations or property acquired at less than value4 7c7 ,no deduction was made on account of depreciation1 as it was considered that all structures must be maintained in first-class1 serviceable value1 and renewed when necessary1 and no allowance was made for appreciation of roadbed4 7d7 ,no allowance was made for franchise values of any kind1 except track rights in streets4 7e7 ,no allowance was made for contingencies1 except as made in prices or quantities4 ,their practice was in accord with the ,michigan appraisal1 in allowing from #e to #f to cover legal and engineering expenses and superintendence1 and from #e to #f to cover interest during construction4 ,the ,result of the ,texas ,work4--,the object sought in ,texas was to secure a capitalization in harmony with the actual investment in the physical property2 in short1 to squeeze out water4 ,of course1 all stock and bond issues outstanding in #ahid are still in existence1 except as a few roads have been sold out or re-organized4 ,no new issues of stock or bonds may be made on roads in excess of the valuation4 ,consequently1 new roads are limited to issues of bonds not far from #ae1jjj per mile4 ,the effect is shown by ,table #h1 from the ,railroad ,commission's ,report4 ,,table #h4--,,miles ,,of ,,railway ,,in ,,operation ,,in ,,texas1 #ahid ,,to #aijh1 ,,with ,,outstanding ,,stocks ,,and ,,bonds4 ,on ,june ,miles of ,stocks ,bonds ,total stock and #cjth4 railway in outstanding1 outstanding1 bonds operation4 per mile4 per mile4 outstanding1 per mile4 #ahid #i1aed #ae1jgf #be1gbf #dj1hjb #ahie #i1bia #ad1hgd #be1dbj #dj1bid #ahif #i1dcg #ad1fdg #be1cjb #ci1idi #ahig #i1dhd #ad1cbj #bd1gic #ci1aac #ahih #i1edj #ad1bje #bd1jcf #ch1bda #ahii #i1gjb #ac1iig #bc1efb #cg1eei #aijj #i1hfg #ac1gbd #bc1bjb #cf1ibf #aija #aj1aed #ab1ibb #bb1fdi #ce1ega #aijb #aj1fag #ab1chh #ba1ggi #cd1afg #aijc #aa1jbi #aa1iga #ba1dfd #cc1dce #aijd #aa1die #cb1djj #aije #aa1ffb #cc1dah #aijf #ab1jef #cb1hhf #aijg #ab1egg #cb1adb #aijh #ab1hcj #cb1cje ,total reduction1 up to #aijc1 of stock per mile #c1aje bonds #d1bfb ,total stock and bonds #g1cfg ,e4 ,l4 ,corthell1 ,m4 ,am4 ,soc4 ,c4 ,e41 speaking of results secured by the ,texas law1 says#h3 ,the law1 and generally its just operation1 has cured many unmitigated and notorious evils4 ,not only has the public in ,texas been benefited1 but also the investor in railroad securities from the outside of the ,state4 ,the people of ,texas now have just and uniform rates of transportation1 and the investor knows what he is purchasing1 and may be reasonably sure of a return on his investment4 ,mr4 ,thompson says#i3 ,another significant fact is that only a short time before the ,stock and ,bond ,law became effective about #ci of the railroads in ,texas were in the hands of receivers4 ,to-day there is not a mile1 of the #aa1cjj miles in ,texas1 in the hands of receivers1 and1 with a few unimportant exceptions1 no railroad has been in the hands of receivers since the law went into effect4 ,the fact is that there has been no piece of legislation1 in this or any other ,state of the ,union during the past decade1 which has been so fruitful of results and beneficent in its action1 alike to the railroads and the people4 ----- ,footnote #g3 ,transactions4 ,am4 ,soc4 ,c4 ,e41 ,vol4 ,,lii4 p4 #cbh4 ,footnote #h3 ,transactions4 ,am4 ,soc4 ,c4 ,e41 ,vol4 ,,lii4 p4 #cdf4 ,footnote #i3 ,ibid41 p4 #cfd4 ,,railroad ,,appraisal ,,of ,,the ,,state ,,of ,,wisconsin4 ,the ,state of ,wisconsin made a valuation of railroad properties of the ,state as of ,june #cjth1 #aijc1 the work being under the direction of ,w4 ,d4 ,taylor1 ,m4 ,am4 ,soc4 ,c4 ,e4 ,the plan adopted1 the methods of work1 and the general result of independent studies conducted by ,professor ,taylor have been described so fully in various technical papers and reports elsewhere listed1 that a very brief statement of points of difference between the ,michigan and ,wisconsin works appears to be all that is necessary here4 ,professor ,taylor associated with him for consultation ,professor ,cooley1 of ,michigan1 made a careful study of methods used in earlier appraisals1 used the ,michigan blank forms as a basis for the preparation of his own1 and thoroughly outlined his general plan and the scope of the information desired before actually organizing his staff or commencing work4 ,in connection with the earlier stages of the work1 conferences were held with the officials of the principal railways of the ,state1 and developed a thorough understanding and plans for co-operation between the appraiser and the roads4 ,as a result of these conferences1 each large railway company of the ,state1 acting through its heads of departments1 made an inventory and appraisal of its own property in the ,state1 using therefor the forms and blanks prepared by the appraiser4 ,at the same time1 the appraiser organized a considerably smaller force than was used in ,michigan1 made his own office and field inspection1 and secured data to complete the appraisal on the small roads1 in which their own engineering or operating departments were not organized so as to do the work according to plan4 ,the work turned out by the large roads was then checked by this force1 the various points in which they were out of harmony were checked and unified1 a number of hearings were held1 certain portions of the work were checked over by the appraisers' men1 sundry changes in quantity and price were made1 and finally1 when the work was compiled and put in shape for presentation1 the appraiser had reason to believe that he had secured a result which was reasonably free from error1 and one in which the railroads had co-operated to such an extent that no charge of prejudice or unfairness would lie4 ,it is noted that the average cost of reproduction and the present value per mile in ,wisconsin are higher than in ,michigan1 which is probably as it should be1 as ,michigan has a less mileage of high-class main trunk line road than ,wisconsin4 ,in general1 the two appraisals were very similar4 ,the determination of unit prices1 the placing of depreciation1 the apportionment of locomotives1 freight1 and passenger equipment1 and other rolling stock1 the use of the ,interstate ,commerce ,commission's construction classification1 the application of percentage values for engineering1 interest during construction1 administration1 legal expenses1 and contingencies 7this latter fixed at #e4e71 all were along lines similar to those developed in ,michigan4 ,the work of the ,wisconsin appraisal was carried on at the same time as the second ,michigan appraisal4 ,the investigations made by ,mr4 ,van ,ranst ,pond and the writer1 as to the actual sale prices of right of way1 fully discussed heretofore1 were conducted at the same time as ,professor ,taylor's work in ,wisconsin was being done1 and neither party had any knowledge of the work of the other4 ,the prior discussion relative to this phase of the ,michigan valuation is practically a revision of a memorandum submitted by the writer to the ,attorney-,general in ,january1 #aijd4 ,the tables are abstracted from much more extensive ones which1 supported by the evidence of ,registers of ,deeds of some ten counties of ,michigan1 are part of the record of evidence in ,michigan ,central ,railroad vs4 ,powers4 ,it is1 therefore1 not only of great interest1 but great value1 as supporting ,professor ,cooley's right-of-way valuations1 to note the following extract#aj from ,professor ,taylor's discussion of the paper by ,mr4 ,r4 ,a4 ,thompson on the ,texas railroad valuations3 ,in the ,wisconsin appraisal1 the method followed for valuing the right of way and terminal lands was about as given below4 ,parts of the right of way of some of the larger systems are estimated at higher ratios than this1 but in such cases the roads themselves fixed the right-of-way value4 ,the market value for other purposes of the right of way and terminal lands was judged to be the same as that of contiguous property4 ,in farming lands1 small towns1 and suburban and residence property1 the right-of-way value was taken to be #bej of the market value for other purposes4 ,in city property1 the right-of-way value was taken to be #acc of the market value for other purposes1 where the land was owned in strips of #ajj ft4 width or less1 and #aaj of the market value for other purposes1 where the land was owned in blocks1 or in widths greater than #ajj ft4 ,no effort whatever was made in the ,wisconsin valuation to determine any non-physical or intangible values1 the report covering only cost of reproduction and present value of the physical properties4 ,the ,wisconsin work is noteworthy as the first appraisal in which the hearty co-operation of the railroads was secured from the outset4 ,in ,michigan the roads at the inception viewed the work with distrust1 but by the completion were in hearty sympathy with the efforts of the appraiser to use just and honorable methods1 and the managements extended every courtesy in the way of access to records for verification purposes4 ----- ,footnote #aj3 ,transactions1 ,am ,soc4 ,c4 ,e41 ,vol4 ,,lii4 p4 #cei4 ,,the ,,minnesota ,,state ,,railway ,,appraisal4 ,the valuation of railway properties in the ,state of ,minnesota was undertaken with a view to establishing a basis for rate-making4 ,the work was in charge of ,mr4 ,dwight ,c4 ,morgan1 ,engineer of the ,railroad and ,warehouse ,commission of the ,state1 whose full and complete report is a very valuable addition to the literature of valuation practice4 ,this work was undertaken after the completion of that in ,michigan and ,wisconsin1 and advantage was taken of the experiences of the appraisers in these two ,states4 ,the ,wisconsin plan of co-operation with the railroads was adopted1 and each company scheduled and appraised its own lines4 ,the cost of reproduction1 and present value of physical properties were the two sets of figures shown in the final results4 ,unit prices were fixed on the basis of current prices in #aije1 in preference to an average of #e or #aj years4 ,apportionment of locomotives and rolling stock was made on an engine- and car-mileage basis4 ,the organization of an office force was undertaken1 and special study was made of the subjects of unit prices and the various local conditions surrounding the different properties1 checking of quantities of earthwork1 rails1 etc41 and preparing to harmonize and unify the estimates as they should be received from the railroads4 ,the greatest difference between this work and that in the other ,states was the fact that the field inspection1 instead of being made by many men1 was made by ,appraiser ,morgan1 accompanied by two assistants1 inspection being made in a special train1 which was paid for by the ,state4 ,the detailed reports of the railroad companies were completed and in the hands of the appraiser1 maps and profiles of the road were prepared and available1 the train was run at slow speed1 and many stops were made for examination of bridges1 culverts1 and structures4 ,about #ajj miles per day were covered1 but this did not include the larger terminals of ,st4 ,paul1 ,minneapolis1 and ,duluth1 which were given many days4 ,in the preparation of final summaries1 percentage values were placed as follows3 ,engineering1 superintendence1 and legal #d per cent4 ,contingencies #e ,interest1 time of construction varying according to #d mileage from #a to #h years ,in addition to these three items1 the item of adaptation and solidification of roadbed was given a large place1 being1 for all the roads of the ,state1 #aa1gdc1jjg4ae4 ,this feature was novel to this class of valuation1 and it is to be regretted that1 in his report1 the appraiser did not narrate more fully the detailed methods by which he arrived at his resultant figure4 ,land ,valuation4--,the vexed question of a proper value to give to lands owned by a railway company1 was treated by ,appraiser ,morgan in a different way than it had been in ,wisconsin or ,michigan4 ,a number of special agents were appointed1 who made an exhaustive study of the transfers and assessed values throughout the ,state4 ,the discussion of this subject in ,mr4 ,morgan's report is exhaustive1 and of great interest4 ,the conclusions are quoted4 ,it is regretted that the discussion of methods of valuation can only be given in brief form4 ,careful and full consideration of all information made available for establishing the value of the right of way owned and used by the railway companies for railway purposes1 led to the conclusion that in the state at large exclusive of the three terminals of ,st4 ,paul1 ,minneapolis and ,duluth1 a multiple of three 7#c7 applied to the true value or normal value of lands1 as obtained from the transfers1 would in general satisfy the conditions4 ,during the period referred to1 the railway companies paid for the property acquired by them1 over and above its normal value1 an amount sufficient to justify the use of the following multiples3 ,st4 ,paul1 one and three-fourths 7#a72 ,minneapolis1 one and three-fifths 7#a71 and ,duluth1 one and one-fourth 7#a71 which when applied to the normal value of the lands as established from contiguous and surrounding property1 formed the basis for measuring the cost of reproducing the existing terminals of the railway companies4 ,in the final compilation of results1 two sets of schedules were rendered3 7a7 ,those which gave the land values with added increment1 7b7 ,those which omitted the increment4 ,the cost of the engineering work was about #gj1jjj2 this covered #g1eif4d miles of main track1 #dbg4d miles of second track1 and #b1dad miles of side-track1 or a total of #aj1dcg4h miles of all tracks4 ,as yet there has been no decision by the ,courts on the ,minnesota rate cases4 ,forms ,used in the ,compilation of ,information4--,the forms used in the ,michigan appraisal have been described and fully illustrated4 ,they were all printed on #h by #aa-;in4 sheets4 ,the ,wisconsin appraisal used the ,michigan forms as a basis1 twenty of them being practically identical with the corresponding ,michigan forms4 ,the forms shown by ,figs4 #aa to #ba are materially different from those used in ,michigan4 ,the forms used in ,minnesota in #aijf were based on those of ,michigan and ,wisconsin1 and were printed on #ad by #ah-;in4 sheets4 ,they were remodeled and elaborated to such an extent1 however1 that the writer believes himself justified in submitting reproductions of the entire set1 as representing the most complete form for inventory yet used on any of the ,state appraisals4 ,the appraiser in ,nebraska in #aiji1 and ,mr4 ,hansel in ,new ,jersey in #aiaj1 have both returned to the #h by #aa-;in4 sheets1 and1 while both clearly followed earlier precedent in general1 both have modified the details to suit the requirements in their respective ,states4 ,,the ,,washington ,,state ,,appraisal4 ,the ,state of ,washington1 through its ,railroad ,commissioners1 made an appraisal of railroad properties within its borders1 the work being under the direction of ,halbert ,p4 ,gillette1 ,m4 ,am4 ,soc4 ,c4 ,e4 ,illustration3 ,,fig4 #aa4 ,,wisconsin ,,railroad ,w4,b4,a4 ,form #a ,,appraisal ,,of #aij ,office ,inspector ,name of ,road ,,roadbed ,,report ,field ,inspector ,between and ,,part ,i ,date #aij ,,location ,,acres ,,total ,,excavation ,,ties ,,and ,,embankment ,clearing,earth,loose,solid,number,kind, condition and cu4 ,rock ,rock ,grubbingyds4 cu4 cu4 yds4 yds4 ,,ballast ,,rails ,kind ,condition,length,weight,condition and of ,amount ,single ,track in ft4 ,,wisconsin ,,railroad ,w4,b4,a4 ,form #b ,,appraisal ,,of #aij ,office ,inspector ,name of ,road ,,roadbed ,,report ,field ,inspector ,between and ,,part ,,ii ,date #aij ,,location,,tie ,,plates ,,and ,,braces ,,fastenings ,number,kind,condition,number,weight,con dition per foot ,,frogs ,,and ,,switches ,r4,r4 ,,crossings ,number,kind,condition,number ,rail ,condition ,weight ,,wisconsin ,,railroad ,w4,b4,a4 ,form #f ,,appraisal ,,of #aij ,office ,inspector ,name of ,road ,,signal ,,apparatus ,field ,inspector ,between and ,date #aij ,,location ,,name ,,and ,no4 ,miles ,cost ,condition ,,description ,single ,line ,new ,per ,cent ,,wisconsin ,,railroad ,w4,b4,a4 ,form #h ,,appraisal ,,of #aij ,office ,inspector ,name of ,road ,,miscellaneous ,field ,inspector ,between and ,,roadway ,,items ,date #aij ,,location,sets ,section ,tools1,condition ,,crossing ,,protection ,hand ,cars1 etc4 ,per ,cent ,kind,amount,condition ,per ,cent ,illustration3 ,,fig4 #ab4 ,,wisconsin ,,railroad ,w4,b4,a4 ,form #i ,,appraisal ,,of #aij ,office ,inspector ,name of ,road ,,telegraph1 ,,instruments ,,and ,,station ,,equipment ,field ,inspector ,between and ,date #aij ,,owner ,,line ,,keys,,soundings ,,relays ,repeaters,cut ,,between ,outs ,western,box,key ,union on base ,,switch ,,boards ,number ,make of ,length ,condition of ,battery,telegraph,per ,cent ,battery or ,cells ,telephone ,lines ,number,number of of ,straps,boards ,,wisconsin ,,railroad ,w4,b4,a4 ,form #ch ,,appraisal ,,of #aij ,office ,inspector ,name of ,road ,,fences1 ,,cattle ,,guards ,,and ,,highway ,,crossings ,field ,inspector ,between and ,date #aij ,,location ,wire ,length ,no4 ,size ,no4 ,size ,condition ,kind or of ,posts of ,plank of ,per ,cent of ,wooden ,fence ,per ,posts or ,plank ,cattle ,fence 7,single,mile ,wire or ,guard ,line7 ,per ,wire ,mile ,condition,ft4 ,b4,m4,condition ,per ,cent ,crossing,per ,cent ,plank ,,wisconsin ,,railroad ,w4,b4,a4 ,form #db ,,appraisal ,,of #aij ,office ,inspector ,name of ,road ,,timber ,,trestles ,,and ,,openings ,field ,inspector ,between and ,date #aij ,,location ,,description ,average ,no4 ,average ,condition ,total ,length2 ,pile ,height ,piles,penetration,per ,cent or ,frame2 ,number ,top ,per of ,piles ,stringers2 ,b4,m4 ,ground ,bent ,framing2 ,per ,lin4 ,to ,base ,ft41 ,etc4 ,rail ,illustration3 ,,fig4 #ac4 ,name of ,operating ,form #ba ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,,docks ,,and ,,wharves ,with or ,without ,coal or ,ore ,handling ,equipment ,,docks ,,and ,,wharves ,,location,item,dimensions,piles ,framing,platform,masonry,concrete ,lineal ,b4,m4 ,b4,m4 ,cubic ,cubic ,feet ,feet ,feet ,yards ,yards ,,superstructure ,,for ,,handling ,,coal ,,or ,,ore ,filling,age,condition,type,dimensions,t imber,number ,capacity,number ,cubic ,per ,cent ,b4,m4 of of of ,yards ,feet ,pockets,pockets ,hoists ,earth ,stone ,,complete ,average ,,plant ,condition ,per ,cent ,age ,cost of ,reproduction ,name of ,operating ,form #bb ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,,interlocking ,,plants ,,location,name of,when ,,tower ,,house ,kind of ,railway,built ,machine ,crossed ,kind,dimensions,cond4 ,per ,ct4 ,,number ,,of ,,levers,,kind ,,of ,,connection ,,pipe ,foundations1 ,,signal ,,or ,,wire ,,to ,wood or ,,posts ,concrete ,work,spare,total,derails,switches,signa ls ,high,dwarf ,,number ,,of ,,functions ,,electric ,average ,per ,cent of ,per ,cent of ,,operated ,,circuit ,condition,construction,maintenance ,,for ,per ,cent ,cost ,paid ,by ,cost ,paid ,this ,company ,by ,this ,company ,derails,switches,signals ,per ,cent ,cost of of ,reproduction ,operating ,cost ,paid ,by ,this ,company ,name of ,operating ,form #bc ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,,signal ,,apparatus ,,location ,,train ,,order ,,and ,,manual ,,block ,,signals ,,operated ,,in ,,conjunction ,,with ,,the ,,telegraph ,type ,manufactured ,number ,condition,miles of ,type of by ,installed,per ,cent ,single of ,signal ,line ,signal ,protected ,,automatic ,,block ,,signals ,manufactured ,number ,number ,circuit ,miles of ,condition ,type by ,installed ,switch ,track or ,single ,per ,cent of ,indicators ,wire ,line ,signal ,protected ,,distant ,,switch ,,signals ,number ,condition,location ,installed,per ,cent ,,electric ,,bells ,,for ,,highway ,,crossing ,,protection ,manufactured ,number ,circuit,condition by ,installed ,track ,per ,cent or ,wire ,name of ,operating ,form #bd ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,,telegraph1 ,,telephone ,,lines ,,appurtenances ,in ,case ,lines are not ,owned1 ,only ,show ,such ,equipment as ,actually ,belongs to the ,railroad ,company ,office ,compiler ,,location,,owner ,number,number,number,kind ,number,number,number of of of of of ,miles ,poles,wires ,wire ,keys per ,strung ,mile ,,general ,,description ,number ,number ,number ,number of ,kind of,number ,cost of of of and ,telephone ,battery of ,reproduction ,sounders,relays,capacity,transmitters ,cells of and ,switch ,receivers ,boards ,,remarks ,condition ,per ,cent ,illustration3 ,,fig4 #ad4 ,name of ,operating ,form #be ,company ,field ,inspector ,locomotives in ,service ,,minnesota ,,railroad in ,minnesota ,,warehouse ,,commission ,office ,compiler ,total ,number ,,railroad ,,appraisal ,,of #aijf ,,locomotives ,name of ,builder ,engine,class ,simple ,service,dimensions,diam4 ,working ,number or of of ,pressure ,compound ,cylinders ,boiler ,,engines ,driving ,weight ,weight ,weight,hauling ,brake ,when ,when ,wheels on on on ,capacity,equipment,built ,given ,driving,trailing,truck ,general ,wheels ,wheels ,repairs ,no4,diam4 ,,tender ,total ,cost of ,condition ,weight,reproduction,per ,cent ,engine ,tender ,loaded ,water ,coal ,capacity,capacity ,name of ,operating ,form #bf ,company ,field ,inspector ,passenger ,equipment on ,,minnesota ,,railroad ,system ,cars ,,warehouse ,,commission ,office ,compiler ,passenger ,equipment ,,railroad ,,appraisal ,,of #aijf ,assigned to ,minnesota ,cars ,passenger ,car ,mileage1 ,,passenger ,,equipment ,system ,miles ,passenger ,car ,mileage1 ,minnesota ,miles ,serial ,kind of ,class,dimensions,design of,kind of,number,kind ,number,equipment ,vestibule,coupler of of ,seats ,heat ,kind ,trucks ,brake ,name of,when ,total ,cost of ,condition of ,number,equipment,builder,built,number ,reproduction,per ,cent ,light of of ,cars ,wheels ,now in ,service ,give ,number of ,cars ,each ,series ,assigned to ,minnesota ,name of ,operating ,form #bg ,company ,field ,inspector ,freight ,car ,mileage1 ,,minnesota ,,railroad ,system ,miles ,,warehouse ,,commission ,office ,compiler ,freight ,car ,mileage1 ,,railroad ,,appraisal ,,of #aijf ,minnesota ,miles ,,freight ,,car ,,equipment ,include ,cabooses in this ,statement4 ,serial ,class of ,sills,dimensions,capacity,kind of ,size of ,numbers,equipment and ,couplers,journals ,body ,steel or ,wood ,brake ,name of,when ,number ,cost of ,condition,,remarks ,equipment,builder,builtof ,cars,reproduction,per ,cent ,now in ,service ,name of ,operating ,form #bh ,company ,field ,inspector ,,minnesota ,,railroad ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,,miscellaneous ,,equipment ,include ,snow ,plows1 ,flangers1 ,steam ,shovels1 ,pile ,drivers1 ,derrick ,cars1 ,dredges1 and all ,special ,equipment1 ,located or used in ,minnesota4 ,,location ,,description ,name of ,age ,cost of ,condition ,builder ,reproduction ,per ,cent ,illustration3 ,,fig4 #ae4 ,name of ,operating ,form #ad ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,,station ,,buildings ,,and ,,fixtures ,including ,station ,equipment and ,platforms ,,location ,,building ,material,dimensions,age ,general ,condition ,description,per ,cent ,,equipment ,,platforms ,office ,condition ,wood ,cinders,concrete,brick ,square,condition and ,per ,cent ,square,square ,square ,square ,ft4 ,per ,cent ,waiting ,ft4 ,ft4 ,ft4 ,ft4 ,room ,items ,name of ,operating ,form #ae ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,,miscellaneous ,,buildings ,including ,general ,office ,buildings1 ,warehouses1 ,elevators1 and all ,other ,buildings ,not ,specifically ,called for in ,blank ,forms ,,location ,,general ,,description ,,remarks ,material,dimensions,age ,cost of ,condition ,reproduction,per ,cent ,name of ,operating ,form #af ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,,engine ,,houses ,,and ,,turntables ,,location ,,engine ,,houses ,,material ,,of ,no4 ,depth ,number of of of ,fire ,stalls,stalls ,walls ,foundations,walls,framing ,number ,,pits ,,heating ,,smoke ,age of ,,jacks ,building ,material,dimensions,steam,hot,kind,no4 ,air ,,turntables ,condition,type ,length,built ,loading ,turning ,age ,per ,cent of ,feet ,by ,specification,apparatus of ,table ,tons ,table ,,turntable ,,pits ,condition ,center ,,curbing ,end ,condition ,per ,cent ,foundation ,pacing,per ,cent ,kind,cubic ,yds ,b4,m4 ,feet ,illustration3 ,,fig4 #af4 ,name of ,operating ,form #ag ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,,cinder ,,pits ,,and ,,track ,,scales ,,location ,,cinder ,,pits ,,and ,,hoists ,material,dimensions,age ,pneumatic ,condition,,location of ,pit or ,power ,per ,cent ,hoists4 ,general ,description ,,track ,,scales ,,remarks ,name of ,materials ,dimensions,capacity,condition ,manufacturer of ,tons ,per ,cent ,production ,name of ,operating ,form #aj ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,length of ,main ,line ,,fences ,,cattle ,,guards ,,and ,roadway ,miles ,,signs ,,location ,,right ,,of ,,way ,,fences ,,wood ,,fence ,,wire ,,fence ,no4 ,no4 ,no4 ,condition ,no4 ,no4 ,no4 ,condition ,boards,posts,miles,per ,cent ,wires,posts,miles,per ,cent ,per ,per ,per ,per ,per ,per ,panel ,mile ,line ,panel,mile ,line ,,snow ,,fences ,,cattle ,,guards ,,temporary ,,permanent ,,wood ,,iron ,length,b4,m4 ,total ,condition,kind,number,condition,kind,nu mber ,per ,ft4 ,length,per ,cent ,per ,cent ,panel ,per in ,panel,linear ,feet ,,highway ,,crossings ,,miscellaneous ,,planking ,,used ,,roadway ,,sights ,condition ,number ,total,condition ,kind ,number,condition ,per ,cent of ,b4,m4 ,per ,cent ,per ,cent ,crossing ,ft4 ,used ,mile ,posts ,whistling ,posts ,name of ,operating ,form #a ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,length of ,main ,line ,,lands ,,for ,,right ,,of ,,way1 ,roadway ,miles ,,yards ,,and ,,terminals ,separate by ,counties1 and for ,incorporated ,cities1 ,villages and ,towns ,show ,joint ,right of ,way ,separately and ,indicate ,division of ,ownership ,,location ,name ,name of ,,width ,,of ,,right ,,of ,,way ,total of ,incorporated ,acres ,county ,city1 ,right ,village or of ,town ,way ,,feet ,,feet ,,feet ,,feet ,,feet ,miles,miles,miles,miles,miles ,average,average,,lands ,,for ,,yard,average,average ,,remarks ,market ,right ,,and ,,terminals ,market ,value ,value of ,way ,value for ,per ,value ,value ,railway ,acre ,per ,per ,purposes ,acre ,acre ,per ,acre ,,location,total ,acres ,illustration3 ,,fig4 #ag4 ,name of ,operating ,form #ah ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,,steam ,,electric ,,power ,,plants-,,gas ,,plants ,include all ,shafting1 ,belting1 ,motors1 ,etc41 ,operated from ,central ,plant ,,location,kind ,,general ,,description of ,plant ,,power ,,building ,material,dimensions,age ,cost of ,condition ,production,per ,cent ,,power ,cost of ,condition ,,equipment,production,per ,cent ,name of ,operating ,form #ai ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,,general ,,repair ,,shops ,,location ,,motive ,,power ,,and ,,repair ,,shop ,dimensions ,,material ,,used ,,for ,age ,general ,years,description and ,purposes for ,which ,each ,building is ,used ,foundations,walls,frame ,cost of ,condition ,reproduction,per ,cent ,name of ,operating ,form #bj ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,,shop ,,machinery ,,and ,,tools ,separate by ,buildings in ,which ,they are ,located ,shafting1 ,belting1 ,motors1 ,etc41 to be ,included on ,form ,no4 #ah ,power ,plants ,,machines ,,with ,,accompanying ,,tools ,,remarks ,name of ,name of ,age ,cost of ,condition ,machine ,maker ,reproduction ,per ,cent ,illustration3 ,,fig4 #ah4 ,name of ,operating ,form #g ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,,pile ,,bridges ,,and ,,timber ,,trestles ,include ,timber ,overhead ,highway ,bridges ,erected at ,expense of ,railway ,company ,,location ,,general ,,description ,,piles ,bridge,total ,average,number ,kind ,number ,total ,number,length,height of of of ,lineal ,bents ,timber,piles ,feet ,per ,pilling ,bent ,,caps ,,framed ,,bents ,kind ,dimensions,number ,kind ,dimensions,b4,m4 ,feet of of of ,including ,timber ,caps ,timber ,sills and ,caps ,,superstructure ,,for ,,pile ,,or ,,framed ,,stringers ,,ties ,kind ,dimensions,no4 ,kind ,dimensions,number of ,per of of ,timber ,span,timber ,ties ,,bents ,structure ,average ,condition ,per ,cent ,,guard ,,rails ,kind ,dimensions,lineal of ,feet ,timber ,name of ,operating ,form #h ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,,culverts ,include all ,arch1 ,box1 ,cast ,iron or ,vitrified ,pipe ,culverts ,,location,culvert,design,material,dimen sions ,,masonry ,concrete ,number ,cubic ,yards ,class,cubic ,yards ,,paving ,timber,age,condition,,remarks ,b4,m4 ,per ,cent ,feet ,material,cubic ,yards ,name of ,operating ,form #i ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,,track ,,and ,,bridge ,,tools ,,location ,,track ,,tools ,,assigned ,,to ,,sections ,number ,,hand ,,cars ,,tools of ,section ,number,condition,number,condition ,per ,cent of ,per ,cent ,sets ,,bridge ,,tools ,,assigned ,,regular ,,crews ,,note3- ,in ,space ,below1 ,list ,kind and ,number of ,tools in use by ,average ,section and ,bridge ,crew1 ,covering ,general ,track and ,bridge ,work ,,location ,,hand ,,cars ,,tools ,number,condition,number,condition ,per ,cent of ,per ,cent ,sets ,illustration3 ,,fig4 #ai4 ,name of ,operating ,form #aa ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,,stock ,,yards ,,and ,,appurtenances ,,location ,,yards ,number,dimensions,number,sheds and ,age,condition of of ,dimensions ,per ,cent ,pens ,gates ,,water ,,supply ,,and ,,power ,,paving ,,wells ,other ,means,pumps ,,wind ,,mills of ,supply and ,description ,kind,square,diameter,depth ,size ,tower1 ,feet ,wheel ,kind and ,height ,,stock ,,scales ,other ,power,cond4,kind,capacity,dimensions,co nd4 ,used1 and ,per ,tons of ,per ,description,cent ,platform ,cent ,name of ,operating ,form #ab ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,,water ,,stations ,,location ,source ,,pump ,,house ,supply ,if ,well1 ,give ,diameter and ,depth ,material,dimensions ,age ,condition ,years,per ,cent ,,power ,,boilers ,,gas ,,engines ,,wind ,,mills ,horizontal,dimensions,cond4,kind,h4,p4, cond4,kind,tower1,diam4,cond4 ,vertical ,per ,per ,kind ,wheel ,per ,ct4 ,ct4 and ,ct4 ,height ,,pumps ,kind,diameter,condition,,suction ,,pipe ,,discharge ,,pipe of ,per ,cent ,cylinder ,diam4,length,diam4,length,cond4 ,per ,ct4 ,,water ,,tanks ,diameter,capacity,tower1,condition ,gal4 ,kind ,per ,cent and ,height ,,water ,,cranes ,kind,diam4 ,condition ,,supply ,,pipe ,column,per ,cent ,diam4,length,cond4 ,per ,ct4 ,name of ,operating ,form #ac ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,,coal ,,stations ,,location,type ,,general ,,description ,,of ,,building ,chute or ,crane ,kind of ,dimensions,number ,total ,age of ,foundation of of ,capacity,building ,building ,pockets ,tons ,,approach ,,special ,,appliances ,,for ,,hoisting ,,and ,,conveying ,condition,design,length,condition ,general ,condition ,per ,cent ,per ,cent ,description,per ,cent ,illustration3 ,,fig4 #bj4 ,name of ,operating ,form #a;,a ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,,railway ,,terminal ,,property ,,terminal,,section,,description,,total ,average ,average ,right,,total ,,map ,,no4 ,,of ,,property,,acres,market ,valueof ,way ,value ,,value ,,owned ,,owned ,per ,acre ,per ,acre ,name of ,operating ,form #b ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,,roadway ,,report ,in ,recording ,information1 ,show ,main ,tracks ,separate from ,passing1 ,side1 and ,industry ,tracks3 ,show ,joint ,tracks ,separately1 and ,indicate ,division of ,ownership4 ,the above does not apply to ,grading or ,protection except for ,joint ,tracks4 ,,location ,acres ,,grading--,,cubic ,,yards--,,pay ,,protection ,clearing ,,quantities and ,grubbing ,,excavation ,,embankment ,rip ,,retaining ,rap ,cu4 ,yds4 ,earth,loose,solid,earth,loose ,dry ,mortar ,rock ,rock ,rock ,wall ,wall ,cu4 ,cu4 ,yds4 ,yds4 ,,cross ,,ties ,,walls ,dimensions ,oak ,cedar ,hemlock,other ,cond4 ,kinds ,per ,cent ,concrete ,number,number,number ,number ,wall ,cu4 ,yds4 ,,switch ,,ties 7,including ,head ,blocks7 ,b4,m4 ,number of ,sets ,cond4 ,feet ,per ,per ,cent ,set ,oak,pine,hemlock,other ,kinds ,name of ,operating ,form #c ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,,roadway ,,report ,in ,recording ,information1 ,show ,main ,tracks ,separate from ,passing1 ,side1 and ,industry ,tracks4 ,show ,joint ,tracks ,separately1 and ,indicate ,division of ,ownership ,,ballast ,,location,miles,kind of ,width,average,condition ,material at ,depth per ,cent ,crown ,per ,under ,tie ,,rails 7,insert ,weight of ,rail per ,yard7 ,,location,time to ,new ,relaying ,wt4 ,cond4 ,wt4 ,cond4 ,replace,when ,rails ,track ,per ,track ,per ,years ,laid ,miles ,miles,cent ,miles,cent ,miles ,illustration3 ,,fig4 #ba4 ,name of ,operating ,form #d ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,length of ,main ,line ,,roadway ,,report ,roadway ,miles ,length of ,passing ,side1 and ,industry ,tracks ,miles ,in ,recording ,information1 ,show ,main ,tracks ,separate from ,passing1 ,side1 and ,industry ,tracks2 ,show ,joint ,tracks ,separately1 and ,indicate ,division of ,ownership4 ,,location,weight ,of ,rail ,,angle ,,bars ,weight ,,fish ,,plates ,of ,rail ,no4 ,weight ,no ,cond4 ,no4 ,weight ,no ,of ,per ,bolts ,per ,of ,per ,bolts ,pairs ,pair ,per ,cent ,pairs ,pair ,per ,joint ,joint ,,track ,,fastenings ,,bolts ,,nut ,,locks ,,spikes ,cond4,size,no4 ,cond4,kind,size,no4,weight,cond4,size,n o4 ,cond4 ,per ,kegs ,per ,per ,per ,kegs ,per ,cent #bjj ,cent #ajjj ,cent #bjj ,cent ,lbs4 ,lbs4 ,used ,used ,,tie ,,plates ,,rail ,,braces ,kind,no4,weight,cond4,kind,no4,weight,c ond4 ,each ,per ,each ,per ,cent ,cent ,name of ,operating ,form #e ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,length of ,main ,line ,,roadway ,,report ,roadway ,miles ,length of ,passing ,side1 and ,industry ,tracks ,miles ,in ,recording ,information1 ,show ,main ,tracks ,separate from ,passing1 ,side1 and ,industry ,tracks2 ,show ,joint ,tracks ,separately1 and ,indicate ,division of ,ownership4 ,,location,,split ,,switches,,stub ,,switches ,,switch ,,stands ,,switch ,complete ,complete ,kind,no4,cond4,kind,no4 ,including ,including ,per ,connecting ,rod,connecting ,rod ,cent ,wt4 ,no4,cond4,wt4 ,no4,cond4 ,rail ,per ,rail ,per ,cent ,cent ,,lamps ,,rigid ,,frogs ,,spring ,,rail ,,frogs ,cond4,wt4 ,length ,total,condition,wt4 ,length ,total,condition ,per ,railin ,feet ,no4 ,per ,cent ,railin ,feet ,no4 ,per ,cent ,cent of of ,each ,each ,kind ,kind ,,guard ,,rails ,,railroad ,,crossings ,wt4 ,length,total,condition,wt4 ,name of,per ,per ,condition ,rail in ,no4 ,per ,cent ,rail,railway,cent ,cent ,per ,cent ,feet of ,crossed,cost,maint4 ,pairs ,paid ,paid by by ,this ,this ,co4 ,co4 ,name of ,operating ,form #e ,company ,field ,inspector ,section ,number ,,minnesota ,,railroad ,from ,to ,,warehouse ,,commission ,office ,compiler ,,railroad ,,appraisal ,,of #aijf ,,bridges ,truss1 ,plate ,girder1 ,i ,beam and ,draw ,span4 ,indicate ,power ,used ,for ,operating ,draw ,spans4 ,,location,bridge ,,sub-,,structure ,number ,,piles ,,framed ,,masonry ,,concrete ,,timber ,kind ,total ,kind ,b4,m4,cubic,cubic,cubic,cubic of ,lineal of ,feet,yards,yards,yards,yards ,timber ,feet ,timber ,average ,age,average ,no4 ,total ,design,specifications ,total ,age ,height of ,cond4 of ,length of ,for ,live ,load ,weight ,piers and ,per ,spans of ,bridge of ,abutments ,cent ,bridge ,steel in ,bridge ,,superstructure ,cond4 ,,bridge ,,ties ,,guard ,,rails ,average ,per ,cond4 ,cent ,per ,cent ,kind ,no4 ,dimensions ,kind ,dimensions,lineal of of of ,feet ,timber,ties ,timber ,from ,mr4 ,gillette's report1#aa supplemented by information furnished by ,henry ,l4 ,gray1 ,assoc4 ,m4 ,am4 ,soc4 ,c4 ,e41 ,engineer of the ,railroad ,commission of ,washington1 the following general statement as to methods is gleaned3 ,the plan involved1 not only a determination of cost of reproduction and present value1 but also original cost4 ,the appraiser was unable to adopt the methods followed in ,wisconsin and ,minnesota1 in so far as they accepted the inventory of the railroads1 but made his own examinations of records4 ,the railroads of the ,state denied that they had any information whatever that would be of value to the ,commission4 ,the records of the ,engineering ,department were examined4 ,the records of the ,accounting ,department were analyzed1 various annual reports were examined and a corporate history of the road prepared4 ,special forms for securing information were not prepared1 and no rules1 or definite order of procedure to be used for all roads alike1 were adopted4 ,it is somewhat difficult to determine from the appraiser's report just what part of it covers actual work done1 and what part is theory developed from the work1 but presumably maps were prepared and profiles secured which represented the original conditions of construction4 ,the field inspection was made on hand-cars or on foot1 each field inspector being furnished with the plans1 profiles1 etc4 ,the same conditions existed in ,washington as elsewhere1 that is1 certain records were not kept up1 and were found to be inaccurate and unreliable1 and1 as a result1 the appraiser reported the condition to be such as to cause much unnecessary work subsequently in checking4 ,a percentage of depreciation was not placed in the field1 but was determined by mortality tables1 or by ascertaining the probable years of structure life1 then determining from the age of the particular structure under consideration its percentage of depreciation1 a method by no means new4 ,it is not stated that any attempt was made to compare these tables with the rules of the ,master ,car ,builders ,association for valuing equipment1 and no field inspection of equipment was made4 ,the prevailing prices of materials formed the basis for estimating the cost of reproduction4 ,the value of motive power and rolling stock was apportioned among the ,states on the basis of engine- and car-mileage4 ,the land values were fixed by the ,railroad ,commission sitting as a court2 real estate men from the large cities1 real estate experts brought by the railway companies1 and others testified2 and1 based on this testimony1 the value was determined by the ,commission in the same manner as in a condemnation case4 ,three right-of-way experts1 all of whom had had experience in purchasing right of way for roads1 were in the regular employ of the ,commission1 and details as to present values were referred to them4 ,the chief point of difference between this work and that of the other ,states apparently was the effort to ascertain first cost of the properties plus additions4 ,this was done by an examination of the accounts of the railway companies4 ,the result of the ,washington work1 as far as rate-making is concerned1 is indeterminate1 as the ,united ,states ,courts have held that the ,commission may not fix freight rates4 ,the ,supreme ,court of the ,state has held that they could4 ,the ,supreme ,court has also held that the ,tax ,commission should accept the findings of the ,railroad ,commission for the purpose of taxation1 with the result1 as stated by ,mr4 ,gray1 that more than #a1bej1jjj more was received last year than during any prior year from railroad taxes4 ,the report of the ,washington appraiser differs widely from that for other ,states in that it is diffuse and does not present the methods clearly and systematically2 it is difficult1 indeed1 to trace what was actually done4 ,the writer is loath to criticize1 but this report is such as to suggest comment on a number of points4 #a4--,throughout the report very great stress is laid on the cost of making the appraisal4 ,such an undertaking as an appraisal of corporation property should be done thoroughly or left alone4 ,it matters not whether the work of ,professor ,cooley or ,professor ,taylor cost #e a mile or #ej a mile1 if a dependable result was secured4 ,it does not appear to be good taste either to criticize costs of work in other ,states1 or compare the costs in ,wisconsin and ,michigan with the costs in ,washington4 #b4--;,a number of criticisms1 amounting almost to reflections1 are made on the methods elsewhere4 ,the appraiser says3 ,speaking for myself1 ,i found the precedents established by ,texas1 ,michigan1 and ,wisconsin of little value either in deciding the methods to be pursued in making the appraisals or in estimating the probable cost of appraisal4444 ,in estimating present or depreciated values of structures1 rolling stock1 etc41 both ,michigan and ,wisconsin had sent experts into the field to estimate the percentage of present value to each unit4 ,in this manner #dj1jjj freight cars were inspected in ,michigan and their 'present value' estimated4 ,to me this seemed to be not only a useless procedure but very erroneous4444 ,the appraisals heretofore made in other states have been based almost entirely upon field surveys and inspection1 no attempt having been made to secure the necessary data from the engineering and accounting records of the railways4 ,why8 ,the answer is found in the purpose of the appraisal4 ,such sentences1 and others which1 by inference if not by name1 reflect on work executed by men of high professional standing1 are hardly in good taste1 even if true1 in a report to a railroad commission of another ,state4 ,whether or not he found little of value1 the appraiser's general line of procedure was not radically different from that followed in ,michigan and ,wisconsin in getting all available data first from the companies1 then in making a field inspection before fixing values4 ,if misled by erroneous profiles1 he went into an error needlessly1 as it was fully known in ,michigan that records were in the condition described before any field work was begun4 ,the inspection of freight cars in ,michigan was not to estimate present value but to determine at first hand whether the ,master ,car ,builders rules for valuation were safe to use1 and to back up their use in ,court4 ,the third paragraph quoted is a misstatement1 due clearly to a misapprehension of what really was done4 #c4--,the spirit of suspicion of railroad men's motives is an unfortunate one to carry into a railroad appraisal1 much less into a report4 #d4--,the writer fully realizes the magnitude of the task before the appraiser who is asked to determine first cost plus improvements or betterments4 ,hardly a trunk line road exists to-day that has not grown up from a small beginning1 changed its line1 reduced its grades1 added safety devices1 changed the type of its bridges and buildings1 increased the weight of its rails1 put in service much heavier equipment1 in fact1 completely changed everything1 except1 perhaps1 the original right of way4 ,the task of securing from old accounting department records an accurate statement of cost is--and the writer says it with the confidence born of experience--an impossibility4 ,it is a job of such magnitude as to be practically prohibitive4 ,the different systems of accounting1 the different policies of the management1 as to charging betterments to capital or operating expense1 to say nothing of the countless errors that creep into the distribution of accounts1 place such an undertaking among the labors of a modern ,hercules1 and1 to one who has been engaged even in the task of trying to ascertain what one year's accounting on a large road may do in concealing betterments under the guise of operating expense1 it would appear that a result that could be sworn to as correct was impossible of attainment along the lines suggested in this report4 ,the general question of the propriety of the use of mortality tables is discussed elsewhere in this paper4 ,this document1 as an addition to the literature of the subject of valuation of properties1 is disappointing1 for if there were original and valuable methods they are not explicitly described4 ,the cost of making the appraisal was about #ac per mile of line4 ----- ,footnote #aa3 ,engineering-,contracting4 ,,the ,,valuation ,,of ,,traction ,,properties ,,in ,,chicago4 ,during #aijf a complete valuation of the property and franchises of the surface roads of ,chicago was made under the direction of a ,commission consisting of ,bion ,j4 ,arnold1 ,m4 ,am4 ,soc4 ,c4 ,e41 and ,messrs4 ,mortimer ,e4 ,cooley1 and ,a4 ,b4 du ,pont4 ,the report of this valuation was published in the form of a pamphlet which is now practically out of print1 as all extra copies were long ago exhausted4 ,the instructions of this ,commission from the ,chicago ,city ,council were3 ,to consider the detailed inventories and estimates of value to be submitted by the ,street ,railway ,companies1 to investigate the same and to ascertain whether the values thus listed were reasonable1 fair and just4 ,detailed inventories and estimates of value were submitted by the roads1 and1 from time to time during the progress of the work1 additions or corrections to these schedules were made4 ,reports showing income1 operating expense1 and traffic statistics were made1 and such detailed statements as were called for from time to time were furnished4 ,the ,commission organized its force for valuation work by using the office and field organization of the ,arnold ,company under the direct charge of ,george ,weston1 ,m4 ,am4 ,soc4 ,c4 ,e41 for the major part of the work1 and retained ,messrs4 ,theodore ,h4 ,hinchman1 ,jr41 ,c4 ,v4 ,conover1 and the writer to give special study to certain features of the appraisal4 ,in the determination of franchise values1 ,professor ,henry ,c4 ,adams was retained in consultation by the ,commission4 ,in arriving at the value of the physical properties1 a complete field examination was made1 depreciation determined1 cost of reproduction estimated1 and in general1 the work was carried on along lines quite similar to those of the railway appraisals heretofore described in detail4 ,several very interesting and unique problems were presented1 some of which were as follows3 ,upon what basis shall the cable properties of the companies be estimated--7a7 as operating cable systems1 or 7b7 as obsolete systems having no value except so far as the physical property can be utilized in the conversion of the cable lines into electric8 ,in the final conclusions of the ,commission1 part of the cable lines were treated in one way1 and part in the other4 ,what allowance1 if any1 shall be made for the pavements laid by the companies on their right of way8 ,the discussion of this topic1 together with the opinions of counsel as to the legal status1 is of interest4 ,the ,commission did not consider the value of paving as constituting any part of the physical property1 the value of which must be supported out of earnings4 ,the present value of the pavement was estimated and reported without specific recommendation as to whether an allowance should be made4 ,the valuation of real estate was left in the hands of real estate experts familiar with values in ,chicago1 each piece of property being personally examined and valued1 and the representatives of the roads given such hearings as they desired4 ,in computing the value of physical properties1 an allowance of #aj was made to cover the following items3 #a4--,legal ,expenses--including those incurred in securing right of way and frontage consents4 #b4--;,interest or carrying charge for the money expended during the construction period and up to the time the property goes into operation4 #c4--;,brokerage--or the expense of securing the necessary moneys4 #d4--;,contingencies--to cover incomplete inventories1 unforeseen difficulties of construction1 and any and all other items of expense which cannot be foreseen4 ,the only novel feature in this list is ,item #c1 which was not included specifically in any of the railroad valuations made by ,states and heretofore described4 ,the franchise and intangible property valuation1 amounting to some #i1jjj1jjj1 or about one-fifth of the total1 was a very important phase of the work1 and the ,commission gave up a large part of the report to its discussion4 ,the difficulties in this part of the work are described as threefold3 ,first4--,the difficulty of determining what are the exact legal rights of the companies in any given street or part of street1 in absence of a direct and final judicial decision as to these rights2 ,second4--,the difficulty in estimating the value of a line of street railways1 consisting of several parts1 where each of these parts is operated under a different tenure due to the character of the ordinances or franchises1 respectively2 and ,third4--,the difficulties arising from the absence of exact information as to the receipts and expenditures on the several parts of a single line covered by franchises of different length and character4 ,the ,commission1 having arrived at such an adjustment of the difficulties as appeared just1 determined the value of franchises in the following manner3 ,it was assumed that the gross earnings on the different parts or routes of each system were in proportion to the car-mileage4 ,the system was divided into routes1 and the car-mileage was determined for each route2 then this information was compiled so as to show the car-mileage1 and consequently the gross earnings1 apportionable to each franchise4 ,the next step was to determine1 in the same manner1 the proportion of operating expenses assignable to each franchise1 the operating expense being assumed to be uniform with gross earnings4 ,a study of the conditions in ,chicago resulted in a determination upon #gj as a fair proportion for operating expenses1 taxes1 and maintenance4 ,next1 the amount of capital investment to be supported out of earnings was computed by estimating the cost of reproduction of track and overhead lines under each franchise and apportioning the cost of land1 power-houses1 barns1 cars1 tools1 and stores in proportion to car-mileage4 ,in determining earnings for the unexpired years of franchise life1 it was assumed that the earnings would increase in accordance with the law laid down by ,mr4 ,arnold in #aijb4 ,the last step was to find the value of the net earnings of future years1 after deducting the sum required to support the invested capital4 ,the rate chosen was #e compound interest4 ,the sum of the different present values thus found was the value of the franchise sought4 ,two other points arising in connection with franchise values were3 ,where1 on a street1 franchises covering part of the street have expired1 and others remain in force1 the contention of the city is that the expired franchise is valueless because traffic under it can be stopped2 that of the company is that it still has value1 as traffic can be routed over other streets where franchises have not expired4 ,this was set aside on the ground that the value of any particular portion of a street1 or of a franchise1 remains the same as long as the system is considered as an entirety4 ,the second point was as to the value of traffic agreements2 but this complicated problem was also dismissed on the theory that when two systems are considered as co-operating1 the value of individual parts of either system remains the same regardless of their ownership4 ,the values of their properties1 fixed by the companies1 included paving4 ,the total figures reached in this valuation were3 ,companies' valuation1 including paving1 #gc1eee1fge ,commission's #ej1iid1ghb ,commission's excluding #df1feb1gdg ,this work affords many interesting problems1 and is perhaps the largest valuation for determining a price for the purchase of property that had been made to date4 ,,the ,,commercial ,,valuation ,,of ,,railway ,,operating ,,property ,,of ,,the ,,department ,,of ,,commerce ,,and ,,labor4 ,in #aijb the permanent ,census ,office was established1 and the ,director was authorized to collect statistics relative to public indebtedness1 valuation1 taxation1 and expenditures4 ,the ,bureau of the ,census co-operated with the ,department of ,commerce and ,labor in the preparation of the appraisal of the commercial valuation of railway properties of the country4 ,the report of this work1 issued as ,bulletin #ba of the ,bureau of the ,census1 is the most interesting and valuable exposition of the subject of railway valuations yet published1 as it includes not only the report of this particular work1 together with the results1 tabulated by ,states1 but appendices describing and discussing the work in ,states and foreign countries1 and the work of valuation by railway men4 ,the results are of prime interest1 as they show the valuation of all railway property in all the ,states1 based on uniform methods of appraisal and distribution1 which enables a comparison to be made with work done by the ,states4 ,the method adopted in this work was so radically different from that of the various ,state appraisals as to make a detailed description a matter of interest1 and it is to be regretted that it cannot be included4 ,the method is really a capitalization of net earnings4 ,owing to the nature of the inquiry1 namely1 to determine what part of the wealth of the nation is devoted to railway transportation1 it was obligatory on the appraisers to adopt a method which would disclose as nearly as possible the true market value4 ,certain restrictions and limitations on the term1 value1 and on the use of the resultant figures of the appraisal1 are suggested by ,professor ,adams1 as follows3 ,the valuation submitted in this report may be properly defined as the commercial value of property used by railways in connection with the business of transportation4 ,by 'commercial value' is meant the estimate placed upon the worth of property regarded as a business proposition4 ,this must1 of course1 be the market estimate and not the arbitrary estimate of a public official4 ,the two fundamental considerations by which the market is influenced in placing a value upon property when bought or sold1 are the expectation of income arising from the use of the property1 and the strategic significance of the property4 ,these two considerations are made the basis of the valuation of railway property submitted in this report4 ,the material made use of in this valuation is1 first1 the operating and financial accounts of the railways2 second1 inter-railway contracts and agreements2 and1 third1 the published records of the stock market4 ,this is no place to enter upon a discussion of the nature and classification of different kinds of value1 but a word of caution may be allowed in order to guard against an unwarranted use of the figures here submitted4 ,the commercial valuation of railway property1 in so far as it depends on income arising from the sale of transportation1 is the result1 among other things1 of an established schedule of freight and passenger rates1 from which it follows that such a valuation cannot be used for determining the reasonableness or unreasonableness of the rates in question4 ,the solution of the rate problem demands a separate valuation of the physical property4 ,again1 in so far as the ,government is precluded by its political character from following commercial rules in the sale of any service which it renders1 a commercial valuation which assumes that property is administered under the rules of private rather than public financiering1 might differ from the valuation of the same property regarded as a public property4 ,the purpose of this remark is to preclude a discussion of the problem of the ,government purchase of railways on the basis of the values submitted in this report4 ,it would of course be necessary to modify these values by considerations of public utility1 in order to determine a public purchase price4 ,whether or not the commercial valuation here submitted can be used as the basis of assessing railway properties for the purpose of taxation depends entirely upon the taxing laws of the state for which the question is asked4 ,if these laws confine the appraisal of railway property to its physical elements1 the values here submitted would1 in the case of prosperous roads1 exceed an appraisal for the purpose of taxation4 ,if1 on the other hand1 it is the purpose of the taxing law to appraise railway property at its true cash value1 unusual or abnormal conditions being excluded1 it may be that the commercial valuation of operating property submitted in this report fairly measures its appraisal for the purpose of taxation4 ,the methods are explained in the most minute detail by a series of papers in the ,bulletin4 ,the work of ,professor ,adams and his associates is of great practical value in that it shows the discrepancy in the taxation laws of the different ,states as relating to railroad properties1 and in that it gives a set of values determined by a uniform method1 which1 within reasonable limits1 furnishes a check on the work of the ,state appraisals4 ,this method1 of course1 cannot be used for purposes of rate-making1 or of bond or stock restrictive legislation1 but the general uniformity of its results with those of ,state appraisals1 and the radical differences noted in the case of values for taxation in other ,states1 lead very properly to the inference that a value determined by this method is very close to the truth4 ,,the ,,extent ,,of ,,appraisal ,,practice4 ,there have been many appraisals of property besides those reviewed in the foregoing pages4 ,several excellent contributions to valuation literature1 as a result of the numerous water-works appraisals1 are mentioned in the ,appendix4 ,new ,jersey and ,nebraska have had railway appraisals in progress during #aiji-aj4 ,at the time of writing1 neither appraisal has gone far enough to add any points of interest to the subject1 except as the appraisers in these two ,states discuss the subject and bring out new points4 ,valuations of street railway property have been made in several cities1 ,cleveland1 ,ohio1 ,detroit1 and ,milwaukee being the most recent4 ,the ,cleveland and ,milwaukee hearings have produced large records1 and have tended to determine finally certain principles of valuation4 ,several valuations have also been made for corporations1 among which may be mentioned that of ,the ,toledo ,railways and ,light ,company1 by ,messrs4 ,ford1 ,bacon1 and ,davis1 and that for the ,new ,york1 ,new ,haven1 and ,hartford ,railway1 under the direction of ,john ,f4 ,stevens1 ,m4 ,am4 ,soc4 ,c4 ,e4 ,this latter valuation offers some very interesting points1 and1 in view of ,mr4 ,stevens' standing as a railroad engineer1 the adoption by him of methods of inventory and field inspection would go far toward fixing a precedent which would be acceptable to the railroads4 ,it is to be regretted that the interests of the road are such that it is not deemed wise by its ,president to discuss even the principles of this work at present4 ,in connection with the recent appraisal made by the ,city of ,detroit1 ,the ,detroit ,united ,railway made an independent examination and appraisal of its own property1 with the double purpose of furnishing an inventory to the city and of checking the work of the staff employed by the city4 ,this work for the railroad was done by officials and employees of the company1 under the personal direction of ,mr4 ,r4 ,b4 ,rifenberick4 ,it is noteworthy for the completeness of its inventory1 which goes into the most minute detail1 and for the excellence of the maps and drawings which accompany it and show1 not only every standard type of track1 rail1 and all buildings and machinery1 but every piece of track and overhead special work on the entire system4 ,this appraisal includes a most complete and exhaustive study of average unit costs4 ,inasmuch as this work is likely to be fully reviewed in the ,courts in the near future1 any further description would hardly be proper4 ,it is not too much to say1 however1 that it probably stands as the most complete in every detail1 as to inventory and records1 of all ,american appraisals up to this date4 ,during the summer of #aiaj the ,railway ,commission of ,michigan ordered an appraisal of certain large electric-power properties of the ,state4 ,this work was done by ,professor ,mortimer ,e4 ,cooley1 assisted by ,mr4 ,henry ,c4 ,anderson and the writer4 ,this appraisal1 involving certain comparatively new corporations1 made it possible to obtain a fairly definite solution of some of the problems relative to overhead charges4 ,it is evident that the demand for valuation work of a high character will increase1 and that it will come1 not only from ,states and cities1 but from corporations4 ,much of the work done in the past has not been described in the publications of scientific societies2 much very valuable work has secured only partial notice through reports of litigation2 and it is undoubtedly true that the most complete and full discussions of the principles of valuation have been in the form of expert evidence before the ,courts1 and are buried in the mass of unprinted records of testimony4 ,,review ,,of ,,some ,,methods ,,of ,,valuation1 ,,and ,,some ,,of ,,the ,,criticisms ,,on ,,the ,,michigan ,,appraisal4 ,much of the available literature on the subject of valuations is in the form of papers descriptive of water-works appraisals and arbitrations1 many of which have been made1 and a few of which have been the subject of valuable papers and discussions before learned societies4 ,before the ,american ,water-,works ,association1 ,d4 ,w4 ,mead and ,j4 ,w4 ,alvord1 ,members1 ,am4 ,soc4 ,c4 ,e41 have presented papers#ab which have been quite fully discussed4 ,the chief point of interest in these papers is the treatment of the intangible element termed going value4 ,mr4 ,alvord advances the argument that1 after the determination of physical present value1 there should be added1 to determine the fair value1 two non-physical elements3 the going or business value1 and the franchise value4 ,the first element is defined as that special value which is3 ,built up 444 by the energy1 perseverance and solicitation of the officers in charge1 as distinct from the inert plant itself1 444 99 99 99 99 99 ,the element of 'going value' has been before described as the element of growth in the plant irrespective of its physical condition4 ,it is comparable somewhat to that indefinable quality known in other lines of business as ',good ,will'4 ,nevertheless it is something more than good will in water works business1 as it represents what might be more aptly described as 'connected good will'1 that is to say1 the acquisition of customers who have invested considerable sums in actually connecting their premises with the plant of the company1 and provided appliances for the use of the water which it can deliver4 ,the method advocated by ,mr4 ,alvord as the most rational one for computing this value is described as follows3 ,it is assumed that a new plant will be constructed1 the inception of which is coincident with the data of arbitration4 ,such new plant is to be of an equal capacity with the older plant under consideration1 and a due allowance of time in which to construct this new plant1 and the necessary capital to be invested in it from time to time is estimated4 ,at the completion of this new imaginary plant1 it is assumed that it commences to obtain business in that community from those who are not previously accustomed to the free use of public water1 except in a general way2 that it is to require the business ability and consequent increase in number of customers which the earlier and older plant went through within the early years of its existence4 ,an assumption of the amount of business thus created for each year for a period of years in advance is carefully computed and estimated by the board of arbitration4 ,the losses of interest upon capital invested are duly fixed1 as well as the first absence and later addition of revenue from hydrant rentals1 and a table is prepared showing each year1 the total business developed and the total losses1 if any4 ,after this is completed a forecast is made of the business of the older works for the same period of time in the future that it takes the business of the new works to equal the business of the old works4 ,if the business of the old works is found to be a growing one it will be a longer period that the new works will require to overtake it than will be the case if the business of the older works is stationary or decreasing4 ,in general1 the differences which might be called the debits and credits of this new imaginary plant and the debits and credits of the older working plant are reduced to their present worth at the time of appraisement1 and an estimate is made up which will adequately represent the financial advantage which the old works 7already fully equipped and in running order and having a large number of profitable customers7 will have over the new works1 where everything must be built and customers secured4 ,it is necessary in making this supposititious estimate of the new plant to consider it in no way a competitor of the older works2 there is not supposed to be competition between the new and the old1 but it is left to the experience of the board of arbitration to consider how long it would take the new company to build new works1 and build up business for the new works1 until they have overtaken the business of the old company should it continue to occupy the same territory4 ,mr4 ,alvord's description of his method has been quoted fully1 as it is an interesting one and has been often used4 ,it is open to the very decided objection that it is purely theoretical1 a rational method of computation1 perhaps1 but based on assumption throughout4 ,it may be said to be a method which is within the field of pure speculation4 ,mr4 ,alvord1 himself1 says that where experience in financial matters and the financial management of water-works is not brought into the valuation1 there is usually to be found guesses of the wildest character4 ,professor ,mead1 in discussing ,mr4 ,alvord's method and agreeing that it is consistent and logical1 says3 ,the method is by no means an exact one1 and must necessarily lead to a very great divergence in opinions as to the 'going value1' in accordance with the assumptions on which it is based4444 ,its very logic is an element of danger1 for if clearly presented from a biased standpoint to one previously unacquainted with its application1 and if accepted without careful analyses it may lead to very unjust conclusions4 ,if used1 however1 carefully and conscientiously with the desire to do justice to all concerned1 it is a valuable method of estimating going value1 and the only logical one with which the speaker is familiar4 ,in addition to the element of going or business value1 ,mr4 ,alvord considers the franchise value1 and presents two methods for its determination3 ,first4--,the physical value1 depreciation1 and going value are entirely neglected1 and the entire valuation is fixed on the basis of its earning power throughout the remaining life of the franchise and its probable sale value4 ,the probable net revenue for each year of franchise life must be estimated and capitalized at a sum1 which1 if put at interest1 would pay such yearly revenue and extinguish itself at the end of the franchise period4 ,to this must be added the physical value of the plant at the end of the franchise period4 ,second4--,the cost of reproduction1 depreciation1 and present physical value are ascertained1 and the going value computed4 ,then it is determined whether or not the net revenue is paying interest on a capitalized value greater than that indicated by the sum of the physical and business values4 ,if such capitalized figure is less than this combined value1 there is1 of course1 no franchise value2 if it is more1 there is a franchise value which should be determined by estimating1 for the remaining years of the franchise1 the excess income over and above that necessary to cancel all obligations 7including interest on the physical and business values71 and the reduction of these several sums to a basis of present worth4 ,a number of other articles and papers are listed in the ,appendix4 ,many of these are of great value and are well worth careful perusal1 but they offer no definite plan of valuation4 ,inasmuch as the general principles involved in the valuation of a water-works plant and a railroad plant are similar1 it is advisable1 in any exhaustive study of the subject1 to review the articles descriptive of water-works valuation1 and it is a matter of regret that greater consideration cannot be here given to some of the points raised by such engineers as ,george ,h4 ,benzenberg1 ,past-,president1 ,am4 ,soc4 ,c4 ,e41 ,kenneth ,allen1 ,arthur ,l4 ,adams1 ,emil ,kuichling1 ,members1 ,am4 ,soc4 ,c4 ,e41 and others in their various papers and discussions of this subject4 ,the ,railway ,age1 the ,railroad ,gazette1 the ,railroad ,age ,gazette1 and the ,railway ,age ,gazette contain many editorials and articles on the valuation of railroad properties4 ,these are written mainly from the standpoint of the railway official1 and present many matters of interest which are worthy of study prior to undertaking a large appraisal4 ,one series of articles in the ,railway ,age ,gazette#ac is a most masterly argument1 and it is to be regretted that the author has not disclosed his identity4 ,the ,michigan valuation has been discussed in two papers by ,mr4 ,charles ,hansel1 whose connection with the work1 as a member of the ,board of ,review1 gave him probably a more intimate knowledge of it than any one else1 not connected with the actual working organization1 who has undertaken to review the work4 ,his first paper1 published in #aija1ad entitled1 ,what is the ,value of a ,railroad for ,purposes of ,taxation8 is a discussion of the work of ,professors ,cooley and ,adams1 written while the subject was fresh in his mind4 ,his second paper1 an able argument for a ,government valuation1 appeared in the ,north ,american ,review in #aijg4 ,the one point to which special attention is drawn is ,mr4 ,hansel's astonishing misconception of ,professor ,adams' plan of work4 ,this misleading statement appears in the first paper and is reiterated in the second4 ,it is of such a character that to pass it unchallenged would be doing great injustice to ,professor ,adams4 ,he states ,professor ,adams' plan as follows3 ,capitalize net earnings and add to the present value of the physical appraisal as found by ,professor ,cooley4 ,the result would be that in case the present value per mile as determined by ,professor ,cooley is found to be #ae1jjj1 and the net earnings by ,professor ,adams are found to be #a1jjj1 this capitalized at #e per cent4 would equal #bj1jjj1 and added to the present value would make #ce1jjj1 which would be the sum upon which taxes were to be levied4 ,in other words1 if the company actually earns #a1jjj it increases its value for purposes of taxation #bj times that amount4 ,if1 however1 instead of having a net earning of #a1jjj it spends that sum in improving the property1 it has only increased its taxable property by #a1jjj4 ,this statement is not only inaccurate1 but involves the other error of assuming that the appraisal figure was to be used for taxation4 ,it was not4 ,it was merely information to aid the legislature in framing new taxation laws4 ,the chief error1 however1 is in assuming that ,professor ,adams added the value of the property1 as determined by a capitalization of net earnings 7which per se is a well-recognized method of valuation71 to the value of the physical property4 ,this error probably is due to the flood of criticism which at the time was aimed at any form of non-physical valuation4 ,professor ,adams finds the net earning in ,mr4 ,hansel's example to be #a1jjj per mile4 ,from this1 in the method actually used1 he deducts an annuity for the support of invested capital1 which he assumes to be the present value found by ,professor ,cooley4 ,in the example given by ,mr4 ,hansel he would deduct #d on #ae1jjj1 or #fjj per mile1 leaving #djj per mile as surplus1 or the earnings due to non-physical elements of value4 ,this1 capitalized at #e1 would give #h1jjj per mile1 which1 added to ,professor ,cooley's figure of ,present ,value1 would make #bc1jjj per mile1 instead of #ce1jjj1 as stated by ,mr4 ,hansel4 ,the most recent criticism of the ,michigan valuation work was in an address#ae before the ,new ,york ,traffic ,club in ,january1 #aiji1 by ,mr4 ,w4 ,h4 ,williams1 ,third ,vice-,president of the ,delaware and ,hudson ,company4 ,this address is devoted to an attack1 not only on the work of the ,michigan appraisal1 but on ,professor ,adams' work and on the propriety of valuation work being undertaken for any reason4 ,the arguments advanced in this address are such that a discussion of them becomes almost necessary in any complete review of the ,michigan work1 and it contains so many statements which are erroneous that it would hardly be permissible to pass them without comment4 ,the manifest impatience with all forms of governmental interference with corporations1 which so often characterizes the utterances of prominent railway officials1 appears in this paper to a marked degree4 ,after stating that the present agitation for a physical valuation appears to be the result of a misconception1 on the part of the ,interstate ,commerce ,commission1 of ,section #bj of the ,act to ,regulate ,commerce1 and quoting ,professor ,adams' suggestion of an inquiry1 he says3 ,subsequently1 the desire of ,governor ,pingree to find a means of increasing railway taxation in ,michigan gave ,professor ,adams an opportunity to experiment with his project within the limits of that ,state4 ,this is a direct imputation of an improper motive1 not only to ,governor ,pingree1 but to ,professor ,adams4 ,as stated elsewhere1 the investigation was to determine whether the railroads were paying taxes on the same basis of valuation as other property in the ,state--an absolutely proper proceeding4 ,professor ,adams was associated with the ,michigan appraisal1 but had no connection whatever with the physical valuation1 to which such objection is taken1 and his appointment was made after the work of physical valuation had been fully outlined and was well under way4 ,the opening statement is followed by a brief rsum of the recommendations of the ,interstate ,commerce ,commission and ,president ,roosevelt1 and of bills introduced in ,congress1 also by quotations from ,bulletin #ba1 describing the methods of valuation used in ,michigan and a showing that practically a similar basis was used in other ,states4 ,mr4 ,williams then summarizes his objections to the ,michigan work3 7#a7 ,no allowance is made for discount on securities sold4 ,discount is a partial capitalization of the commercial risk had in making the investment1 and it increases or decreases in proportion to the probability of the earning power of money under existing conditions4 ,not only is this practice justified by long-established commercial usage1 but also by judicial determination4 ,the correctness of this position cannot be conceded on any grounds of economics or accountancy4 ,it is answered conclusively in an article1#af elsewhere referred to1 as follows3 ,there is considerable diversity of opinion as regards the proper treatment of discount on securities sold4 ,there is a distinction between bonds1 representing corporate indebtedness and having a definite limitation as to the time of their redemption1 and share capital1 representing ownership and which as a rule is irredeemable4 ,in relation to the former there can be but one tenable view4 ,if a company can market its #ej-year #d per cent4 bonds at #ij per cent4 of par1 it means that the company's credit is on a #d per cent4 basis2 that it could market a like security paying #d per cent4 at par4 ,if it elects to issue at the lower rate it is merely sacrificing principal for the sake of a reduction in the annual interest charge2 in other words1 it is pre-paying interest which would accrue during the life of the issue4 ,if #aj1jjj1jjj par value were issued at #ij per cent41 the discount would amount to #a1jjj1jjj1 and the saving in interest to #ej1jjj per year1 or #b1ejj1jjj in #ej years4 ,obviously the company cannot claim the privilege of capitalizing the discount1 while thereby availing itself of the reduction in interest4 ,if such a course were legitimate in the case of a #e or #aj per cent4 discount1 it would be equally so if the discount were #ej or #ge per cent41 when the absurdity of the proposition would be perfectly apparent4 ,the somewhat general practice of prorating the discount1 as a charge against revenues1 over the term of the obligation's existence is sound2 but this should be done1 not in equal installments1 but on the basis of the appreciated value of the bond as it approaches par at maturity4 ,there is no apparent objection to charging discount of this nature in a lump sum against an accumulated surplus4 ,the capitalization of discount on stocks1 involving as it does the introduction of fictitious values in capital assets1 is wholly indefensible4 ,the writer has failed to note any particular judicial determination which approves of the charge of any such item to capital account4 7#b7 ,the interest during construction 7#c per cent47 is less than a fair and reasonable return on the investment4 ,the amount actually paid out for interest on money used during the period of construction will vary1 of course1 depending on the time of construction and the way in which payments on construction materials are made4 ,on the basis of a rate of #f per annum and construction lasting one year1 only a very small portion of the construction cost will pay #f1 while the great items of rails1 buildings1 motive power1 and equipment will be put into the work from #ij days to #aj months after the commencement of work1 and will actually bear but little interest4 ,in the ,michigan appraisal the assumption was made that all work must be replaced in one year1 and that on long roads partial operation would commence as various sections of the line were completed2 and #c was agreed on as a fair average1 perhaps having in mind ,governor ,pingree's desire to increase railway taxation4 ,some assumption must be made4 ,this one1 that long roads1 covering several years of construction work1 are in ,michigan put in partial operation as soon as built1 is not unreasonable4 ,such an assumption clearly would not be proper in the case of long lines crossing mountains1 or involving such a class of construction as to make it impossible to complete the property short of two or three years2 and1 in any such cases1 the interest charge should be made sufficient to cover4 7#c7 ,no allowance is made for working capital with which to carry on the business4 ,all the appraisals of physical property have been made on the basis of securing a figure representing the cost of reconstructing the property in the condition in which it existed on the date of the appraisal1 including only items properly chargeable to capital1 cost of road1 and equipment4 ,this is not such an item4 ,the writer is of the opinion1 however1 that it is a proper one to determine and include in any report4 7#d7 ,no allowance is made for wear and tear of material during the period of construction4 ,assuming eight years to be the life of a tie1 and three years the period of construction1 a substantial percentage of the period of usefulness is over before the road is in operation4 ,the use of the rails before the track is put in proper line and surface hastens the time when they must be removed4 ,this deterioration is a necessary incident to any construction work4 ,it has not been customary or usual to take account of it4 ,to add to the amount capitalized on account of this item would be manifestly improper4 ,the only way in which this could be cared for would be in an adjustment of the depreciation reserve when raised to cover that which takes place during the construction period4 ,this reserve1 later in the address1 is objected to by ,mr4 ,williams as improper accounting3 7#e7 ,no allowance has been made for impact and adaptation4 ,after the line is placed in operation1 each fill will sink #a ft4 for every #aj ft4 of height4 ,the slope of cuts must be increased to prevent landslides and washouts4 ,the ballast will pound into the roadbed1 necessitating additional ballast to secure a standard cross-section4 ,part of this objection is covered by the item1 ,appreciation of ,roadbed1 discussed elsewhere4 ,this1 perhaps1 is a proper item1 but a comparatively small one4 ,one of the examples cited is clearly maintenance4 ,this objection is largely covered in the ,michigan work by the contingency item4 7#f7 ,a uniform price for earthwork was used1 thus ignoring the varying character of soil and length of haul4 ,this is erroneous4 ,on the ,michigan appraisal prices were used for earth1 loose rock1 and solid rock4 ,there is practically no classification in the ,southern ,peninsula of ,michigan1 or1 in fact1 on #ij of the mileage of the ,state4 ,the price used was not much out of the way when considered as a fair average for the territory4 ,the same was apparently true of other appraisals4 ,it would not be a proper figure to use in an estimate based on #aiji prices1 which are materially greater than those obtaining in #ahij-aijj4 7#g7 ,a uniform price list for all materials was used1 thus ignoring the source of supply and cost of delivery to point of use4 ,this1 again1 is not true4 ,differences were made between the ,upper and ,lower ,peninsulas2 and an exhaustive study was made of rates to different sections4 ,it is believed that the prices adopted took all these points fully into consideration4 ,it is true that no effort was made to use different unit prices as between counties1 but1 in a number of cases1 differences in prices were made for different sections of the ,state1 where either local conditions as to production of materials1 or traffic rates1 seemed to warrant4 7#h7 ,no allowance was made for interference with work on account of labor troubles1 condition of the weather1 etc41 which would vary materially in the different counties of the same state4 ,true4 ,nor is such allowance ever made in actual construction1 beyond the contingency item4 ,such items are a frequent source of annoyance1 delay1 and sometimes of expense1 but an expense difficult to separate and set up1 and clearly belonging to contingencies4 7#i7 ,no allowance is made for carrying charges until such time as the road was placed on a revenue basis4 ,true2 and such item is not a part of a physical appraisal4 ,the foregoing nine points are classed as among other things open to criticism4 ,the next two quoted paragraphs are introduced to indicate the other things as they appear4 ,these are mainly non-physical or intangible elements of value1 which1 under the method of ,professor ,adams1 are treated en bloc1 and which1 from their nature1 it would be impossible to set out and value separately2 therefore1 no effort is made to answer them point by point1 further than to say in general that1 if there is any value attaching to these items1 it was presumed to have been disclosed by the method of ,professor ,adams1 and to suggest further that had ,professors ,cooley and ,adams had such an advocate of intangible values ten years ago1 their labors would have been lightened1 as all arguments by railway officials at that time were against the use of any such elements of value in an appraisal4 ,no consideration has been given to the leasehold interests4444 ,therefore it will be seen there remains to be determined many questions vitally affecting the value of the property without regard to its value as a 'going concern4' ,there should be no difference in the basis of arriving at the value1 as a 'going concern1' of the property of a railway and any industrial establishment1 nor should there be any difference in the basis of valuation for taxation exactly what ,governor ,pingree maintained or other purposes4 ,there is common to both the value due to location1 good will1 etc4 ,while the remainder of the address in question contains no specific criticisms of methods of valuation1 it does go into a discussion of sundry legal decisions2 and conclusions are drawn quite at variance with those set forth elsewhere in this paper4 ,the thing most noticeable in the entire address is the lack of a proper spirit of fairness1 an apparent inability to state fully and fairly the position of the men whose views are being opposed1 and an undue emphasis in quoting some public official whose views coincide for the time being with the theories which are being advocated4 ,the fact that ,mr4 ,williams quotes from an address of ,hon4 ,robert ,h4 ,shields1 ,president of the ,michigan ,tax ,commission1 a statement criticising the work of ,professors ,cooley and ,adams1 illustrates the latter point4 ,the statement is made again and again that the ,michigan work was a physical valuation2 that no attempt was made to secure a fair value 7the language of the ,courts71 and that the value as a going concern was not attempted to be given4 ,in no case is the statement made that ,professor ,cooley had charge of the physical valuation in ,michigan1 and that ,professor ,adams took this physical valuation1 and1 under his method1 treated it as one element1 and with it and other data derived from a study of the reports and earnings of the company1 undertook to determine a non-physical1 intangible1 franchise1 or going concern value1 which included all tangible elements1 and which1 added to the physical value1 was assumed by ,professor ,adams to give the true value4 ,had such a statement been fairly made1 no possible objection could be raised to the making of any number of points against the correctness of the methods used by ,professor ,adams4 ,certainly it cannot be denied that a road between ,new ,york and ,chicago1 #iej miles in length1 passing through a manufacturing district1 is of greater value than a road #a1bjj miles in length1 between the same cities1 but passing through a hilly and undeveloped territory a portion of the distance1 and through a farming section for a greater portion of the remaining distance2 yet the advocates of a physical valuation would have us believe that there is no difference in the value of the two if they can be reproduced to-day at the same cost4 ,this statement is entirely unfair to every man who has been in responsible charge of valuation work in recent years in the ,united ,states4 ,no theory has ever been favored by any honest-thinking advocate of a valuation4 ,in the first place1 no interstate valuations have ever been made1 and no parallel case to the one assumed is to be found1 except for very short sections of roads1 a very marked instance having been referred to elsewhere in this paper4 ,such a condition as assumed would be reflected in the earnings of the companies to such an extent as to cause the non-physical element of ,professor ,adams as used in ,michigan to correct largely or wholly the inequality and inaccuracy of the physical valuation2 such at least was the theory1 and1 if carried to its logical end by the use of negative non-physical values1 such would be the result4 ,the final arguments of ,mr4 ,williams' address are devoted to an attack on the plan outlined by the ,interstate ,commerce ,commission for valuation1 and on some of the accounting methods of the ,commission--points not proper to be discussed in this paper--but it is difficult indeed to read them without noting the apparently studied misrepresentation of the real attitude of ,professor ,adams and the ,commission1 and the evident object of the entire address to create a wrong impression regarding what has been done1 and a prejudice against the men who have been engaged on ,state appraisal work and those who advocate the appraisal of properties as a proper step in the way of securing such information as will enable an intelligent consideration of the great corporation problems that must be solved4 ----- ,footnote #ab3 ,proceedings1 ,am4 ,water-,works ,assoc41 #aijb4 ,footnote #ac3 ,commencing with the issue of ,january #bb;d1 #aiji4 ,footnote #ad3 ,the ,railroad ,gazette1 ,april #aith1 #aija1 ,vol4 ,,xxxiii4 ,no4 #af4 p4 #bga4 ,footnote #ae3 ,railroad ,age ,gazette1 ,april #b;d1 #aiji1 p4 #gfa4 ,footnote #af3 ,railroad ,age ,gazette1 ,january #bith1 #aiji1 p4 #bai4 ,,the ,,determination ,,of ,,elements ,,of ,,value ,,and ,,methods ,,of ,,valuation ,,by ,,the ,,courts4 ,the preceding narrative of methods of appraisal work logically leads up to the question3 ,will these methods that have been adopted in various appraisal undertakings stand the test of the ,courts8 ,after all1 the final seal of approval must be stamped on a method by the highest ,courts before it can be said to be a definitely fixed and determined principle for general use in valuation4 ,in a careful perusal of many papers on this subject1 quotations from judicial decisions will be noted which are literally correct as far as they go1 but which are incomplete and often very misleading2 and often such incomplete quotations are presented as to convey an entirely wrong impression of the full decision4 ,in order that no such charge may lie against this paper1 the quotations given are full enough to indicate clearly the intent of the ,court1 even at the expense of undue length4 ,an examination of all ,federal and ,supreme ,court cases which bear on the subject of property valuation has been made1 and quotations at length from some of the older cases1 establishing precedent1 together with citations to more recent decisions1 are submitted4 ,it is believed that the points of principle and method1 in so far as they have been determined by the highest ,courts1 are quite fully set forth4 ,a study of the complete methods of the railroad valuation in ,michigan1 in connection with these decisions1 discloses the fact that they comply with the requirements of the earlier cases1 that all matters affecting value be taken into consideration1 and that in the more recent decisions the detailed methods adopted in the ,cooley physical appraisal have been sustained as to very many points4 ,in no case have any of such methods been unfavorably criticized1 and1 while at this date the ,supreme ,court has not squarely passed on the propriety of any method for securing non-physical or intangible values1 it has fully sustained the general position of ,professor ,adams in several important points4 ,in addition to the complete examination of ,federal cases1 certain very interesting and valuable ,state cases have been examined1 and some of them are quoted4 ,these cases involve both matters of taxation and rate-making4 ,they cover railroads1 water-works1 gas-works1 and other classes of public service corporations1 and clearly demonstrate the fact that any analysis of the subject of property valuations must include all classes of corporations4 ,rate-making and taxation in themselves are entirely separate and distinct from valuation1 which is a necessary preliminary step in either undertaking4 ,for this reason all references which are not of special interest in the valuation part of the problem are omitted4 ,the case of ,smyth vs4 ,ames 7#afi ,u4 ,s41 #dff7 was an action to question the constitutionality of a statute of ,nebraska establishing rates4 ,it is of great interest1 and1 based on the ruling of the ,court in this case1 the appraiser in ,washington and the appraisers in ,nebraska have undertaken to secure first cost as an element of value4 ,the decision holds that3 7#a7 ,a railroad corporation is a person within the meaning of the fourteenth amendment4 7#b7 ,a ,state enactment establishing rates that will not admit the carrier to earn such compensation as would be just to it and to the public1 would deprive such carrier of its property and would be repugnant to the fourteenth amendment4 7#c7 ,rates established by a ,state cannot be so conclusively determined by the legislature that they cannot become the subject of judicial inquiry4 ,the reasonableness of rates prescribed by a ,state for intra-state business must be determined without reference to the interstate business done by the carrier or the profits derived from that business4 ,this paper is not concerned with the question of rates1 which is discussed at length in this decision4 ,it is1 however1 of special interest to note what the ,court says in regard to the relation of the corporations to the people1 and to elements of value4 ,a railroad is a public highway1 and none the less so because constructed and maintained through the agency of a corporation deriving its existence and powers from the ,state4 ,such a corporation was created for public purposes4 ,it performs a function of the ,state4 ,its authority to exercise the right of eminent domain and to charge tolls was given primarily for the benefit of the public4 ,it is under governmental control1 though such control must be exercised with due regard to the constitutional guaranties for the protection of its property4444 ,it cannot therefore be admitted that a railroad corporation maintaining a highway under the authority of the ,state may fix its rates with a view solely to its own interests and ignore the rights of the public4 ,but the rights of the public would be ignored if rates for the transportation of persons or property on a railroad are exacted without reference to the fair value of the property used for the public1 or the fair value of the services rendered1 but in order simply that the corporation may meet operating expenses1 pay the interest on its obligations1 and declare a dividend to stockholders4 ,if a railroad corporation has bonded its property for an amount that exceeds its fair value1 or if its capitalization is largely fictitious1 it may not impose upon the public the burden of such increased rates as may be required for the purpose of realizing profits upon such excessive valuation or fictitious capitalization1 and the apparent value of the property and franchises used by a corporation1 as represented by its stocks1 bonds1 and obligations1 is not alone to be considered when determining the rates that may reasonably be charged4 7,the ,court here quotes #afd ,u4 ,s41 #egh1 ,covington and ,lexington ,turnpike vs4 ,sanford47 ,a corporation maintaining a public highway1 although it owns the property it employs for accomplishing public objects1 must be held to have accepted its rights1 privileges1 and franchises subject to the condition that the government creating it1 or the government within whose limits it conducts its business1 may by legislation protect the people against unreasonable charges for the services rendered by it4 ,it cannot be assumed that any railroad corporation1 accepting franchises1 rights1 and privileges at the hands of the public1 ever supposed that it acquired1 or that it was intended to grant to it1 the power to construct and maintain a public highway simply for its benefit1 without regard to the rights of the public4 ,but it is equally true that the corporation performing such public services1 and the people interested in its financial affairs have rights that may not be invaded by legislative enactment in disregard of the fundamental guaranty for the protection of property4 ,the corporation may not be required to use its property for the benefit of the public without receiving just compensation for the services rendered by it4 ,how such compensation may be ascertained1 and what are the necessary elements in such inquiry1 will always be an embarrassing question4 ,we hold1 however1 that the basis of all calculations as to the reasonableness of rates to be charged by a corporation maintaining a highway under legislative sanction must be the fair value of the property being used by it for the convenience of the public4 ,and in order to ascertain that value the original cost of construction1 the amount expended in permanent improvements1 the amount and market value of its bonds and stocks1 the present as compared with the original cost of construction1 the probable earning capacity of the property under particular rates established by the statute1 the sum required to meet operating expenses1 are all matters for consideration1 and are to be given such weight as may be just and right in each case4 ,we do not say that there may not be other matters to be regarded in estimating the value of the property4 ,what the company is entitled to ask is a fair return upon the value of that which it employs for the public convenience4 ,on the other hand1 what the public is entitled to demand is that no more be exacted from it for the use of a public highway than the services rendered by it are reasonably worth4 ,the body of this decision is quoted at length to show3 ,first4 ,that the ,court reiterates the relation of the people to the corporation1 as defined by ,covington and ,lexington ,turnpike ,road vs4 ,sanford 7#afd ,u4 ,s41 #egh7 and by ,stone vs4 ,farmers' ,loan and ,trust ,company 7#aaf ,u4 ,s41 #cjg74 ,second4 ,that the basis for computing a fair rate is the fair value of the property1 which must be arrived at by a computation or series of computations taking into account many different factors4 ,third4 ,that while the ,court mentions certain things that may serve as indices of value1 which are to be taken into account and given due weight1 the ,court does not outline or define any method of arriving at a value1 but does recognize it as an embarrassing question4 ,fourth4 ,that no such stress has been laid by the ,court on original cost as has been construed by some appraisers4 ,the principles enunciated in ,smyth vs4 ,ames are reiterated by the ,court in ,san ,diego ,land ,company vs4 ,national ,city 7#agd ,u4 ,s41 #gci71 with the further ruling3 ,the contention of the appellant in the present case is that1 in ascertaining what are just rates1 the ,court should take into consideration the cost of its plant2 the cost per annum of operating the plant1 including interest paid on money borrowed and reasonably necessary to be used in constructing the same2 the annual depreciation of the plant from natural causes resulting from its use2 and a fair profit to the ,company over and above such charges for its services in supplying the water to consumers1 either by way of interest on the money it has expended for the public use1 or upon some other fair and equitable basis4 ,undoubtedly1 all these matters ought to be taken into consideration and such weight given them1 when rates are being fixed1 as under all the circumstances will be just to the company and to the public4 ,the basis of calculation suggested by the appellant is1 however1 defective in not requiring the real value of the property and the fair value in themselves of the services rendered to be taken into consideration4 ,what the company is entitled to demand1 in order that it may have just compensation1 is a fair return upon the reasonable value of the property at the time it is being used for the public4 ,the property may have cost more than it ought to have cost1 and its outstanding bonds for money borrowed1 and which went into the plant1 may be in excess of the real value of the property4 ,so that it cannot be said that the amount of such bonds should in every case control the question of rates1 although it may be an element in the inquiry as to what is1 all the circumstances considered1 just to both the company and the public4 ,in the case of ,columbus ,southern ,railway vs4 ,wright 7#aea ,u4 ,s41 #dgi71 the ,court quotes approvingly from ,franklin ,company vs4 ,railroad 7#ab ,lea 7,tenn471 #eba-ecg-ech-eci71 and shows that the doctrine quoted had already been enunciated by the ,supreme ,court in the ,state ,railroad ,tax ,cases 7#ib ,u4 ,s41 #ege-fjg74 ,the ,court quotes as follows3 ,the property of a railroad company for purposes of taxation consists of its realty1 its local personalty1 its rolling stock1 its choses in action1 and its franchises4 ,the franchise is a privilege conferred by the charter of incorporation1 namely the right to exercise all the powers granted in the mode prescribed for the purpose of profit4 ,it is a unit not confined to any one county in which it may be exercised4 99 99 99 99 99 ,obviously1 after ascertaining the value of the entire franchise in the ,state as a unit1 no more approximate or just division of this value can be made for purposes of taxation than to allot it among the counties through which the track runs in proportion of the entire length of track in the county to the entire length of track in the ,state4444 ,the roadway itself of a railroad depends for its value upon the traffic of the company and not merely upon the narrow strip of land appropriated for the use of the road1 and the bars and cross-ties thereon4 ,the value of a roadway at any given time is not the original cost1 nor1 a fortiori1 its ultimate cost after years of expenditure in repairs and improvements4 ,on the other hand1 its value cannot be determined by ascertaining the value of the land included in the roadway assessed at the market price of adjacent lands1 and adding the value of the cross-ties1 rails1 and spikes4 ,the value of land depends largely upon the use to which it is put and the character of the improvements upon it4 ,the mileage basis of apportionment is sustained in the following and other cases3 ,state ,railroad ,tax ,cases #ib ,u4 ,s41 #fjh ,delaware ,railroad ,tax ,case #ah ,wall41 #bjf ,erie ,railway vs4 ,pennsylvania #ba ,wall41 #dib ,western ,union ,telegraph ,company vs4 ,mass #abe ,u4 ,s41 #ecj ,pullman ,palace ,car ,company vs4 ,pennsylvania #ada ,u4 ,s41 #ah ,maine vs4 ,grand ,trunk ,railway #adb ,u4 ,s41 #bag ,pittsburg1 ,cincinnati1 ,chicago1 and ,st4 ,louis ,railway #aed ,u4 ,s41 #dcj vs4 ,backus ,therefore this basis of division of values between territorial units appears to be well established by precedent4 ,this is in a measure unfortunate1 as certain classes of property cannot be apportioned equitably in this way1 unless the value of a railroad be determined1 and then that value allocated between different territorial units in proportion to mileage1 without any regard to the location of any structure or series of structures in any ,state or county1 the track-mileage basis must be looked upon as a method of apportionment which is subject to modification or which will lead to error4 ,in an ,indiana tax case1 ,cleveland1 ,cincinnati1 ,chicago1 and ,st4 ,louis ,railway vs4 ,backus 7#aed ,u4 ,s41 #ddd71 the late ,justice ,brewer1 of the ,supreme ,court1 in handing down the judgment1 said3 ,the true value of a line of railroad is something more than an aggregation of the values of the separate parts of it1 operated separately4 ,it is the aggregate of those values plus that arising from a connected operation of the whole1 and each part of the road contributes not merely the value arising from its independent operation1 but its mileage proportion of that flowing from a continuous and connected operation of the whole4444 ,the value of property results from the use to which it is put1 and varies with the profitableness of that use1 past1 present and prospective1 actual and anticipated4 ,there is no pecuniary value outside that which results from such use4444 ,in the nature of things it is practically impossible1 at least in respect to railroad property1 to divide its value and determine how much is caused by one use to which it is put and how much by another4 ,take the case before us1 it is impossible to disintegrate the value of that portion of the road within the ,state of ,indiana and determine how much of that value springs from its use in doing interstate business and how much from its use in doing business wholly within the ,state4 ,an attempt to do so would be entering upon a mere field of uncertainty and speculation4 ,in the ,michigan cases1 the principal one being ,michigan ,central ,railroad vs4 ,powers 7#bja ,u4 ,s41 #bde71 the question of method of valuation was not passed on by the ,courts for the reason that1 after the evidence was in1 and during the argument1 counsel for the railroad admitted that the ,cooley valuation was as correct a figure as it was possible to secure under then existing conditions1 methods and rates of taxation being the issue4 ,it is thus seen that the ,supreme ,court of the ,united ,states was not1 in any of the earlier cases1 required to pass squarely on the propriety of any method of arriving at a fair value1 and consequently had not1 prior to #aiji1 defined any hard-and-fast rules of procedure in determining such value4 ,the ,circuit ,courts have passed on kindred questions in a few cases1 among which ,san ,diego ,land and ,town ,company vs4 ,national ,city 7#gd ,fed41 #hc71 and ,san ,diego ,land and ,town ,company vs4 ,jasper 7#aaj ,fed41 #gad7 hold as above1 and cite most of the cases referred to4 ,in the latter case the ,court says3 ,the actual value of such property obviously depends upon a variety of considerations--among them the actual and prospective number of consumers--and is no more unchangeable than the value of any other kind of property4 ,as an illustration1 there is cited the effect of a year's drouth on an irrigation plant as temporarily affecting the value of property4 ,in the case of ,cotting vs4 ,kansas ,city ,stock ,yards 7#hb ,fed41 #hci7 the ,circuit ,court touches on one very interesting argument1 in the light of some of the methods of valuation advocated by railway managers and some of the criticisms of recent valuation work4 ,different methods of estimating the value of property may properly be employed when it is valued for different purposes4 ,when a valuation is placed on property which has become affected by a public use1 for the purpose of ascertaining whether the maximum rate of compensation fixed by law for its use is reasonable or otherwise1 it is obvious that the income derived therefrom by the owner before it was subjected to legislative control cannot always be accepted as a proper test of value because the compensation which the owner charged for its use may have been excessive and unreasonable4 ,again1 when property has been capitalized by issuing stock1 neither the market value nor the par value of the stock can be accepted in all cases as a proper criterion of value1 because the stock may not represent the money actually invested1 and furthermore because the property may have been capitalized mainly with reference to its income producing capacity1 on the assumption that it is ordinary private property which the owner may use as he thinks proper without being subject to legislative control4 ,on the other hand1 however1 when property is valued for the purpose last stated1 it is clear that the owner thereof is entitled to the benefit of any appreciation in value above the original cost and the cost of improvements1 which is due to what may be termed natural causes4 ,if improvements made in the vicinity of the property1 the growth of city or town where it is located1 the building of railroads1 the development of the surrounding country and other like causes1 give property an increased value1 the owner cannot be deprived of such income by legislative action which prevents him from realizing an income commensurate with the enhanced value of his property4 ,the language of the late ,judge ,brewer1 sitting as one of the circuit judges in the case of ,national ,water-,works ,company vs4 ,kansas ,city 7#fb ,fed41 #hec71 is definite as to the necessity of taking into account some elements of intangible value1 and is here quoted as giving the views of this eminent jurist3 ,the difficult question1 however1 still remains2 and that is1 what is the 'fair and equitable value1' which by the statute and ordinance the city is to pay for the water-works8 99 99 99 ,we are not satisfied that either method1 by itself1 will show that which under all the circumstances can be adjudged the 'fair and equitable value4' ,capitalization of earnings will not1 because that implies continuance of earnings1 and a continuance of earnings rests upon a franchise to operate the water-works4 ,the original cost of construction cannot control1 for original cost and present value are not equivalent terms4 ,nor would the mere cost of reproducing the water-works plant be a fair test1 because that does not take into account the value which flows from the established connections between the pipes and buildings of the city4 99 99 99 ,a complete system of water-works1 such as the company has1 without a single connection between the pipes in the streets and the buildings of the city would be a property of much less value than the system connected as it is with so many buildings and earning1 in consequence thereof1 the money which it does earn4 ,the fact that it is a system in operation1 not only with a capacity to supply the city but actually supplying many buildings1 in the city--not only with a capacity to earn but actually earning--make it true that the 'fair and equitable value' is something in excess of the cost of reproduction4 ,the foregoing authorities cover practically all the older cases in the ,federal ,courts4 ,these cases have been examined1 and such of the subject matter has been quoted as would show the conclusions of the ,courts as to what constitute the various elements of true value4 ,the latest ,federal decision bearing on the subject1 and in many ways the most replete with argument1 is the case of ,consolidated ,gas ,company vs4 ,city of ,new ,york 7#aeg ,fed41 p4 #hdi71 which was decided in ,december1 #aijg4 ,in this case the valuation was determined by the master3 #a4--;,a valuation of tangible assets1 consisting of real estate1 plant1 mains1 services1 meters and miscellaneous equipment1 and the property of subsidiary companies1 the whole aggregating #fc1ceg1jjj4 ,of this an allowance of #c1faf1jjj was made by the master for working capital1 and this entire amount was treated as tangible property4 #b4--;,finally1 an intangible value of #j1jjj1jjj was assigned by him to the franchise and good will4 ,objections were raised1 as follows3 7,a7 ,land values represent no original investment by the ,company1 do not indicate land especially appropriate for the manufacture of gas1 and increase the apparent assets without increasing the earning power4 7,b7 ,the values of physical property are not original cost1 but are cost of reproduction less depreciation4 7,c7 ,some of the property cost more than new articles of the same kind at the time of inquiry4 ,some are of designs not now favored by the scientific and manufacturing world4 ,the disputed questions involved1 as far as tangible property is concerned1 were3 #a4--,whether the values ascribed to the several enumerated items are based on competent and persuasive evidence4 #b4--,whether the method of valuation pursued by the master is in accordance with law4 #c4--,whether the items of property are employed 7in the legal signification of the word7 in the production of gas4 ,the first1 a question of fact1 is found affirmatively1 and the evidence was found to be competent4 ,the second question is one of law1 and1 quoting from the cases cited in this paper1 the ,court holds as follows3 ,this method of valuation correct 99 99 99 upon reason it seems clear that in solving this equation the plus and minus quantities should be equally considered and appreciation and depreciation treated alike4444 ,the value of the investment of any manufacturer1 in plant1 factory1 or goods1 or all three1 is what his possessions would sell for upon a fair transfer from a willing vendor to a willing buyer1 and it can make no difference that such a value is affected by the efforts of himself or others1 by whim or fashion1 or 7what is really the same thing7 by the advance of land values in the opinion of the buying public4 ,it is equally immaterial that such value is affected by difficulties of reproduction4 ,if it be true that a pipe line under the ,new ,york of #aijg is worth more than was a pipe line under the city of #ahbg1 then the owner thereof owns that value1 and that such advance arose wholly or partly from difficulties of duplication created by the city itself is a matter of no moment4 ,indeed1 the causes of either appreciation or depreciation are alike unimportant if the fact of value be conceded or proved2 but that ultimate inquiry is oftentimes so difficult that original cost1 and reasons for changes in value1 become legitimate subjects of investigation as checks upon expert estimates1 or bookkeeping1 inaccurate and perhaps intentionally misleading4 99 99 99 ,the so-called money value of real or personal property is but a conveniently short method of expressing present potential usefulness1 and 'investment' becomes meaningless if construed to mean what the thing invested in cost generations ago4 ,property1 whether real or personal1 is only valuable when useful4 ,its usefulness commonly depends on the business purposes to which it is or may be applied4 ,such business is a living thing1 and may flourish or wither1 appreciate or depreciate2 but1 whatever happens1 its present usefulness1 expressed in financial terms1 must be its value4 99 99 99 ,it is not to be inferred that any ,american government intended when granting a franchise1 not only to regulate the business transacted thereunder1 and reasonably to limit the profits thereof1 but to prevent the valuation of purely private property in the ordinary economic manner1 and the property now under consideration is as much private property as are the belongings of any private citizen4 ,nor can it be inferred that such government intended to deny the application of economic laws to valuation of increments earned or unearned1 while insisting on the usual results thereof in the case of equally unearned and possibly unmerited depreciation4 ,i think the method of valuation applied by the report to land1 plant1 mains1 services1 and meters lawful4 ,to 'working capital1 ,coke and ,coal ,company1 and ,astoria' the above considerations are not applicable1 and these items will be treated separately4 ,the ,court's review of the third question raises no points of special interest as to valuation4 ,the question as to amount of working capital is taken up1 and that term is defined as3 ,the amount of cash necessary for the safe and convenient transaction of a business1 having regard to the owner's ordinary outstandings both payable and receivable1 the ordinary condition of his stock1 or supplies in hand1 the natural risk of his business1 and the condition of his credit2 and unless these matters1 and perhaps others1 be looked into1 no comparison can be drawn between one business and another1 or even between those of the same general nature4 ,in this instance it is of interest to note that the ,court reduced the working capital from #c1faf1jjj to #a1faf1jjj4 ,perhaps the most novel and interesting part of this decision is that dealing with the intangible elements of value4 ,the master was unable to separate the two elements1 good will and franchise value1 but gave their combined value4 ,from the testimony ,i think it apparent that what is here meant by good will is the organization of complainant1 long established1 and doubtless well manned and equipped4 ,such organization is clearly of value1 because without it neither tangible nor intangible property can be profitably managed4 ,yet the organization itself is but a method of utilizing that which is invested1 it is really dependent for its existence and continuance upon the franchise1 without which there can be no useful organization4 ,tangible property has a certain value entirely apart from franchise or right to continue business1 but good will in the sense of the organization for the business of furnishing gas1 can have no existence whatever apart or detached from the franchise conferring the necessary privilege4 ,would any one think of capitalizing good will of this kind and distributing its assumed value in the shape of new shares among stockholders new or old8 ,i think the most ingenious financier could not imagine such a proceeding1 and1 if this good will be not property capable of such capitalization and distribution1 ,i do not think it property capable of capitalization as against the ,state4 ,finally1 this claim of good will seems to forget that for many years the price and distribution of complainant's gas has been regulated by law4 ,a citizen is entitled to have a clean street before his house because he pays taxes1 inter alia1 for that purpose4 ,he is much more plainly entitled to have complainant's gas in his house because the company must give it to him if he pays for it4 ,i think it apparent that the conceivable good will of a gas company in this city is about equal to that of the street-cleaning department of the municipal government4 ,is a public service corporation entitled to add the value of its franchise to the assets from which a fair return may lawfully be demanded8 ,this question is taken up and discussed exhaustively by the ,court 7#aeg ,fed41 #hgb to #hgi71 and while it is clear in reading his judgment that he does not believe it sound doctrine to invest a franchise with value1 yet1 after citing a large number of cases1 he reaches the conclusion that he is compelled to consider franchises1 not only as property1 but as productive and inherently valuable property1 and to add their value1 if ascertainable1 to complainant's capital account before declaring the rate of return4 ,this case went to the ,supreme ,court of the ,united ,states1 where1 under the title ,willcox vs4 ,consolidated ,gas ,company 7#bab ,u4 ,s41 #ai71 citation is made to many cases in connection with the matter of franchise value4 ,the decision of the ,court is3 ,the value of real estate and plant is to a considerable extent a matter of opinion1 and the same may be said of personal estate when not based upon the actual cost of material and construction4 ,deterioration of the value of the plant1 mains1 and pipes is also to some extent based upon opinion4 ,all these matters make questions of value somewhat uncertain4 ,the ,supreme ,court permitted the tangible values found by the lower ,court to stand4 ,it concurred with the lower ,court in that it was not a case for a valuation of good will4 ,it concurred with the lower ,court in holding that the company was entitled to the benefit of any increase in tangible values1 and that such increases should appear in the appraisal4 ,it did not agree with the ,court in the increase of franchise value above that which was capitalized in #ahhd1 with the consent of the ,state of ,new ,york1 and reduced the franchise value figure to #g1gha1jjj4 ,on this basis1 the estimated return1 under the new rate on the valuation of #ee1fab1dce1 was #e1 which rate1 in view of all the circumstances1 is held to be not confiscatory and to be a not unreasonable return on the investment4 ,the franchise value1 as commented on in these cases1 is referred to at considerable length in the following pages4 ,on ,january #dth1 #aiji1 the case of ,knoxville vs4 ,water ,company 7#bab ,u4 ,s41 #a7 was decided4 ,this1 in some respects1 is of greater value to the engineer than any others cited1 in its determination of methods4 ,in this the appraisement of the tangible property was made in minute detail1 the sum of #aj1jjj was added for organization1 promotion1 etc41 and #fj1jjj for going concern4 ,the latter sum we understand to be an expression of the added value of the plant as a whole over the sum of the values of its component parts1 which is attached to it because it is in active and successful operation and earning a return4 ,we express no opinion as to the propriety of these two items in the valuation of the plant for the purpose for which it was valued in this case1 but leave that question to be considered when it necessarily arises4 ,we assume without deciding1 that these items were properly added in this case4 ,this valuation was determined by the master by ascertaining what it would cost to reproduce the existing plant as a new plant4 ,the cost of reproduction is one way of ascertaining the present value of a plant like that of a water company1 but that test would lead to obviously incorrect results if the cost of reproduction is not diminished by the depreciation which has come from age and use4444 ,the cost of reproduction is not always a fair measure of the present value of a plant which has been in use for many years4 ,the items composing the plant depreciate in value from year to year in a varying degree4 ,some pieces of property1 like real estate for instance1 depreciate not at all1 and sometimes1 on the other hand1 appreciate4 ,but the reservoirs1 the mains1 the service pipes1 structures upon real estate1 stand-pipes1 pumps1 boilers1 meters1 tools1 and appliances of every kind begin to depreciate with more or less rapidity from the moment of their first use4 ,it is not easy to fix at any given time the amount of depreciation of a plant whose component parts are of different ages with different expectations of life4 ,but it is clear that some substantial allowance for depreciation ought to have been made in this case4 ,the company's original case was based upon an elaborate analysis of the cost of construction4 ,to arrive at the present value of the plant large deductions were made on account of the depreciation4 ,this depreciation was divided into complete depreciation and incomplete depreciation4 ,the complete depreciation represented that part of the original plant which through destruction or obsolescence had actually perished as useful property4 ,the incomplete depreciation represented the impairment in value of the parts of the plant which remained in existence and were continued in use4 ,it was urgently contended that in fixing upon the value of the plant upon which the company was entitled to earn a reasonable return1 the amounts of complete and incomplete depreciation should be added to the present value of the surviving parts4 ,the ,court refused to approve this method1 and we think properly refused4 ,a water plant with all its additions begins to depreciate in value from the moment of its use4 ,before coming to the question of profit at all the company is entitled to earn a sufficient sum annually to provide not only for current repairs but for making good the depreciation and replacing the parts of the property when they come to the end of their life4 ,the company is not bound to see its property gradually waste1 without making provision out of earnings for its replacement4 ,it is entitled to see that from earnings the value of the property invested is kept unimpaired1 so that at the end of any given term of years the original investment remains as it was at the beginning4 ,it is not only the right of the company to make such a provision but it is its duty to its bond and stockholders1 and1 in the case of a public service corporation at least1 its plain duty to the public4 ,if a different course were pursued the only method of providing for replacement of property which has ceased to be useful would be the investment of new capital and the issue of new bonds or stock4444 ,if1 however1 a company fails to perform this plain duty and to exact sufficient returns to keep the investment unimpaired1 whether this is the result of unwarranted dividends upon over issues of securities1 or of omission to exact proper prices for the output1 the fault is its own4 ,when1 therefore1 a public regulation of its prices comes under question1 the true value of the property then employed for the purpose of earning a return cannot be enhanced by a consideration of the errors of the management which have been committed in the past4 ,the ,court holds that there was error in only considering the operations of the company for a period of one year1 and that this should have extended to enough time to remove danger of abnormal business conditions and observe the effects of certain ordinances4 ,the decision of the ,supreme ,court1 in the ,omaha ,water-,works case1 decided on ,may #cast1 #aiaj 7,supreme ,court ,reporter1 ,july #ast1 #aiaj71 is of general interest in its discussion of the procedure of appraisers in making a water-works appraisal1 and in the distinction drawn between appraisals and arbitrations2 but it does not touch on appraisal methods or elements of value1 except to discuss going values4 ,the language of ,judge ,lurton on this point is as follows3 ,the option to purchase excluded any value on account of unexpired franchise1 but it did not limit the value to the bare bones of the plant1 its physical properties1 such as its lands1 its machinery1 its water-pipes or settling reservoirs1 nor to what it would take to reproduce each of its physical features4 ,the value1 in equity and justice1 must include whatever is contributed by the fact of the connection of the items making a complete and operating plant4 ,the difference between a dead plant and a live one is a real value1 and is independent of any franchise to go on1 or any mere good will as between such a plant and its customers4 ,that kind of good will1 as suggested in ,willcox vs4 ,consolidated ,gas ,company 7#bab ,u4 ,s41 #ai71 is of little or no commercial value when the business is1 as here1 a natural monopoly1 with which the customer must deal1 whether he will or not4 ,that there is a difference between even the cost of duplication1 less depreciation1 of the elements making up the water company plant and the commercial value of the business as a going concern is evident4 ,such an allowance was upheld in ,national ,water ,works ,company vs4 ,kansas ,city 7#fb ,fed41 #hec71 where the opinion was by ,mr4 ,justice ,brewer4 ,this decision is quoted in the foregoing pages4 ,we can add nothing to the reasoning of the learned ,justice1 and shall not try to4 ,that case has been approved and followed in ,gloucester ,water ,supply ,company vs4 ,gloucester 7#agi ,mass41 #cfe1 and #fj ,n4 ,e41 #igg71 and ,norwich ,gas and ,electric ,company vs4 ,norwich 7#gf ,conn41 #efe74 ,no such question was considered in ,knoxville ,water ,company 7#bab ,u4 ,s41 #a7 or in ,willcox vs4 ,consolidated ,gas ,company 7#bab ,u4 ,s41 #ai74 ,both cases were rate cases and did not concern the ascertainment of value under contracts of sale4 ,the writer does not read into the language of this decision an approval of a separate element of value to be called going concern value or going value in addition to other non-physical values1 but rather a recognition of the fact that certain non-physical elements of value1 by whatever name they may be called1 must be taken into account in arriving at the fair and equitable final figure of value of a live and operating concern for the purpose of carrying out a contract of sale4 ,it appears to be doubtful whether the ,court can be construed as approving such an element of value in rate cases4 ,it thus appears that the ,united ,states ,courts have laid down a few rules1 which may be regarded as fixed and definite and must be followed1 but that many important questions have not yet been decided4 ,the value to be determined must be a fair value of the property being used for the convenience of the public4 ,the par value of stocks and bonds may not alone be considered 7although it may be considered71 the market value of stocks and bonds1 original cost plus cost of additions1 the probable earning capacity1 the cost of reproduction1 depreciation1 appreciation1 all these1 and any others that will throw light on the fair value must be taken into account and given the weight to which they are entitled4 ,any fictitious book values due to over-issues of stock and bonds are to be given no weight1 but the appraisal must give the fair value1 in the light of all the facts1 of the property in actual use at the time of the appraisal4 ,there are several decisions of the ,state ,supreme ,courts which discuss these subjects1 but an examination of a number of these gives practically nothing more1 in the way of definite conclusions as to method1 than has been cited4 ,perhaps the most complete and painstaking consideration of appraisal problems by any ,court was that given by ,judge ,savage of the ,supreme ,court of ,maine 7#ig ,maine1 #ahe1 and #ii ,maine1 #cga74 ,these were neither rate cases nor taxation cases1 but proceedings under statute to require from the ,court instructions to a board of appraisers appointed to value the plants4 ,in the later or ,brunswick case1 ,judge ,savage elucidates a number of points left not altogether clear in the ,waterville case4 ,the ,brunswick decision contains some interesting views on going value1 and the ,court's remarks on the general difficulties in making rules for an appraisement are exactly to the point3 ,there are many difficulties1 if not dangers1 in attempting to formulate rules which are to be applied to facts not yet ascertained4 ,while it may be easy enough to state rules in the abstract1 it is much more satisfactory in an opinion of the court1 to express them in terms which are applicable to the facts in the precise case in hand4444 ,it must be always understood that our answers to these questions are intended to be given only in the most general and comprehensive terms1 which may1 or may not1 be found to be fitted to the facts which may subsequently be developed4 ,no other course would be wise or safe4444 ,a public service property may or may not have a value independent of the amount of rates1 which for the time being may be changed4 ,a public service company may1 under some circumstances1 be required to perform its services at rates prohibitive of a fair return to its stockholders1 considering their property as an investment merely4444 ,now1 what is the property which the district has taken by power of eminent domain8 ,in the first place it is a structure1 pure and simple1 consisting of pipes1 pumps1 engines1 land rights1 and water rights4 ,as a structure1 it has value independent of any use1 or right to use1 where it is1 a value probably much less than it cost1 unless it can be used where it is1 that is1 unless there is a right to use it4 ,nevertheless1 it has value as a structure4 ,but1 more than this1 it is a structure in actual use1 a use remunerative to some extent4 ,it has customers1 it is actually engaged in business1 it is a going concern4 ,the value of the structure is enhanced by the fact that it is used in1 and in fact is essential to1 a going concern business4 ,we speak sometimes of a going concern value as if it is1 or could be1 separate and distinct from structure value--so much for structure and so much for going concern4 ,but this is not an accurate statement4 ,the going concern part of it has no existence except as a characteristic of the structure4 ,if no structure1 no going concern4 ,if a structure in use1 it is a structure whose value is affected by the fact that it is in use4 ,there is only one value4 ,it is the value of the structure as being used4 ,that is all there is of it4 ,the ,court then argues that1 as the structure is being used under authority and by virtue of franchises1 it is more valuable4 ,the franchise1 however1 is limited2 other and competing franchises may be granted2 a franchise may exist entirely independent of a structure4 ,he holds that the structure is more valuable with the franchise4 ,it is a structure in actual use1 and with a right on the part of the owner to use it and to charge reasonable rates to customers for services rendered4 ,it is threefold in discussion but it is single in substance4 ,this case is largely taken up with a discussion of the reasonableness of rates which furnish a basis for the estimate of value4 ,there is no specific attempt to describe methods of procedure4 ,that is left to the appraisers4 ,these two ,maine ,cases1 together with a valuable paper#ag thereon by ,leonard ,metcalf1 ,m4 ,am4 ,soc4 ,c4 ,e41 constitute an extremely valuable addition to the literature of appraisements4 ,it is clear1 from a study of all the cases referred to in this paper1 that the ,courts have laid down a line of precedent which is equitable and just1 that the interests of both public and corporations will be safeguarded1 and that the likelihood of any unfair or improper valuations passing the scrutiny of the ,supreme ,court is but remote4 ----- ,footnote #ag3 ,transactions1 ,am4 ,soc4 ,c4 ,e41 ,vol4 ,,lxiv1 p4 #a4 ,,physical ,,values ,,and ,,methods ,,for ,,their ,,determination4 ,all the foregoing narrative of methods adopted in recent valuations1 review of judicial opinions1 and comment on the expressed opinions of various engineers and railway officials1 is presented as being proper and necessary to support the contention that the ,michigan valuation1 while not the first appraisal work1 was the first valuation work of large magnitude undertaken by any ,state2 that it was a work which established many precedents2 and that the complete discussion of methods and principles in connection with and following this appraisal has given it probably a greater general value than any similar undertaking4 ,the ,wisconsin work1 which immediately followed that of ,michigan1 was along lines similar to those of the ,michigan physical valuation1 and carried the work forward1 adding to and strengthening certain of its features4 ,without any impropriety1 it may be claimed that these two appraisals have laid down the general lines on which this class of engineering effort will be largely directed in the future4 ,it is desirable1 in closing this paper1 to indicate such general methods of procedure in valuation practice as may be said to have been thoroughly established by precedent1 and to present such argument as will support the contention that such methods are proper4 ,the fact has been emphasized1 again and again1 by every writer on the subject1 that problems of this class are not capable of exact mathematical solution2 that1 no matter how much care may be exercised in the execution of the work1 the result is tempered by the personal judgment of the men engaged on it1 and that only when it is executed by men of experience1 sound judgment1 and high moral worth can it have a definite1 final1 and just result4 ,this feature of appraisal work cannot be too strongly emphasized4 ,the value of the work depends on the character of the men doing it1 their experience in design1 construction1 and operation of properties1 and their absolute fairness and freedom from prejudice4 ,that there will be many large valuations undertaken in the near future1 there appears to be no doubt4 ,these valuations will be made as a necessary preliminary to three classes of corporate control3 rate-making1 taxation1 and the regulation of capitalization4 ,the ,courts hold that the value must be the fair value of the property used for the public1 and that the corporation3 may not impose upon the public the burden of such increased rates as may be required for the purpose of realizing profits upon such excessive valuation or fictitious capitalization4 7,smyth vs4 ,ames47 ,this language is repeated1 again and again1 so that it is clear that any valuation1 to be sustained by the ,courts1 should3 #a4--;,be based on a careful study and analysis of all the information applicable to the case in hand2 and #b4--,that it must separate the various elements so that every step of the work may be reviewed and supported4 ,public interest demands that1 in any valuation1 certain figures shall appear which shall show the amount of bona fide capital actually existing in the property at the date of appraisal4 ,the fact that a given amount of money was invested in building a railroad in #ahhj1 and that certain other sums were spent for additions in subsequent years1 does not necessarily indicate that these amounts of capital will still be found in the property in #aiaj4 ,the removal of timber from surrounding lands1 the destruction of industries and the removal of tracks leading thereto1 the destruction of equipment and facilities1 the depreciation in value of adjacent property1 along with wear and tear1 and obsolescence1 have gone to effect the destruction or loss of capital on many ,michigan railroads4 ,the case in #bab ,u4 ,s41 #a1 clearly directs that the valuation must not take into account this destroyed capital1 but must return a fair value of the property as it is4 ,on the other hand1 the amount of money actually spent in producing a given property in the past may be far below the present value4 ,the appreciation of value of lands by reason of development of cities and growth of industries1 the increase in cost of the materials entering its construction1 and many other causes1 may lead to an appreciation of the value of the property1 and this appreciation should appear in the valuation and the company be entitled to the benefit of it4 ,it is in the nature of an increase of the investment1 and should appear as capital4 ,it is clear that there are two classes of elements of value in the final value of a public service property3 those which are physical1 and those which are intangible4 ,there are various of the physical elements of value which are not material or susceptible of inventory1 but which1 nevertheless1 attach themselves to the physical property1 are capable of determination1 within reasonable limits of certainty1 and should be taken into account and computed as physical property4 ,in the subsequent discussion of physical and intangible values1 it is attempted to differentiate between such elements as should attach to the physical value1 or capital remaining in the plant1 and the purely intangible or franchise values4 ,it is contended by the writer3 ,that the ,physical ,value1 or present value of the physical property1 should fairly represent the actual capital invested in the property at the date of appraisal2 that it should be made up of the sum of the various elements which constitute the cost of reproducing the property together with any appreciation which may have been added to any of them1 less all depreciation4 ,that the ,non-,physical ,value is the difference between the fair value as defined by the ,courts1 or the reasonable value of the property as a business or producing property1 and the physical value1 or actual present worth2 and that the only proper method for determining such values involves a study of income accounts4 ,this ,non-,physical ,value may be3 positive1 or a value in excess of the physical property1 or negative1 or less than the physical value4 ,in the case of a property having a negative intangible value1 a deduction should be made from the physical value4 ,it is further contended that1 in making the physical appraisal1 the purpose of the appraisal should not be permitted to modify the figures4 ,the resultant figure should be the same1 whether it is to be used as a basis for assessment1 rate-making1 or limitation of capitalization4 ,it should be an engineering estimate of the amount of bona fide capital still remaining in the property1 or of the complete cost of reproduction under existing conditions1 less depreciation4 ,this figure is definite1 within reasonable limits1 and it cannot be conceded that it is permissible to vary it1 submitting one result as a physical value for taxation1 and another and different result as a present physical valuation for rate-making4 ,there may be some question as to the propriety of using non-physical values for certain ultimate ends2 in fact1 the ,supreme ,court1 in the ,omaha and ,knoxville water cases1 clearly indicates that they must not be used for certain purposes2 but1 in any case1 to furnish information1 this element of value should be determined1 and1 as in the case of physical values1 it should be an unchangeable figure#ah and should represent the difference between the worth of the actual physical property and the final business value of the property considered as an earning proposition4 ,it is not necessary to go minutely into detail as to the various steps to be taken in making the appraisal of physical property4 ,each appraisal will offer some problems peculiar to itself1 and no general set of rules can be laid down which will be applicable to all cases4 ,it is deemed sufficient to call attention to general matters of major importance and to refer to some points which have not been mentioned in the preceding narrative1 omitting argument in the case of such as have there been fully discussed4 ,the distinction should be kept in mind that any element of value which belongs to the property by reason of its physical existence is classed as an element of physical value4 ,the property is considered as an operating property in the sense that it is reproduced complete1 ready to operate2 and any expense1 or any element of value needed to complete it1 is an element of the physical value1 but any value arising as a result of surplus earning power1 any good-will value1 going-concern value1 or value due to established business1 strategic location1 favorable traffic arrangements1 etc41 should be considered as intangible values4 ,the valuation of physical property is naturally divided into four parts3 ,i4 --,the preliminary study1 ,,ii4 --,the field inspection1 ,,iii4 --,the computation1 ,,iv4 --,the preparation of the final figure4 ,i4--,the ,preliminary ,study4 ,the preliminary steps should include a general examination of the property1 a study of its corporate history1 an examination of its records1 maps and profiles1 and the preparation of an inventory of its property4 ,the work in ,wisconsin and ,minnesota was done in co-operation with the railroad companies1 who prepared 7generally1 but not in every case7 their own inventories on forms adopted by the appraiser4 ,in ,michigan1 all this information was secured by the appraiser4 ,there can certainly be no valid objection to the use of information compiled by the companies1 whose familiarity with their own records and property would enable them to supply lists which under all ordinary conditions would be more complete and up-to-date than if made up by men having no special knowledge of the property4 ,the chief difficulty encountered in making an inventory from recorded data lies in the fact that very few sets of records are corrected to date1 and many additions and erasures will of necessity have to be made in the field4 ,in making a field inspection1 it is of great assistance to be able to refer to maps of large yards1 to profiles1 to standard plans1 and to drawings of the principal structures1 so that the investigation of office records should include a careful examination of the maps of principal terminals1 with a view to securing such as will simplify the field inspection4 ,the investigation should be extended to cover a study1 not only of the engineering office data1 but also statistical data to be derived from the records of the auditor1 superintendent1 and superintendent of motive power1 and should cover earnings1 operating expenses1 car and locomotive mileage1 and such other data as will facilitate the distribution of such elements of value as are not localized1 together with such other statistics as will furnish a thorough knowledge of the property and its operations4 ,it has been claimed by the appraiser in ,washington--and the view is also held by the ,commissioner of ,railroads in ,nebraska--that original cost is essential1 in view of the ,supreme ,court's decision1 particularly in ,smyth vs4 ,ames4 ,the writer cannot accept the correctness of this position4 ,it would appear that the language of the ,court should be construed to mean that original cost1 where ascertainable1 is a proper matter to take into account1 along with many other things2 but it can hardly be considered mandatory4 ,in the case of a property only recently built1 in which the records are complete and the engineering and construction files are available1 it may not be specially difficult to determine cost1 but in the case of any of the large railway systems of the ,united ,states1 which are made up of the consolidation of many different roads1 some of them built many years ago1 some of them having gone through many changes of management1 reorganization1 and earlier consolidation1 it is practically impossible to secure either the old financial books or the old construction records1 and without these complete records it would appear to be an utter impossibility to secure the primary cost4 ,primary cost is but the first step4 ,the work of building up1 by securing the amount of additions and betterments that have been made from year to year1 is one of appalling magnitude and of utter uncertainty and conjecture4 ,keeping in mind that1 prior to ,july #ast1 #aijg1 the railroad companies of the country did not have a system of uniform accounting1 and that additions to property were charged to operating expenses to the extent of hundreds of millions of dollars2 that policies were different on different roads1 and under different managements of the same road1 and that the accounting methods were determined by the policy of the road or management2 and the further fact that the distribution of ordinary railroad accounts may be extremely reliable on one road and abounding with errors on another2 it will be seen that any attempt to depend on the auditor's office for anything approximating a complete statement of cost would lead into a maze of figures which would be confusing1 unreliable1 and incapable of proof4 ,therefore1 it is the writer's conclusion that1 beyond such figures on recent construction1 or records of cost of such special structures as are matters of particular record1 it is not advisable to attempt to secure complete data as to the cost to date of a railroad4 ,in the ,michigan appraisal1 original cost was secured in the case of many structures1 notably the ,port ,huron ,tunnel1 and it is by no means argued that original cost should not be considered1 or investigated1 but it is held that such an undertaking as to secure1 from the financial books of the company1 an accurate or reliable statement of construction cost1 plus additions and betterments1 less property destroyed1 of the ,michigan ,central ,railroad1 for example1 would be absolutely an impossibility1 particularly if the work was to be undertaken1 as in the ,washington appraisal1 by men who were utter strangers to the property4 ,the admission of the appraiser of ,washington1 that1 except for a few gaps1 the information was complete1 is fatal1 as the gaps must needs be filled by estimates1 and it would appear to be better to depend on estimated figures throughout than to use what purported to be actual costs on part and estimates on the remainder4 ,if original cost is essential1 it is hard to get away from accepting the book values of the companies1 as these1 objectionable as they may be1 from the viewpoint of the public1 are just as apt to be as near the actual truth as any statement made up by strangers from an examination of old records covering many years of operation4 ,,ii4--,the ,field ,inspection4 ,the field inspection1 to be of the greatest value1 should be made by civil or mechanical engineers of long experience1 preferably by men who have had charge of their respective departments on railroads of considerable extent1 or of properties similar to that under investigation4 ,the writer is of the opinion that in this particular phase of the work1 the practice adopted in the ,michigan appraisal was considerably in advance of more recent valuations4 ,each particular structure or piece of equipment should be examined and its condition noted2 special features should be fully described and careful record made of everything that would tend to affect the value4 ,the argument has been often made that the fixing of a percentage of depreciation by a man in the field is purely arbitrary and amounts to nothing but a guess4 ,in the computing office it is often necessary to check the field figure of depreciation by the use of tables of fixed annual depreciation1 but it must be borne in mind that mortality tables of any form are based on a system of averages4 ,the actual depreciation on rail1 for instance1 varies greatly2 the conditions of traffic1 curvature1 gradient1 rolling stock1 and various local conditions tend to shorten or lengthen the life1 so that the personal opinion of an experienced man on the ground is likely to be much more nearly correct than the arbitrary application of a rule of averages4 ,the writer has inspected station buildings more than #ej years old1 and their condition and adaptability for the service required of them would give them a very high percentage2 he is also familiar with buildings less than #aj years old1 which1 by reason of changed traffic conditions and consequent shifting of business1 have become obsolete and have been permitted to depreciate so rapidly that any table average would give too high a result4 ,in the case of a water-works inspection1 so much of the value is included in the system of distribution mains1 a form of property which is inaccessible1 that much more dependence must be placed on a figure based on age2 but there1 also1 as full investigation as possible should be made1 in order to determine to what extent tuberculation or electrolysis has affected the pipes4 ,a general inspection 7made in ,minnesota by the appraiser with two assistants7 would appear to be an excellent thing as a review of the whole work1 but whether such an inspection would be sufficiently thorough to base thereon a set of final values1 would appear to be doubtful4 ,the inspection in the field1 in addition to the placing of a percentage for depreciation1 should involve a complete check of the inventory1 a correction of all errors1 due to the construction of new property or the destruction or removal of old1 and a compilation of all information required for a complete1 correct1 and intelligent appraisal of the physical property by the computing office4 ,every appraisal is different1 and every property offers new problems and diverse conditions4 ,these must be met1 and therefore the field inspector must call particular attention to all matters specially affecting the values of the property he is inspecting4 ,it is impossible to anticipate all these conditions in advance1 although the use of carefully prepared blanks and the standardizing of the form in which the data are gathered greatly simplify the work1 not only in the office1 but in the field4 ,,iii4 ,the ,computation4 ,on the completion of the field work1 with all the preliminary data in the office1 the computation must proceed1 and with this part of the work there are many questions which must be taken up1 considered1 and definitely answered4 ,the classification and arrangement of the information as to the property to be valued1 the costs and prices of the various materials entering into construction1 the making and checking of such tables as may be required for estimating1 the computing1 checking1 filing1 indexing1 and the various other routine details of work need not be referred to specially1 as they must be worked out for each appraisal4 ,the matters of principle that will be met are more important1 and1 while it would be impossible to mention all that may come up1 it may not be amiss to refer to a few4 7a7 ,in making an appraisal of several properties1 to what extent shall these properties be grouped or classified8 7b7 ,what unit prices shall be assigned in the estimates of cost of reproduction1 and how shall they be determined8 7c7 ,how shall right-of-way and real estate values be ascertained8 ,shall such elements as appreciation1 or any increments due to the purpose for which the land is used1 be treated as physical or non-physical values8 7d7 ,what method shall be finally adopted in determining depreciation8 ,what elements shall depreciation be made to cover8 7e7 ,what elements of cost or appreciation shall be treated as parts of the physical property although not capable of inventory1 and what shall be treated as non-physical8 7f7 ,is an allowance for contingencies a proper item to include in an appraisal8 7g7 ,what weight shall be given the matters of adaptability1 proper or improper design1 and the economics of location8 7h7 ,how shall the values of such property as locomotives1 cars1 etc41 be geographically assigned8 7i7 ,what is the effect upon values of large terminals8 7j7 ,should an allowance be made by reason of rapid development of the art8 ,these are not by any means all the perplexing questions that arise2 each valuation offers some that are special1 but these cover the more important points4 7a7 ,classification of ,properties4--,in making an appraisal involving the properties of a large number of companies1 such for instance as any of the ,state railroad appraisals1 it becomes evident that there are certain properties which are small1 badly run down1 and either built to serve a very limited trade or located in a territory which has not developed1 and that such properties cannot be compared equitably with the large trunk-line roads1 or even with smaller roads in a good territory and doing a good business4 ,several such properties exist in ,michigan in a district which was originally a lumber-producing country1 and at the time they were built local conditions were such that prices of timber and labor were far below any cost that it would be reasonable to assume to-day4 ,whether taxation or rate-making be the ultimate end of the work1 it is certain that these carriers are entitled to some classification which will separate them from the more prosperous roads4 ,many of these roads would not be built to-day under any circumstances1 yet their maintenance and continued operation is absolutely essential to the people of the district served by them4 ,whether this classification should be undertaken at the time of making the appraisal of physical property1 and an attempt be made to classify unit prices1 or whether this should be taken up in connection with the intangible values1 and solved1 as far as the valuation is concerned1 by the adoption of such a method as will affect these physical values by a subtractive or negative non-physical value1 or whether the entire matter should be left for the subsequent work of rate-making or assessment1 is one which must be determined at the outset of the physical valuation4 ,it may not be left without determination1 as the question will be raised in all probability in the form of an attack on the valuation1 if it is not considered and a conclusion reached4 ,it is the writer's opinion that the application of an intangible subtractive value is the proper solution1 except in the case of roads which would not to-day be rebuilt4 ,in fixing a uniform price for identically the same labor or material1 whether on a small poverty-stricken road or a main trunk line1 no serious injustice is done1 provided the price fixed is one which1 from a strictly engineering standpoint1 is a reasonable figure for cost of reproduction4 ,the differences in class are due1 not to special differences in cost of physical property1 but rather to differences in earning ability on account of good or poor territory served1 efficient or inefficient management1 or other reasons not connected with the physical structure2 hence such differences are reflected in the earnings1 and are clearly elements to be adjusted in the non-physical valuation4 7b7 ,unit ,values4--,the general reliability of the appraisal rests very largely on the reasonableness and fairness of the various prices which are applied to the different parts of the property in making the estimate of cost of reproduction4 ,these unit prices should be determined before any actual figures are made4 ,they should be made up from the most complete data available1 and1 before being tabulated1 should be carefully reviewed by all the experienced men engaged on the appraisal1 in order that no figure which is either too high or too low may be used4 ,as a basis1 the average of either #e or #aj years should be used in preference to current prices on all such material and equipment as is fairly stable4 ,rail1 and all forms of rail structures1 machinery1 locomotives1 cars1 etc41 can be reduced to such a unit that averages can be secured which will eliminate the error due to a period of extreme high or low prices4 ,in the case of such materials as lumber and ties1 the price of which has been steadily rising1 due to the growing scarcity of the material1 a price based upon a long average is unfair to the corporation1 and it would appear to be proper to use current prices4 ,there can be no hard-and-fast rule which will be applicable to all appraisals4 ,the unit prices must be such reasonable figures as can be sustained in ,court4 ,their adoption should not be final until every possible test of their accuracy and reasonableness has been made4 ,when they have been adopted1 and such modification made as may be fair for certain territory1 on account of local conditions1 transportation facilities1 or other consideration which may affect them1 the adopted figures should be applied to all property alike4 ,the use of different unit figures for different roads in the same territory is highly undesirable1 and should be avoided4 7c7 ,right of ,way and ,real ,estate4--,the valuation work which has been accomplished during the past decade1 and the study of values for taxation and rate-making1 have brought into prominence the perplexing features of land values as applied to corporation property4 ,it is comparatively simple to fix within very close limits the reproduction cost of tracks1 bridges1 locomotives1 or any of the other elements of physical structure4 ,not so with the land4 ,a few years' development may change farm land right of way into city right of way1 surrounded by factories1 or it may change desirable residential property adjacent to a road into slums4 ,in view of the clear language of the ,court in #hb ,fed41 #hci1 and #aeg ,fed41 #hdi1 it is evident that any valuation which does not take into account the appreciation or depreciation of land values cannot be sustained4 ,there can be no serious objection to the doctrine that the property of a corporation generally increases or decreases in value in the same proportion as adjacent property1 and it must therefore be admitted that a value based on the sale value of adjacent lands is a reasonable one and must stand4 ,this reasoning1 of course1 will be subject to exceptions1 in the case of terminal properties1 docks and water-front properties1 and right of way in large cities1 but it is believed to be sound when applied to right of way in the country and in small towns and cities4 ,the next question to be determined is whether the increment of value due to the use of the land is a proper one4 ,it would appear that in the use of land for water-works1 gas-works1 street-car barns1 or other isolated tracts of land used for corporation purposes1 this increment would be much less than in the case of a steam or interurban railroad1 the holdings of which form a continuous and unbroken strip2 and1 in the case of street railroads1 water-works1 and like properties1 it would be indeed difficult to compute and afterward sustain any considerable increment4 ,in the case of railway properties1 however1 it is quite evident that the following facts can be sustained3 ,the actual cost of property purchased for railway purposes will range from two and one-half to five times the selling price of similar and adjacent property used for other purposes4 ,while the actual percentage will vary somewhat1 as between land in cities and in the country1 and as between fully settled districts well served by roads and sparsely populated regions1 yet the difference is very marked1 and is capable of determination by an examination of the public records4 ,this difference can be determined either by a comparison of railway purchases and other transfers1 as was done in the later studies in ,michigan and in ,wisconsin1 or by extending the investigation to include assessed valuations1 and using the averages1 as was done in the work of ,mr4 ,morgan in ,minnesota4 ,in establishing figures for use in a valuation1 it would appear to be better to base them on an analysis of actual transfers than to undertake to fix values by any methods of examination and personal appraisal4 ,enough instances of the wide divergence of expert opinion have been cited to show conclusively that such a method1 applied to the thousands of acres of a large corporation1 may lead to serious error4 ,a single attorney or real estate man who has had experience in abstracting and conveyancing1 and who has bought some right of way1 can examine the records of an average county the largest city in which has a population of #bj1jjj or less1 abstract all railway transfers for #e years1 locate them on the maps1 secure data as to actual selling prices of near-by lands1 and1 in a comparatively short time1 be in position to furnish figures which will establish the relation between sales for railway and other purposes in that county4 ,the work that half a dozen such men could do in #ij days would go very far toward establishing with a fair degree of definiteness the value of the railway purpose increment for the majority of counties in any average ,state4 ,of course1 such an investigation in the large cities is a matter of much greater labor1 and would require sufficient time to make complete examinations1 probably necessitating a special force for such city work4 ,on every appraisal1 the question has been asked1 should this railway purpose increment be added to the value of the property8 ,clearly1 yes4 ,the ,supreme ,court quotes approvingly from the ,tennessee ,court1 as follows 7#aea ,u4 ,s41 #dgi73 ,the value of the land depends largely upon the use to which it is put and the character of the improvements upon it4 ,this is stated again and again4 ,it must be remembered that1 for railroad uses1 the strip must be continuous2 that it must be located so as to permit curves and grades which conform to the requirements of the road2 that1 no matter what damages may accrue to adjacent property1 the road must take its strip2 that its use is entirely changed and is a structure placed on it which is capable of vastly greater earnings than the property produced before--all these elements add to the cost of the property when it is acquired for railway purposes1 and in the same measure to its value under its new use4 ,in a new country1 where transportation facilities are limited and land cheap1 this added increment may be little or nothing1 but in a thickly settled ,state1 with many railroads1 this element will increase with a good degree of uniformity2 while1 in terminals1 the price rises to almost inconceivable figures4 ,it is capable of being determined1 and is clearly an element in the cost of reproduction4 ,the writer holds to the view that it is properly to be placed with the physical values1 and that it should not be considered as an intangible element of value4 7d7 ,depreciation4--,thus far1 this discussion has not dealt at length with the subject of depreciation1 and it is not considered essential to the purposes of this paper that it be done4 ,the ,state appraisals have raised a question as to the propriety of using mortality or life tables as compared with personal inspection and the placing of a percentage based on individual judgment4 ,either method is subject to error4 ,it is certainly desirable to secure the opinion of the man who inspects a bridge1 or building1 or locomotive1 as to its physical condition4 ,it may be desirable to use the check secured by the fact that the age of the building is known and also the average life of structures of its class4 ,the result of the ,michigan inspection of rolling stock was to sustain fully the rules for valuation issued by the ,master ,car ,builders ,association2 and clearly1 it is not only proper1 but extremely desirable1 to apply tables to such equipment as freight cars1 which are scattered all over the ,united ,states1 for it would be absolutely impossible to inspect completely those of any road or system4 ,on the other hand1 the life of steel rails cannot be determined by any simple table1 because the number of car movements1 the weight of motive power1 the speed of trains1 the location 7on curves or on heavy grades71 and many other conditions affect their life4 ,this also pertains to buildings1 locomotives1 and other equipment4 ,the character of service rendered1 the nature and extent of repairs1 and the way in which they have been maintained1 add to or take away from any life assigned by tables1 so as to render them valueless in many individual instances4 ,in placing depreciation1 allowance should be made1 not only for wear and tear due to use1 and decay due to the elements1 but also to cover that which is due to obsolescence1 or the fact that the facility is of an antiquated or inefficient type1 and has been superseded in general use by more efficient and economical devices2 this may be called commercial depreciation1 as distinguished from physical depreciation4 ,the method to be used in placing depreciation is clearly one of the important things that must be determined by each set of appraisers1 and1 while the writer believes that the use of expectancy tables would greatly facilitate the work in many cases1 the data on which to found a complete set of tables and to support them and justify their use are often lacking2 therefore1 any use of tables should be safeguarded in every possible manner1 and personal inspection of fixed property should always be made4 7e7 ,immaterial ,elements of ,physical ,property4--,there are certain expenses1 inseparable from the construction of any public works1 which are a necessary and proper part of the cost1 and are arranged for in the original financing1 but are not capable of identification after the completion of construction work4 ,these expenses are3 7#a7 ,organization1 7#b7 ,legal expenses1 7#c7 ,engineering1 7#d7 ,administration1 7#e7 ,general expense4 7#a7 ,organization4--,this includes the cost of the original organization of the company1 the cost of securing the charter and franchises1 arranging the financial plan1 and securing the funds for construction4 ,the latter item is intended to include all salaries and expenses of officials in soliciting and negotiating for funds1 the services of trustees1 and all other proper expenses which are usual and unavoidable in the process of exploiting a projected enterprise and interesting capital therein4 ,discount on bonds is not included1 and any allowances for premium1 or bonus1 or other cash payment to any party for services in securing funds1 which are in excess of legitimate expenses1 should receive scant consideration at the hands of appraisers4 7#b7 ,legal ,expense4--,this is for attorneys and all legal expenses1 costs1 and fees in the organization and during the construction of the property4 7#c7 ,engineering4--,this includes reconnaissance1 preliminary and location surveys1 supervision of construction1 and design and superintendence of special structures4 ,the cost of engineering on some of the more difficult properties becomes a very large sum2 on certain small lines it may be comparatively small2 and in some cases no engineers have been employed at all2 but the items of cost covered by this charge have in every case been expended1 even if done under the direction of some superintendent4 7#d7 ,administration4--,this comprises the cost of the management during construction--the direction of the enterprise4 7#e7 ,general ,expense4--,this is the cost of the general office organization during the construction period1 also numerous minor expenses1 not distributable4 ,it is not possible to build any public service plant without incurring all these expenses to a greater or less degree4 ,they are essential elements of cost1 and must go into the value of the plant when completed4 ,it can hardly be argued that cost1 which in a large property runs into thousands or hundreds of thousands of dollars1 has no value at the commencement of operation1 nor does it appear that the value is subject to depreciation as long as the property is an operating plant4 ,the writer holds the view that the line between physical and non-physical elements of value should be drawn as follows3 ,any value which attaches to the property by reason of any money expended during the construction is part of the physical property values2 while any value due to the operation of the property which is in excess of the physical value is a non-physical or intangible element4 ,if the correctness of this position be conceded1 then all the foregoing items are charges against the physical property1 and1 as long as it is an operating property1 these items of value remain part of the physical property1 and the writer contends that they should not be considered as affected by depreciation1 as long as the property is a going concern4 ,different engineers have included in the appraisal other items which are of a somewhat different nature1 and some of which are open to argument2 among these are interest during construction4 ,this item is clearly an allowable one1 but serious differences of opinion develop as to a proper amount to allow in making an appraisal4 ,the corporate history of the ,ann ,arbor ,railroad1 in ,michigan1 shows that it was built in sections of from #be to #cj miles1 and that each section was put into operation as soon as built1 so that1 while the actual period of construction of the complete property extended over #ae years1 no section was under construction much more than one year4 ,this is typical of much of the railroad building of the past1 and on such a property the interest charge would be comparatively small4 ,a proper charge in such a case would clearly not be sufficient in the case of a road several hundred miles in length1 through mountains1 with tunnels1 heavy bridges1 and other structures which would extend the actual construction over periods of from #c to #e or #f years1 and this is particularly true where the road is a main line or artery1 and where local traffic is of minor importance4 ,the computation of the interest charge is complicated by the fact that interest begins to run as the bonds are taken up1 and but a small part of the construction money draws interest during the whole period4 ,the practice in the ,state appraisals has been to fix a uniform percentage for all properties4 ,this has had in its favor the argument that it was conservative valuation where taxation is the ultimate end1 as the amount was less than one year's interest in every case4 ,it would appear to be more correct to use the corporate history of each company1 determine the actual construction periods1 and use a rate based on the actual time in each case4 ,this can be fixed with a fair degree of accuracy1 and a reasonable percentage determined1 to equalize the varying periods of time on which the interest runs on different parts of construction4 ,discount4--,discount on bonds is claimed by certain railroad men as a proper item for consideration4 ,as has been argued elsewhere1 this is not a proper charge against capital4 ,it is an adjustment of the interest rate to the market1 or an advance payment of interest2 and1 in the writer's opinion1 should under no consideration be allowed4 ,working ,capital4--,working capital is another item claimed and conceded in some valuations4 ,it is not a part of the cost of construction4 ,the money provided for working capital at the outset is not a permanent investment1 but is rather a temporary loan paid back out of earnings4 ,the writer fails to perceive any possible argument in favor of adding such an item to the permanent value of the property4 ,in making an appraisal1 after the physical value is determined1 it is usual to set up a statement of stores1 supplies1 fuel1 and cash on hand1 and working capital is certainly shown by the current balance sheet1 in the form of cash or accounts receivable4 ,it would appear to have no place in a physical appraisal4 ,although the items of cash1 stores1 and supplies were shown in the ,michigan appraisal1 they did not appear as part of the physical value1 nor were they taken into account in computing intangible value1 but1 being taxable property1 they were reported separately4 7f7 ,contingencies4--,the use of a percentage for contingencies in the appraisal in ,michigan was bitterly contested by the railroads as improper and excessive4 ,in ,michigan #aj was used1 in ,wisconsin #e1 and in ,minnesota #e per cent4 ,subsequent work in ,michigan has demonstrated that the use of as high a figure as #aj was fully justified2 and the probability is that the latest ,michigan appraisal did not eliminate omissions1 inaccuracies of description1 and excess cost of construction due to difficulties1 to such an extent as to justify much reduction in the percentage4 ,in making an appraisal1 the percentage to be applied to cover contingencies is a proper matter for consideration1 and in some cases conditions might well be such that even a smaller allowance than that fixed in ,minnesota would be proper1 but such cases would doubtless be the exception4 ,the writer believes it to be proper practice to add liberally for the contingency item4 ,the strongest argument against it is that it is incapable of being described and located definitely1 and is difficult of exact proof4 ,therefore it has been claimed that it partakes of the nature of a non-physical element1 and that if there be any value over and above the physical property value1 it will appear with other non-physical elements reflected in the earnings1 and may be properly included in the intangible value if such exists4 ,this argument does not appeal to the writer as being final1 and he would advocate the use of such a percentage of physical values as appears proper in each appraisal to cover the error due to the extreme difficulty of securing an exact inventory and construction history of the properties4 7g7 ,design4--,among the matters which were considered in the ,michigan work was that of adaptability1 or the economical questions of location1 design1 and construction4 ,it is possible that in some properties1 such as water1 gas or electric companies1 the efficiency of the plant may be very greatly affected by faulty design1 uneconomical arrangement1 improper construction1 and to such an extent that any cost of reproduction1 less any ordinary depreciation1 would be greatly in error without further allowance4 ,this may also be true of railroads4 ,excessive curvature and gradients greatly decrease the tonnage hauled by a given power1 without decreasing the cost per train-mile4 ,it is extremely difficult to treat this as a physical element4 ,it is impossible to reduce it to terms of dollars and cents by any usual or customary methods4 ,it is impossible to separate it from any one of half a dozen other items that may be brought up4 ,it opens the door to endless speculation as to what might or might not take place under somewhat different conditions4 ,for these reasons1 it was treated in the ,michigan appraisal as a non-physical element of value and dismissed from all consideration in the physical appraisal4 ,this was clearly proper1 and the subject is only referred to here for the purpose of making clear that it was fully studied and a definite conclusion reached4 ,adaptation4--,in the sense that this term is used by ,mr4 ,williams and ,mr4 ,morgan1 the appreciation or solidification of roadbed was considered in the ,michigan work1 but given no place in the appraisal4 ,this is a very proper item to consider1 but it would appear to be better to include it directly with the roadbed item in the physical appraisal as appreciation or solidification4 ,there can be no reasonable objection to adding to the contract prices for grading1 ballasting1 etc41 a reasonable amount to cover1 not so much the seasoning and settling of the new roadbed1 as the actual money disbursed in work on this new roadbed during the first #c or #d years of operation in order to bring it up to the proper operating condition4 ,a very considerable part of the money spent on maintenance of track for the first few years after a new line is built is in reality deferred construction cost4 7h7 ,apportionment of ,values4--,the apportionment of values of locomotives1 cars1 miscellaneous equipment1 shops1 and those other parts of the cost which are not susceptible of separation from the operation of the property as a whole1 is an interesting and at times a perplexing problem4 ,while the ,courts have viewed as equitable the distribution of values between territorial units when made on a track-mileage basis1 it is hardly likely that a ,court would look with favor on an appraiser appointed by ,michigan giving any consideration to values of bridges1 track1 or buildings in ,ohio4 ,thus far1 every ,state appraiser has concerned himself only with the fixed physical property in his own ,state1 together with his proportionate share of the floating property4 ,the methods that may be considered are track-mileage1 car-mileage1 locomotive-mileage1 and train-mileage4 ,the method finally used must be such as will give the fairest result for the property under consideration4 ,in some cases one or more of these methods will give a fair value1 while in other cases the same system would be most unjust4 7i7 ,terminals4--,there is no one feature of the entire problem so big with possibilities1 and so far from solution1 as that of terminal property values and their proper assignment4 ,the property must be considered as an operating unit4 ,its value must be made up of the values of the parts or elements plus an added value that comes from the operation of the whole4 ,the problem would be simplified if what were sought were the value of a certain railroad1 but1 as it has been presented up to this time1 the problem is3 what is the value of that part of this railroad in ,michigan8 or ,wisconsin8 or ,minnesota8 ,a fairly satisfactory solution of many of the value questions has been obtained1 but nothing in the way of a solution of the terminal question4 ,a road owns #cjj miles of line in ,michigan and #g miles in ,ohio4 ,that #g miles includes its largest terminal2 its principal connections are there2 it has a fine property1 and is in the capacity of landlord to several other roads4 ,what part of that terminal value1 if any1 is assignable to the ,state of ,michigan8 ,decidedly1 it would not be proper to appraise the entire property as a unit and assign to ,ohio only the proportion that #g miles bears to the whole length2 it is equally unfair to appraise it as a ,michigan property down to the ,state line1 and add nothing to the value by reason of the terminal4 ,the influence on the value of the property1 of the ownership of terminals in such cities as ,chicago1 ,new ,york1 ,jersey ,city1 ,hoboken1 ,pittsburg1 ,detroit1 ,st4 ,louis1 ,kansas ,city1 and other large centers of population is tremendous1 yet a very large part of the railroad mileage entering those cities belongs to roads which have their largest mileage outside the ,state in which the terminal is located4 ,there can be no doubt that the influence of a large terminal affects in a measure the value of every mile of line owned by the company2 that this influence is greatest on the principal and direct lines1 and less as more remote parts of the system are reached4 ,as yet1 no plan has been suggested for determining what this value is or for apportioning it4 ,the final solution in ,michigan was to treat terminal properties within the ,state exactly as other property was treated1 and to assume that1 if there was any value assignable to ,michigan by reason of outside terminals1 it would appear as a non-physical value through the earnings4 ,when all the phases of this question are considered--the enormous land values1 the value due to possession of deep-water terminals1 the effect on the business of the entire property by reason of the ownership of such properties as those1 for instance1 in ,new ,york ,city1 ,jersey ,city1 and ,hoboken--it is evident that no appraisal which has yet been made has established any rule of valuation which may be considered proper for terminals4 ,it is to be hoped that the work now in progress in ,new ,jersey may be so well supported by the ,state that it will be possible for the appraisal board to make an exhaustive study of this subject and reach definite conclusions as to the real extent1 manner of computation1 and proper method of distribution of these values4 7j7 ,development of the ,art4--,is any value assignable to property on account of expenditures by reason of the rapid development of the art8 ,this question seems not to have been squarely asked or answered in connection with any of the past appraisals4 ,every piece of material and every facility purchased by a company is bought with a definite expectation that it will have a certain life1 that during that term of life it will add sufficiently to the earnings to provide a fund for its replacement and earn a profit4 ,no matter whether or not such a reserve is created on the books1 this is the theory1 and1 under it1 accident may wipe out certain new property1 other property will outlive its expectation and maintain the average life of the entire group of facilities4 ,there are countless cases where this will not hold4 ,the rapid development of large cities has compelled electric lines to extend largely4 ,the demands of the people for more frequent and more rapid service1 and more modern and larger equipment1 have greatly shortened the term of life of power-plant equipment and cars4 ,the rapid development in the art of electricity1 the congestion of traffic in streets of cities1 the enormous increase of train movements1 and the use elsewhere of newer types of cars1 have compelled the abandonment of millions of dollars' worth of property and the investment of other millions in new and improved facilities to provide for the increased movements of traffic and increased safety to the public4 ,these changes are not due to the fact that the original installation was defective1 but to the demands of the public for frequent1 safe1 and speedy service1 demands which are perfectly reasonable4 ,the query is3 should a corporation which complies with public demands be compelled to lose capital invested in facilities which have not yet paid for themselves2 and which1 under a continuance of conditions which existed when they were installed1 or any that might then have been anticipated1 would normally have a useful life of several more years1 and which were abandoned1 not by reason of being worn out or unfit for service1 but purely because facilities of a more modern type were called for8 ,to answer this affirmatively increases the hazard of investment greatly in the large centers of population4 ,to answer it affirmatively in some cases might amount to confiscation of property4 ,the writer inclines to the view that1 as far as appraisal is concerned1 the value due to the remaining life of the abandoned facility1 where such abandonment was in response to legal requirement1 and where no element of corporate necessity due to increased efficiency or economy of the new facility enters into the computation1 should be added to the value of the facility replacing it4 ,any consideration that is given such claims by an appraiser must be most careful1 as the inference to be drawn from the decision of the ,court in the ,knoxville ,water ,case 7#bab ,u4 ,s41 #a7 is that such elements of value will receive scant consideration unless most fully supported4 ,if the policy of the management of any public service company is to keep up with the demands of modern civilization1 it would appear that such policy should not be discouraged1 and1 in computing the value of the property1 some provision ought to be devised for covering such values as remain in serviceable property at the time of its abandonment in response to public demand2 or else the rates for service should be increased sufficiently to compensate the corporation for losses of this nature on the ground that it constitutes an element of extra hazard4 ,these and like subjects in connection with the appraisal must be taken up during the period of computation and settled4 ,the computing office organization and methods call for no special comment1 except to emphasize the need of experienced men1 the use of every possible check on the accuracy of the work1 and the prime necessity of keeping all notes in such manner that they can be identified and used to re-establish every step taken in the course of the appraisal4 ,,iv4--,the ,preparation of the ,final ,figure4 ,the final form of the work is1 of course1 so much a matter of personal judgment that even a suggestion may appear to be useless4 ,the use of such a classification as will conform approximately1 if not exactly1 with that adopted by the ,interstate ,commerce ,commission is more desirable now than it was #aj years ago1 as all the roads in the country are using this classification in their accounts1 and the more nearly uniform the work of various ,state appraisals1 the better the results will be4 ----- ,footnote #ah3 ,unchangeable only for the period under consideration and as regards the purpose of the appraisal4 ,this value varies from year to year1 depending on business conditions and on earnings of the company4 ,,non-,,physical ,,values ,,and ,,methods ,,for ,,their ,,determination4 ,in the published articles treating on the subject of valuation1 much stress is laid on the intangible or non-physical elements of value4 ,they have been termed going concern values1 business values1 good will values1 franchise values1 as well as non-physical and intangible values4 ,so much of the argument of many writers has been taken up with this phase of the question that it is impracticable to recapitulate the various arguments in support of giving these elements a place in the appraisal4 ,the writer cannot agree with those who would place any of these elements of value in the physical appraisal4 ,value is given to a property1 either by reason of the fact that it is an instrument for earning profit1 or that it does earn profit or gives promise of profit4 ,the actual investment of capital in a new plant is made with the expectation of earnings4 ,it is not reasonable to attach as physical value1 to such a plant1 any value in excess of the actual investment4 ,nor does it appear to be any more reasonable1 in the case of an old plant1 to assign arbitrary and fictitious values over and above the actual investment remaining in the plant1 unless such values are justified and supported by actual earnings in excess of such a rate of interest on the money invested1 as it would earn if invested in some non-hazardous security1 and--carrying out the clearly-expressed idea of the ,courts--such intangible value can only accrue when the rates charged for the service are fair and proper4 ,the capitalist seeking investment bases his ideas of value on3 7a7 ,the market price of stocks and bonds1 an estimate of worth based primarily on actual earnings of the property1 but affected to some extent by outside conditions2 or 7b7 ,on the capitalized net income1 or actual earnings1 of the property2 or1 7c7 ,in the case of a new property1 on an estimate of what the probable earning capacity of the property will be1 where the business is more fully developed4 ,methods 7a7 and 7b7 ignore cost of construction1 or present investment in physical property1 and base a value on past performances4 ,method 7c7 is based purely on hypothetical earnings1 but the only real measure of value in this instance is the actual amount of capital that has been invested4 ,no appraiser would be justified in placing a going concern value1 in excess of original cost1 on a new property1 nor would he be justified in placing such a value on a property #c years old1 or #aj years old1 unless the net earnings were such as to indicate that the property had a business or commercial value in excess of the physical property value4 ,it would seem reasonable to say that this difference between the physical value and the value based on earnings represents the good will1 established business1 or going value1 and all the other non-physical elements of value4 ,to take a specific example3 it would be impossible to separate the different elements of intangible value of the ,michigan ,central ,railroad1 and say that a certain sum of money represented good will1 another sum established business1 still another sum the franchise value1 and still another sum the going concern4 ,the going concern value of the ,michigan ,central ,railroad is exactly analogous to the going concern value of the hypothetical water-works cited by ,mr4 ,alvord4 ,instead of having water pipes connected with buildings along the mains1 and considerable sums invested in appliances for using the water1 there are manufacturing plants located along the railroad1 connected with it by side-tracks built by the industry1 and depending on the transportation facilities of the road for their connections with their customers1 the very life of the manufacturing plant dependent on its connection with the road4 ,this is connected good will of the same kind as described by ,mr4 ,alvord4 ,yet1 to fix a value on it by the method described by him involves going into the realm of conjecture and speculation to a degree that could never be sustained4 ,difficulties as great would be encountered in an effort to separate and set up any other elements which go to make up the intangible value1 and any figure thus determined would be absolutely incapable of proof4 ,the ,courts say that the value must be the fair value of the property being used1 all the conditions being taken into account 7#afi ,u4 ,s41 #dff74 ,it can be readily seen that the physical present value is not always--indeed1 is not often--the fair value4 ,the fair value may be more1 or less1 than the present value of the physical property4 ,it would seem to be reasonable to interpret the ,court's meaning of the term fair value to be the value as a business or commercial property1 taking into account the actual investment existing in the property1 together with any favorable conditions which would enable it to earn1 on rates which were fair and reasonable to the consumer1 an income in excess of a usual rate of interest on the actual investment1 or any unfavorable ones which under the same rates would reduce its earnings to less than usual interest4 ,if such an interpretation be allowable1 it would appear to be correct practice to use a fair value made up of two elements3 a physical value1 representing the investment1 and a non-physical value1 representing all the elements which affect that investment to give it favorable or unfavorable financial returns4 ,is it not1 then1 proper to conclude that the non-physical or intangible value1 composed of all these various elements of value1 can only be determined absolutely by a study of the earnings and operating expenses8 ,is not this clearly what the ,court had in mind in the ,nebraska ,rate ,case8 ,much of the argument on the subject of going values and other kindred elements of value consists of statements of theory and generalities1 and may be said to be merely argument to support the theory that there is an intangible element of value4 ,if work of valuation is to be of any real benefit1 must it not give a definite result8 ,must not this result be based on absolute facts8 ,in securing the present value of any physical property the fixed and certain facts are3 ,the inventory of property owned4--,this is absolute4 ,the cost of reproduction of the different elements4--,this is capable of determination within very close limits4 ,the depreciation4--,this is in a measure a matter of judgment1 based on the experience1 not only of the engineers making the appraisal1 but of the entire scientific world2 and1 if properly made and properly checked1 there should be no very wide divergencies in results4 ,the items of general expense4--,these1 based on available statistics1 must be estimated4 ,the exact determination of these items will be made comparatively easy as statistics based on the uniform classification of accounts become available4 ,it is believed that the physical values1 when secured along the lines suggested1 are definite enough to be accepted as a fair estimate of the amount of capital actually invested in the property1 and that1 if a sufficiently large force of men experienced in the construction1 operation1 and financial management of the kind of property under investigation is engaged on the work1 the element of uncertainty due to errors of personal judgment can be largely eliminated4 ,the next question to be determined is whether there is1 at the time of the appraisal1 any non-physical value1 and1 if so1 to select a method for computing it that will give a result that can be definitely supported as to the particular property under investigation4 ,a study of the income accounts of the property being valued should be made4 ,if the property is not earning a sufficient sum to pay its operating expenses1 and taxes1 and to set aside a fund to cover depreciation and obsolescence1 there is clearly no intangible value of any sort to be added to the physical value4 ,if1 however1 after all these charges are taken care of1 there is a net earning which is large enough to pay #d or #e on the physical property and still leave a surplus1 is it not perfectly reasonable and proper to hold that this surplus represents earnings on all intangible elements of value8 ,the contention that all the different elements of non-physical value merge into one intangible value1 not capable of separation1 will doubtless be objected to by many engineers and corporation managers4 ,among the elements adding value to property have been described3 #a4--;,going ,concern ,value4--,professor ,mead defines this as the value due to the fact that a plant has consumers actually utilizing its product1 and that it is in actual and successful operation and has its business developed4 ,this value is the worth of the plant in excess of a similar plant without connections1 and constitutes an asset in the consideration of its physical value4 ,mr4 ,alvord has used the term connected good will as applicable to this element of value4 ,the writer does not concede that going concern is a proper element to consider in the physical value1 as it does not represent any part of the cost chargeable to capital1 and the physical valuation should be confined to the determination of capital invested4 ,it has already been argued that to the physical property as inventoried should be added proper figures to cover organization1 legal expense1 administration1 engineering1 and contingencies4 ,all these items are in the nature of additions on account of the fact that the property is a going concern4 ,it is maintained that these costs should carry to the present value column as values1 for the reason that all these services rendered in connection with the creation of the property remain1 unimpaired in value1 as long as the property is operated4 ,when1 however1 a property ceases to be operated1 and is abandoned and dismantled1 not only do all these elements absolutely disappear1 but also all increments of value by reason of the special use of the property are wiped out1 and there exist only a lot of partly worn out and partly obsolete machinery and equipment1 salable at scrap values1 buildings constructed for a purpose which renders them unfit for other use1 and land partly salable at going prices and much that will not sell at all4 ,as long as a gas-works1 a water-works1 or a railroad is in operation and earning1 it is a going concern1 and all increments which attach to its physical property as a whole continue to exist1 even if the physical value of the property is greater than a fair value4 ,that fair value can be determined and reached by means of a negative non-physical value4 ,in view of these things1 it would seem to be highly improper to add to physical value anything more for going concern4 ,in the final report of ,u4 ,s4 ,judge ,r4 ,w4 ,tayler1 ,arbitrator in the ,cleveland ,street ,railway matter1 in ,december1 #aiji1 the following language supports the above contention3 ,i allow nothing for going value1 except in so far as that is the result of the necessary expenditure of money in building the road1 acquiring its land1 power-houses1 and equipment1 and putting them into successful operation4 ,the expenditures for these purposes are1 and necessarily must be1 included in the valuation of the physical property4 #b4--;,developed ,business4--,it is perfectly clear that the fair value of a property must take into account the established business of the concern4 ,this really is covered by the going concern values1 as defined by ,messrs4 ,mead and ,alvord4 ,the only manner in which this can be determined intelligently is by an analysis of income accounts4 #c4--;,cost of ,handling ,business4--,a railroad with heavy grades1 bad curves1 poor equipment1 or unskilful management is not nearly as valuable a property as one having good line and grades1 and far-sighted1 economical1 and skilful management1 and which handles its business at a lower cost per unit4 ,in such cases the differences in location and management are bound to show in the earnings1 adding to the physical value of one property and possibly taking from the value as shown by the physical appraisal in the case of another4 #d4--;,good ,will and ,established ,organization4--,these are valuable assets4 ,it is difficult1 indeed1 to attach exact weight to these elements of value1 except as they are shown in the intangible value indicated by the earnings4 ,in most cases of public service companies1 as is argued elsewhere1 it is doubtful if such elements are entitled to any place in a public valuation4 #e4--;,franchise ,values4--,these cover various specific items arising out of the ownership of special franchises1 or1 out of the general rights granted by law to corporations4 ,all these elements of value have been presented1 and have been supported by able arguments4 ,no one has offered a method of separating them4 ,while there is universal recognition of their existence1 in the case of many properties1 they are supported by nothing visible or tangible4 ,they are practically inseparable1 one from another4 ,they are not always present1 and the application of any such arbitrary rule as that suggested by ,mr4 ,alvord would make it possible to place values which were purely fictitious4 ,therefore1 it follows that1 if they are to be considered at all1 they must be treated as parts of one intangible value1 and that value must be derived from a study of the income account of the property4 ,there are other points to be noted as reasons why no such elements of value may attach to the physical property4 ,any value of an old and well-established property in excess of a fair return on its physical property 7in other words1 any intangible value7 must be limited and restricted1 when used for rate-making purposes1 by the value to the consumer of the services rendered4 ,the ,courts hold so squarely that the rates charged for services must not be more than the particular service is worth1 and that the ,company may exact a fair return on property actually being used1 that it is not conceivable that any valuation which attempts to attach fictitious elements of value to physical property can be sustained4 ,this argument is not intended as an attempt to show that intangible values are improper and that where they exist rates should be lowered4 ,it is contended that the determination of rates that will be just and fair to all competing companies involves other consideration than the valuation of either physical or intangible properties1 and that when all these rate-making problems are properly solved1 there will remain large intangible values on the well-designed plants4 ,it is further contended that the work of valuation should separate the tangible and intangible elements1 so that the further work of rate-making or assessment may not be complicated by improper elements which are included among the items of the physical properties4 ,in consideration of franchise value1 the history of the corporation should be investigated with a view to determine what part the public played in the creation of the property4 ,the granting of aid bonds1 of public lands1 and of aid money to railroads1 the giving of encouragement to water-works companies by the payment of excessive hydrant rentals1 are illustrations of the fostering and development of public service utilities by the public to such an extent as to justify in a large measure the claim that in many cases the allowance of an intangible value is improper as against the public4 ,a further consideration in the matter of intangible values is the fact that they all partake more or less of the nature of good will1 and the question very properly arises1 in the case of a purchase by the public1 or of a rate-making valuation3 ,should the public be compelled to pay for its own good will8 ,in the case of such a corporation as a street-railway company in a large city1 any value arising from a surplus of earnings is due to the franchise1 established business1 or going value1 or good will of the citizens of that city4 ,this element of value frequently sustains an excessive bond indebtedness4 ,at the expiration of the franchise period the citizens of that city consider a purchase1 and are asked to pay1 among other things1 for their own good will4 ,in view of the attitude of the ,federal ,courts in the ,consolidated ,gas ,case1 and the language of the lower ,court in disallowing the item of good will1 which judgment was sustained by the ,supreme ,court1 it is very evident that any attempt to fix arbitrarily a value on such an item in an appraisal is not likely to be supported successfully4 ,the grounds named by the ,court are3 ,tangible property has a value apart from any franchise or good will value4 ,the franchise1 conferring the privilege to be a corporation1 to use public property1 to be free from competition1 and to enjoy many other privileges1 has some value apart from tangible property4 ,good will can have no existence as apart from or detached from the franchise conferring the necessary privilege4 ,such good will 7by itself7 is not capable of being capitalized and distributed among stockholders4 ,citizens are entitled to have gas 7or water7 because they pay for it1 exactly as they are entitled to have clean streets 7and1 in the same way1 police protection or fire protection71 because they pay taxes among other things for that4 ,the ,court1 therefore1 finds that there is no good will value in connection with the gas business in the ,city of ,new ,york1 although it is said1 elsewhere in the finding1 that it is the best1 most favorably located1 and most prosperous business of its kind in the country4 ,judge ,tayler1 in the ,cleveland ,railway arbitration1 says3 ,i allow nothing for good will4 ,a street railway company which has a monopoly1 and especially if it has a franchise value remaining1 can have no good will value4 ,judge ,lurton1 in the ,omaha ,water-,works ,case1 says3 ,that kind of good will1 as suggested in ,willcox vs4 ,consolidated ,gas ,co41 is of little or no commercial value when the business is1 as here1 a natural monopoly with which he must deal1 whether he will or no4 ,in connection with a consideration of franchise values1 the following points are raised by the ,federal ,court in the ,consolidated ,gas ,cases 7#aeg ,fed41 #hgb-hgi73 ,should a corporation have a right to demand an income return1 separable from any return upon its tangible property1 from its right to place gas mains in the public streets and maintain them for its private profit1 a right which it did not buy from city or state or pay therefor any legal valuable consideration8 ,the ,court thinks not1 because ',return can be expected only from investment1 and he that invests must part with something in the act of investing4' ,does any company invest its franchise in its business8 ,it does not part with its franchise in the same way it parted with money or money's worth in acquiring or creating mains or plants4 ,the investment of property was made1 not in the franchise1 but under the franchise1 and on the faith thereof4 ,the franchise is but a part of the power or sovereignty1 allotted to a private person for the benefit of all1 and only incidentally given for private emoluments4 ,what is the value of a franchise to perform a certain service1 under which no money is invested and no service yet performed8 ,what is it worth apart from performance under it8 ,unless it can be seen to possess inherent value entirely apart from the earning capacity of the subsequent investment or from the actual earnings resulting from such investment1 the value asserted or claimed is but a duplication of that derived from the use of the tangible property when so invested4 ,the concepts of the nature and value of franchises are seen dimly and confusedly because of the failure to distinguish between productive and non-productive property4 ,land1 money1 chattels may by industry and intelligence be made productive without a franchise2 but no excellence in these desirable qualities can ultimately render a franchise productive without the use of money1 chattels1 and land in connection therewith1 and when the juncture is made the earning capacity of the real and personal property1 plus the franchise and plus intelligence and industry1 is really no greater than it would be without the franchise1 for the franchise has added no producing power to the realty or personalty2 it has but authorized their employment in a particular way and protected the owners while so employing them4 ,the ,court emphasized the fact that the particular way in which they are used is in performing a function of the ,state--in doing a service for the public which the public might do equally well for itself1 in the following language3 ,i can imagine no more than three ways in which the value of a franchise can be stated4 ,it is valuable3 7#a7 because it authorizes the gainful use of private property in a particular manner2 7#b7 because once obtained it is often difficult or impossible to get another like it2 7#c7 because it may be used to injure or hinder another enterprise1 although itself conferring or securing nothing of value4 ,the third method of statement has been accurately1 though colloquially1 described as a 'nuisance value1' and is so obviously illegitimate as to require no discussion4 ,the second method of statement1 when carefully considered1 asserts that because the sovereign has deemed it advisable to entrust a public work to one citizen or a body of citizens such quasi monopolistic grant confers the right to charge for the service more than would be just or lawful were the occupation open to all4 ,nor does it change the truth of the last statement that the difficulty of procuring franchises produces1 and long has produced1 a traffic in them4 ,on every private sale of franchise property1 the price paid is so much money lost to the public by official incompetence or worse1 and such sale can confer on the vendee no right to compel the consumer to repay him a price that should have been paid to the ,state4 ,for these reasons1 ,i believe that on principle a franchise should be held to have no value except that arising from its use as a shield to protect those investing their property on the faith thereof1 and that1 it renders fruitful1 it possesses no more economic value for the investor than does an actual shield possess fighting value1 apart from the soldier who bears it4 ,it will not do to leave this decision without calling attention to the fact that the foregoing quotations are but argument advanced by the ,court1 and that he found a franchise value1 following the reasoning of the ,supreme ,court in cases cited heretofore1 and other cases1 and upon the doctrine that3 ,private citizens may acquire vested property rights through a series of even erroneous decisions2 rights so firmly vested that it becomes unconstitutional for the court which persisted in error suddenly to rectify its mistakes to the detriment of those who had securely rested upon the decisions sought to be invalidated4 ,after citing numerous cases1 and considering methods of valuing franchises1 the ,court says3 ,i think it obvious1 as ,i have endeavored heretofore to point out1 that either for the purpose of condemnation or regulation the value of a franchise depends wholly upon what is earned under it and ,i believe the best way of finding out how much a franchise1 separately considered1 is worth1 is to ascertain what those persons desirous of continuing operation under it consider it to be worth4 ,in a corporation whose stock is freely bought and sold1 such value is measured by the success attending the sale of stock based entirely upon capitalization of the franchise2 yet the value of stock issued only in consideration of the franchise is obviously dependent on earnings after the stock based on tangible property has received a satisfactory dividend 99 99 99 yet it will always be true that1 unless the whole net return1 compared with the value of tangibles1 is above a satisfactory return on tangible investment alone1 the addition of stock issued for franchise will be regarded as 'water1' and detract from the value of the entire issue1 and ,i think this conclusive proof that value on a franchise depends wholly on what actual investment can earn4 ,in this particular instance stock to the amount of #g1gha1jjj had been issued in #ahhd and divided among stockholders without any consideration1 which stock represented the company's own valuation of its franchise at that date4 ,the ,court1 in fixing a value1 held that it would be proper to increase it proportionately to the increase in tangible property2 this he did1 fixing the franchise value at more than #ab1jjj1jjj4 ,the ,supreme ,court of the ,united ,states1 in disposing of this1 says 7#bab ,u4 ,s41 #dg73 ,but although the state ought for these reasons applicable to this case--not general1 to be bound to recognize the value agreed upon in #ahhd as part of the property upon which a reasonable return can be demanded1 we do not think an increase in that valuation ought to be allowed upon the theory suggested by the ,court below4 ,because the amount of gas supplied has increased to the extent stated1 and the other and tangible property of the corporations has increased so largely in value1 is not1 as it seems to us1 any reason for attributing a like proportional increase in the value of the franchises4 ,real estate may have increased in value very largely1 as also the personal property1 without any necessary increase in the value of the franchises4 ,its past value was founded upon the opportunity of obtaining these enormous and excessive returns upon the property of the company1 without legislative interference with the price for the supply of gas1 but that immunity for the future was1 of course1 uncertain1 and the moment it ceased and the legislature reduced the earnings to a reasonable sum1 the great value of the franchises would be at once and unfavorably affected1 but how much so it is not possible for us to see4 ,the value would most certainly not increase4 ,the ,court did not concur in the increase of the franchise value1 and1 in dismissing this subject1 says3 ,what has been said herein regarding the value of the franchises in this case has been necessarily founded upon its own peculiar facts1 and the decision can form no precedent in regard to the valuation of franchises generally where the facts are not similar to those in the case before us4 ,it appears1 then1 from this1 the latest case1 that3 #a4--,the view of the lower ,court that a franchise or intangible value is not separable1 and that if there be a value it must be determined from the earnings1 is concurred in by the ,supreme ,court4 #b4--,that the arbitrary increase of franchise value1 by the lower ,court1 proportional to the normal increase of the physical property1 is not concurred in4 #c4--;,inferentially1 it appears that the acquiescence of the ,state in the franchise value of #ahhd is the main reason for permitting that value to stand1 and it would seem to follow1 from the reasoning of the ,court1 that it is very questionable whether any franchise or intangible value based on excessive rates should be allowed to stand4 ,another view of franchise values1 as stated by ,george ,h4 ,benzenberg1 ,past-,president1 ,am4 ,soc4 ,c4 ,e41 in discussing water-works franchises1 is as follows3 ,some contend that a franchise is simply and purely a privilege given by the municipality to a water company to utilize the streets for the purpose of laying a system of pipes through which it may distribute and deliver water4 ,it is not a license to do business1 but a privilege to use public streets1 alleys1 and grounds4 99 99 99 ,if that interpretation is the proper one1 the value of the franchise1 if the property is to be purchased by a municipality1 is comparatively nothing4 ,if the property is to be purchased by another company1 it represents all of the great value that such franchise possesses to the original holder1 together with all the privilege it confers2 but in the event it is purchased by the city1 it is dispossessed of that certain element of value1 and ,i think for that reason it is stipulated in many of the ordinances that no value shall be placed on the franchise by appraisers4 ,in the paragraph just quoted1 it is evident that the term franchise is used in a restricted sense1 and refers to the ordinance or contract from a municipal corporation granting the right to operate on specific terms1 rather than the broad use of the word as indicating all rights derived from general laws or special contracts or grants4 ,the point1 however1 is applicable to the case of any corporation occupying public ground4 ,it is believed that enough argument has been adduced to show that any attempt to give separate value to the different elements that enter into the intangible value of a property is a very risky proceeding on the part of appraisers1 and to support further the contention that1 as a business proposition1 the value of any property depends on its earnings2 that the franchise simply protects the owners of the property in their enjoyment of those earnings2 that the value of the franchise merges in the fair value of the property1 and that the franchise can have no special value of itself unless the earnings of the property are in excess of a usual and fair rate on the actual investment4 ,in case there are surplus earnings1 they measure and determine not only the value of the franchise1 but also the value of all other non-physical elements4 ,if this be true1 any readjustment of rates1 any restriction of operations1 or other form of legislative control which would unfavorably and violently affect earnings1 is bound to hold down franchise or non-physical values2 as it would not seem possible to read into the various decisions any intention on the part of the ,court to base the right to demand fair return on anything but the fair value of the property being used4 ,the writer1 therefore1 reaches the following conclusions regarding non-physical values3 #a4--,that all the different non-physical elements of value are inseparable4 #b4--,that in the case of very many properties1 no non-physical value can attach1 and in many cases this value will be a negative or subtractive quantity4 #c4--,that in the case of properties located so as to secure either a monopoly of business in a congested territory1 or in which the construction1 location1 strategic position1 or economic excellence of design1 is such that1 on a schedule of rates which is fair and reasonable for competitors less advantageously situated1 an earning is secured which is in excess of usual returns1 a non-physical value of considerable magnitude may very properly be assigned4 #d4--,that1 for the computation of non-physical values1 the income account of the property under consideration affords the only legitimate basis1 but even then consideration must be given to duration of franchise1 reasonableness of rates1 and other modifying conditions1 and also1 possibly1 the purpose for which the appraisal is made may determine whether or not a non-physical value may be used4 ,the language of the ,court in the ,knoxville and ,omaha cases apparently leaves this a very open question4 ,this brings us substantially to the conclusion reached by ,professor ,adams in #aijj1 and a careful study of the method laid down by him shows nothing that cannot be accepted as fair and reasonable4 ,his plan should be extended so as to cover subtractive values or the case of properties showing a deficit4 ,this method has the merit of being based on the actual earnings and expenses of the company under investigation and on the value of the physical property as already computed4 ,it does not introduce a mass of purely supposititious figures1 nor depend on hypothesis4 ,the proposition is simply this3 ,if a property earns only its operating expenses1 including therein proper depreciation reserves1 taxes1 and such a percentage on its actual invested capital as could be earned by that capital if invested in good non-taxable bonds or other like security1 it is worth no more than its physical property is worth4 ,if it earns more than that1 it is due to the franchise1 going concern1 or other intangible elements of value1 and1 to determine that value1 capitalize the surplus4 ,it takes several years for a property to reach its normal earning capacity after construction is completed1 and1 in the investigation of a property of comparatively recent construction1 where the gross and net earnings show a steady annual increase1 the application of a negative or subtractive value should be made with great caution2 but where the earnings have been fairly uniform and stationary for a period of years1 and the property does not earn a sufficient sum to care for depreciation and annuity1 it is clear that the value as an earning investment is less than the determined physical value1 and that the physical valuation should be reduced by some amount to arrive at the fair value4 ,the ,courts hold that public service corporations are entitled to earn3 7a7 ,operating expenses1 7b7 ,expenses of maintenance and running repair1 7c7 ,taxes1 7d7 ,a sinking fund from earnings to cover depreciation and obsolescence1 and 7e7 ,a reasonable profit on the fair value of the property4 ,an investigation of non-physical values should then include an analysis of operating expenses1 to determine that additions and betterments to property are not included therein4 ,the general practice of corporations in the past has been to ignore any reserve to cover depreciation and obsolescence4 ,if1 at the beginning of operations of any property1 such a sum should be annually set aside out of earnings as should1 when invested as a sinking fund1 maintain the integrity of the investment1 then this amortization fund at any period1 plus the depreciated value of the physical property1 should equal the amount of the total capital actually invested in the property4 ,in most cases this has not been done1 and the ,supreme ,court in the ,knoxville ,water ,case holds that1 by reason of the failure to create such a fund1 whether due to carelessness1 excessive dividends1 or other cause1 the company must lose the amount of capital represented by the depreciation that has taken place4 ,in making a computation of intangible values1 it is certainly proper to consider the income account as averaged over a period of years1 to avoid violent fluctuations of gross or net earnings1 and a depreciation reserve should be determined for such years1 as it cannot be claimed that1 unless such an amortization fund is earned1 in addition to other operating expenses and taxes1 there is any non-physical value4 ,professor ,adams covered the depreciation in the ,michigan work in the #d annuity which was deducted before non-physical values were computed4 ,the writer is inclined to go a step farther than ,professor ,adams1 and hold that1 before any intangible values can be attached to the property1 it should earn not only all operating expenses1 taxes1 and reserve for depreciation1 but also interest on the actual investment equivalent to the return that would be had were the money invested in a non-taxable bond1 say #d1 and that any earnings in excess of such a sum might be termed properly earnings on franchise1 or intangible values4 ,on this basis1 then1 a rule would be formulated1 being that of ,professor ,adams1 with some modifications3 #a4--;,deduct from gross earnings from operation the aggregate of operating expenses1 including in operating expenses an annual sinking fund to amortize the depreciation and obsolescence1 and the remainder may be termed income from operation4 #b4--,to this income from operation add income from investment1 giving total income1 which represents the amount at the disposal of the corporation for the support of its capital and for the determination of its annual surplus4 #c4--;,from total income1 deduct taxes1 rents paid for lease of operated property 7provided such property is not included in the appraisal71 and improvements chargeable to income4 ,the remainder represents the income after all charges against operation of property1 and maintenance of the integrity of the capital investment have been cared for4 #d4--;,from this remainder 7#c7 deduct such a percentage of the value of the physical property 7representing invested capital7 as would equal the income of that capital if invested in government or other non-taxable bonds4 ,the remainder would represent surplus1 which1 capitalized at a proper rate1 would equal the value of intangible or non-physical properties1 which is to be added to the appraised value of the physical property4 #e4--;,if1 instead of a surplus1 a deficit occurs1 a careful study of all the conditions surrounding the operations of the property should be made1 and1 if there be no reasonable expectation of increase of earnings1 or other modifying conditions1 a proper figure1 based on the average deficit1 should be determined1 and1 as a negative intangible value1 deducted from the value of the physical property4 #f4--;,in the determination of rates1 to be used in computing income and for capitalizing surplus or deficit1 the greatest of care must be exercised to adopt such figures as will be proper and absolutely just4 ,,conclusion4 ,the subject of valuation is so appallingly great that1 notwithstanding the length this paper has reached1 many points have not been covered4 ,no discussion of the method of valuation by capitalization of net earnings1 which is practically that adopted by ,professor ,adams in his commercial valuation1 has been attempted2 nor has any attempt been made to describe the stock and bond method4 ,neither method is adaptable to the requirements of any public appraisal4 ,the so-called cash investment in property1 or the actual cost of construction through the entire history of the property1 cannot be sustained by any process of argument as a proper method of valuation1 nor can the method of computing the cost of construction of an adequate modern property assumed to replace the existing property4 ,the scope of a valuation must be limited to the property as it exists on the date of the appraisal1 and it would be equally fallacious to include non-existent and long-perished facilities1 or to assume a hypothetical and never-existing property4 ,there are many intricate problems in connection with a valuation for rate-making or taxation which really belong to these undertakings1 not to valuation4 ,they are usually brought into the discussion of valuation1 but have been here excluded4 ,among these are the separation of interstate from intra-state business1 and others1 of great interest1 it is true1 but foreign to the subject of valuation4 ,the question of the fair return on money invested is not referred to1 for the reason that it has no direct bearing on valuation1 and for the further reason that it has been quite exhaustively discussed in the papers listed in the ,appendix4 ,the writer desires to make clear the fact that he is not advocating low rates per se4 ,the rate must be determined to meet the special requirements of each investigation4 ,the ,supreme ,court of ,maine says 7#ig ,maine73 ,the reasonableness of the rate may for a time be affected by the degree of hazard to which the original enterprise was naturally subjected4 ,that is such hazard only as may have been justly contemplated by those who made the original investment1 and not unforeseen and emergent risks1 and such allowances may be made as is demanded by ample and fair public policy4 ,while the ,supreme ,court of the ,united ,states1 in ,willcox vs4 ,consolidated ,gas 7#bab ,u4 ,s41 #ab71 fixed a rate of #e as reasonable in that instance1 they said3 ,no particular rate of compensation must in all cases be regarded as sufficient for capital invested in business enterprises4 ,such compensation must depend greatly on circumstances and locality4 ,among other things the amount of risk in the business is an important factor1 as well as the locality where the business is conducted and the rate expected and usually realized there upon investments of a somewhat similar nature with regard to the risk attending them4 ,there may be other matters which in some cases might also be properly taken into account in determining the rate which an investor might properly expect or hope to receive and which he would be entitled to without legislative interference4 ,the less risk1 the less right to any unusual return upon the investments4 ,in view of these dicta1 it is needless to argue whether a rate of #f or #aj1 or #ae1 or more1 be reasonable4 ,the writer has herein endeavored to narrate the story of the ,michigan appraisal in some detail1 to review briefly subsequent similar work1 to present the main points in the legal decisions bearing on appraisal practice1 and to present his own views as to proper and legitimate methods of valuation in the light of judicial opinions4 ,he has attempted to do this in the spirit of absolute fairness1 without permitting either early years of training in corporation service1 or more recent investigations for ,state and city1 to bias the presentation of truths4 ,the subject is one which has not attracted the average citizen sufficiently to compel him to give it deep study4 ,those who are familiar with it all too frequently have views biased by interest1 and it is hardly conceivable that any final conclusion will be reached until each and all of the main issues are determined by the ,courts4 ,when thus determined1 it will be done with wisdom and with justice4 ,it is impossible to study the cases referred to without being impressed with the absolute fairness of this great tribunal4 ,quotations from decisions have been included at considerable length in order to obviate the criticism that the references do not convey the exact meaning of the ,courts4 ,the writer acknowledges the valuable suggestions1 criticisms1 and information furnished him by ,professors ,henry ,c4 ,adams1 ,mortimer ,e4 ,cooley and ,w4 ,d4 ,pence2 ,mr4 ,henry ,l4 ,gray1 ,engineer of the ,railroad ,commission1 ,washington2 ,mr4 ,d4 ,f4 ,jurgensen1 ,engineer1 ,railroad and ,warehouse ,commission1 ,minnesota2 ,mr4 ,bion ,j4 ,arnold1 and others who have made possible the presentation of data regarding ,state and other appraisals4 ,bibliography4--,accompanying this paper will be found a bibliography of the principal articles on the subject of property valuation4 ,,appendix ,,bibliography4 ,railroad ,valuation4-- ,the ,appraisal of ,plants for ,public ,services4 ,nicholas ,s4 ,hill1 ,jr4 ,the ,engineering ,record1 ,june #hth1 #aija4 ,a review of the principles on which a property is valued when purchased by private parties or by municipalities4 ,the ,value of ,railways and ,their ,capitalization4 ,h4 ,t4 ,newcomb4 ,railroad ,gazette1 ,august #bith1 #aijb4 ,abstract from ,yale ,review1 ,august1 #aijb4 ,the ,census ,office ,railroad ,valuation4 7,editorial47 ,railroad ,gazette1 ,september #ast1 #aije4 ,a discussion of the work of ,professor ,henry ,c4 ,adams1 ,statistician of the ,interstate ,commerce ,commission1 and his assistants4 ,railroad ,taxes and ,plans for ,ascertaining the ,fair ,valuation of ,railroad ,property4 ,the ,railway ,age1 ,september #hth1 #aije4 ,report presented at the meeting of the ,national ,association of ,railroad ,commissioners1 at ,deadwood1 ,s4 ,dak4 ,railroad ,valuations in ,state ,reports4 ,professor ,harold ,m4 ,bowman4 ,railroad ,gazette1 ,september #hth1 #aije4 ,abstract of a report1 which explains briefly the systems of valuation provided for by the laws of the several ,states1 with a critical review of the systems and administrative reports4 ,the ,determination of ,physical ,values4 ,clinton ,s4 ,burns1 ,m4 ,am4 ,soc4 ,c4 ,e4 ,the ,engineering ,record1 ,september #afth1 #aije4 ,presents a mathematical formula for fixing depreciation on articles1 based on age1 with quite a complete demonstration of the theory presented4 ,valuation of ,railroad ,property1 ,henry ,fink4 7,serial47 ,railway ,age ,gazette1 ,july #bdth1 #aijh1 et seq4 ,a brief review of several methods4 ,the ,valuation of ,railways4 7,serial47 ,railway ,age ,gazette1 ,january #bb;d1 #aiji1 et seq4 ,a thorough discussion of the subject1 and one of the best presentations of it from a rational corporation standpoint4 ,some ,neglected ,factors of ,fair ,valuation4 7,editorial47 ,railway ,age ,gazette1 ,march #eth1 #aiji4 ,railway ,capital and ,values4 ,w4 ,h4 ,williams4 7,serial47 ,railway ,age ,gazette1 ,april #b;d1 #aiji1 et seq4 ,an address setting forth at length the views of the railway managers who oppose valuation of property for any purpose4 ,valuation of ,street ,railway ,properties4 ,electric ,railway ,journal1 ,june #aith1 #aiji4 ,a general discussion of the subject4 ,commercial ,valuation of ,railway ,operating ,property in the ,united ,states3 #aijd4 ,bulletin #ba1 ,united ,states ,bureau of the ,census4 ,contains an exhaustive discussion of sundry methods of valuation4 ,the most complete series of papers on valuation yet published4 ,the ,chicago ,appraisal4-- ,report to the ,common ,council on ,railroad ,valuation4 ,b4 ,j4 ,arnold1 ,m4 ,am4 ,soc4 ,c4 ,e41 ,m4 ,e4 ,cooley1 and ,a4 ,b4 ,du ,pont4 ,the ,michigan ,appraisal4-- ,expert ,valuation of ,railway and ,other ,corporate ,property in ,michigan4 ,e4 ,e4 ,r4 ,tratman1 ,assoc4 ,m4 ,am4 ,soc4 ,c4 ,e4 ,engineering ,news1 ,december #bjth1 #aijj4 ,a descriptive paper4 ,what is the ,value of a ,railroad for the ,purpose of ,taxation8 ,charles ,hansel1 ,m4 ,am4 ,soc4 ,c4 ,e4 ,railroad ,gazette1 ,april #aith1 #aija4 ,discussion of the work done by ,professor ,m4 ,e4 ,cooley1 and on valuation in general4 ,michigan ,railroad ,appraisal--,valuation of ,physical ,properties4 ,professor ,mortimer ,e4 ,cooley4 ,bulletin #ba1 ,u4 ,s4 ,bureau of the ,census1 p4 #gf4 ,michigan ,railroad ,appraisal--,valuation of ,non-,physical ,elements of ,railway ,property4 ,professor ,henry ,c4 ,adams4 ,bulletin #ba1 ,u4 ,s4 ,bureau of the ,census1 p4 #gh4 ,the ,minnesota ,appraisal4-- ,valuation of ,railway ,property4 ,a4 ,s4 ,cutler4 ,year ,book1 ,university of ,minnesota1 #aijh4 ,an account of the methods used for obtaining and checking the information4 ,report on the ,valuation of ,railways in ,minnesota1 ,january1 #aiji4 ,minnesota ,state ,railroad ,commission4 ,valuation of ,railways in ,minnesota4 ,railway ,age ,gazette1 ,february #eth1 #aiji4 ,a descriptive article4 ,the ,texas ,appraisal4-- ,railroad ,franchise ,values in ,texas4 ,w4 ,h4 ,coverdale1 ,assoc4 ,m4 ,am4 ,soc4 ,c4 ,e4 ,railroad ,gazette1 ,february #abth1 #aijd4 ,discussion of methods used in ,texas4 ,methods ,used by the ,railroad ,commission of ,texas ,under the ,stock and ,bond ,law1 in ,valuing ,railroad ,properties4 ,r4 ,a4 ,thompson1 ,assoc4 ,m4 ,am4 ,soc4 ,c4 ,e41 with discussion by ,messrs4 ,e4 ,l4 ,corthell1 ,f4 ,lavis1 ,w4 ,h4 ,coverdale1 and ,w4 ,d4 ,taylor4 ,transactions1 ,am4 ,soc4 ,c4 ,e41 ,vol4 ,,lii1 p4 #cbh1 et seq4 ,the ,washington ,appraisal4-- ,report to the ,washington ,railroad ,commission on the ,valuation of ,railways in ,washington4 ,halbert ,p4 ,gillette1 ,m4 ,am4 ,soc4 ,c4 ,e4 ,engineering-,contracting1 ,april #gth1 #aiji4 ,the ,wisconsin ,appraisal4-- ,wisconsin ,railroad ,valuation4 ,w4 ,d4 ,taylor1 ,m4 ,am4 ,soc4 ,c4 ,e4 ,bulletin #ba1 ,u4 ,s4 ,bureau of the ,census1 p4 #hb4 ,the ,appraisement of the ,physical ,value of ,wisconsin ,railways for the ,purpose of ,taxation4 ,w4 ,d4 ,taylor1 ,m4 ,am4 ,soc4 ,c4 ,e4 ,engineering ,news1 ,march #cast1 #aijd4 ,discussion on ,valuation of ,railroad ,properties4 ,w4 ,d4 ,taylor1 ,m4 ,am4 ,soc4 ,c4 ,e4 ,transactions1 ,am4 ,soc4 ,c4 ,e41 ,vol4 ,,lii1 p4 #cec4 ,report to the ,tax ,commission4 ,w4 ,d4 ,taylor1 ,m4 ,am4 ,soc4 ,c4 ,e4 ,report of the ,wisconsin ,tax ,commission1 #aijg1 p4 #bfi4 ,the ,work of the ,joint ,engineering ,staff of the ,wisconsin ,tax and ,railroad ,commissions4 ,w4 ,d4 ,pence1 ,m4 ,am4 ,soc4 ,c4 ,e4 ,journal1 ,western ,society of ,engineers1 ,vol4 ,,xiv1 p4 #gc4 7,abstract47 ,engineering ,news1 ,march #dth1 #aiji4 ,water-,works ,valuation4-- ,water-,works ,valuation and ,fair ,rates1 in the ,light of the ,maine ,supreme ,court ,decisions1 in the ,waterville and ,brunswick ,cases4 ,leonard ,metcalf1 ,m4 ,am4 ,soc4 ,c4 ,e4 ,transactions1 ,am4 ,soc4 ,c4 ,e41 ,vol4 ,,lxiv1 p4 #a4 7,a complete bibliography of the subject of water-works valuation may be found on p4 #fi of ,mr4 ,metcalf's paper47 ,,table ,,of ,,contents4 ,,page ,,introductory #a ,reasons for ,valuation #b ,as a ,matter of ,public ,interest #b ,as a ,matter of ,corporation ,necessity or ,expediency #c ,difficulties of ,accurate ,valuation ,encountered #d ,,the ,,relation ,,of ,,public ,,service1 ,,or ,,quasi-,,public ,,corporations1 ,,to #f ,,the ,,people ,supreme ,courts #h ,regulation and ,legislation #aj ,,explanation ,,of ,,terms #af ,appraisal or ,valuation #af ,cost of ,reproduction #af ,cost1 or ,original ,cost #af ,present ,value1 or ,present ,physical ,value #af ,non-,physical1 or ,intangible1 ,value #ag ,elements of ,final ,value #ah ,the ,physical ,property ,element of ,value #ah ,the ,non-,physical or ,intangible ,elements of ,value #ah ,true ,method of ,valuation #ai ,,the ,,michigan ,,state ,,appraisals #bj ,organization #bj ,administration #bj ,civil ,engineering #bj ,mechanical ,engineering #bj ,telegraphs #bj ,telephones #ba ,vessel ,properties #ba ,methods of ,procedure #ba ,difficulties #bb ,lack of ,complete ,understanding on the ,part of the ,state #bb ,officials ,the ,attitude of the ,railroad ,corporation ,managers #bb ,the ,confused ,condition of the ,records #bb ,forms ,used #bc ,board of ,review #cf ,office and ,field ,methods #cg ,making the ,inventories #ch ,office ,inspection as a ,check on ,field ,work #ci ,field ,inspection #dj ,special ,work on the ,chicago and ,northwestern ,railway #dj ,special ,valuations #da ,computation #db ,filing in ,office #db ,computation ,tables #dc ,unit ,prices #dc ,classification #de ,compilation #df ,special ,problems of the ,mechanical ,department #df ,assignment of ,value to ,states #df ,freight ,car ,inspection #dg ,locomotives #dh ,vessels #dh ,overhead ,charges #di ,engineering #di ,legal ,expense #di ,organization ,expense #di ,interest #di ,discount on ,bonds #di ,the ,charge of ,ten ,per ,cent4 for ,contingencies #ej ,right-of-,way ,values #eb ,comparison of ,country ,land ,values #ei ,average ,price per ,acre for ,village ,land #fc ,comparison of ,valuation ,figures with ,actual ,considerations #fd ,non-,physical ,values #fd ,history and ,results of the ,michigan ,appraisal #fg ,market ,value of ,stocks and ,bonds #fg ,error in ,published ,reports as to ,michigan ,work #fg ,the ,cost of the ,work #fi ,grand ,summary of ,railroad ,appraisal of #aijj as to #gj ,seventy-eight ,incorporated ,railroads ,the ,result of the ,michigan ,appraisal #gj ,,railroad ,,appraisal ,,of ,,the ,,state ,,of ,,texas #ga ,authority for the ,work #ga ,method of ,physical ,appraisal #gb ,the ,result of the ,texas ,work #gc ,,railroad ,,appraisal ,,of ,,the ,,state ,,of ,,wisconsin #ge ,,the ,,minnesota ,,state ,,railway ,,appraisal #gg ,land ,valuation #gh ,forms ,used in the ,compilation of ,information #gi ,,the ,,washington ,,state ,,appraisal #gi ,,the ,,valuation ,,of ,,traction ,,properties ,,in ,,chicago #id ,,the ,,commercial ,,valuation ,,of ,,railway ,,operating ,,property ,,of ,,the #ig ,,department ,,of ,,commerce ,,and ,,labor ,,the ,,extent ,,of ,,appraisal ,,practice #ii ,,review ,,of ,,some ,,methods ,,of ,,valuation1 ,,and ,,some ,,of ,,the ,,criticisms ,,on #aja ,,the ,,michigan ,,appraisal ,,the ,,determination ,,of ,,elements ,,of ,,value ,,and ,,methods ,,of ,,valuation ,,by #aab ,,the ,,courts ,,physical ,,values ,,and ,,methods ,,for ,,their ,,determination #abh ,the ,preliminary ,study #acb ,the ,field ,inspection #ace ,the ,computation #acf ,classification of ,properties #acg ,unit ,values #ach ,right of ,way and ,real ,estate #aci ,depreciation #ada ,immaterial ,elements of ,physical ,property #adb ,organization #adc ,legal ,expense #adc ,engineering #adc ,administration #adc ,general ,expense #adc ,discount #ade ,working ,capital #ade ,contingencies #ade ,design #adf ,adaptation #adf ,apportionment of ,values #adg ,terminals #adg ,development of the ,art #adh ,the ,preparation of the ,final ,figure #aej ,,non-,,physical ,,values ,,and ,,methods ,,for ,,their ,,determination #aej ,going ,concern ,value #aed ,developed ,business #aee ,cost of ,handling ,business #aee ,good ,will and ,established ,organization #aee ,franchise ,values #aef ,conclusions ,regarding ,non-,physical ,rules for ,determination #afe ,,conclusion #afe ,,bibliography #afh ,railroad ,valuation #afh ,the ,chicago ,appraisal #afi ,the ,michigan ,appraisal #afi ,the ,minnesota ,appraisal #afi ,the ,texas ,appraisal #afi ,the ,washington ,appraisal #agj ,the ,wisconsin ,appraisal #agj ,water-,works ,valuation #agj ,,discussion ,,fred ,,lavis1 ,m4 ,,am4 ,,soc4 ,c4 ,e4--,the author states that his paper is confined to a discussion of the methods which should be used in arriving at a correct figure of cost of reproduction and depreciation1 and that it does not take up questions involving the propriety of those figures when reached4 ,in so far as this is concerned1 it is probably the most complete compilation of the available information on this phase of the subject which has yet appeared in print4 ,the author refuses to recognize that the consideration of the so-called intangible values has any place in a physical valuation4 ,as1 however1 there exists such a widespread feeling1 especially among those interested in railroads1 that physical valuations1 for any purpose whatever1 are absolutely useless1 because these intangible values are not or cannot be included1 it does not seem out of place to refer to this phase of the subject at this time1 and more especially in view of the fact that many persons1 the prominence of whose position entitles them to consideration1 have taken this point of view very recently1 and their remarks have received considerable publicity4 ,not more than two weeks ago1 ,judge ,lovett1 the head of the ,harriman ,system1 expressed the opinion that the theory of valuing railroad property by trying to determine the cost of reproduction was utterly impractical4 ,it seems important1 therefore1 that we1 as engineers1 interested in having the question properly understood1 should be careful1 in referring to valuation1 to make it plain that other features besides the value of the physical property are to receive due consideration4 ,the speaker1 therefore1 proposes to examine some of the arguments advanced by the opponents of valuation to see if the objections most generally brought forward are insuperable4 ,some critics of valuation go so far as to say that engineers cannot make a close valuation of even the purely physical property4 ,for instance1 ,mr4 ,w4 ,h4 ,williams1 ,vice-,president of the ,delaware and ,hudson ,company1 in a paper on this subject1#ai states that3 ,no engineer in estimating on the several important items of construction work for the year will come within #aj per cent4 of the total aggregate cost4 ,many of the more important items are frequently underestimated #be to #ej per cent4 ,he cites1 as an especially good illustration1 the ,panama ,canal1 the original estimate of the cost of which was #adj1jjj1jjj1 though the present estimate is #cjj1jjj1jjj4 ,almost every one who has kept in touch with that subject knows why the ,panama ,canal has cost more than the original estimates1 and that the greater cost is no reflection on the judgment of the engineers who made such estimates4 ,one cannot always foresee what changes in plans may be made before construction is completed1 and would hardly expect the estimates of the cost of a railroad to be adequate if they were made for a single-track road and a double-track was built4 ,in any event1 there is a vast difference in estimating the cost of an engineering work already completed and one which has yet to be started1 the difference being largely in favor of a closer estimate of the completed work4 ,limitations are often placed on engineers1 in connection with work they do1 which are afterward forgotten4 ,the speaker was asked not long ago to prepare a report in connection with the valuation of a large railroad property4 ,the time within which the results were required was very limited1 and the methods used in the valuation necessarily had to be a combination of the inventory method and reliance1 in a great many matters1 on the judgment of those making the appraisal4 ,undoubtedly the result obtained was entirely adequate for the purpose for which it was required1 but would hardly stand if an attempt were made to use it as a basis for an argument before a ,court of law or a public service commission1 though it would not be beyond the range of the experience of many engineers to have a matter of this kind brought forward some time in the future as an absolute statement of fact1 with no reference to the way in which the work was done4 ,it is inevitable1 of course1 that engineers will differ in their opinions as to some details of methods of making an inventory of the property of a railroad or other public service corporation1 and also as to exactly what unit prices should be applied1 but in general it is safe to say that any engineer of proper experience and training can make a satisfactory appraisal of the value of the physical property of a railroad1 and that if two or more such competent fair-minded engineers1 unhampered by any consideration of the purpose for which it is to be made1 should make such an appraisal1 the variation in the result would be so small as to be negligible4 ,the speaker1 however1 does not entirely agree with the author1 that the purpose for which the appraisal is to be used should be entirely ignored by those who are making it4 ,there can be little doubt as to the propriety of using a properly made physical valuation as a basis for taxation1 or as information for the owners1 although there may be some as to the methods whereby the so-called intangible values are to be determined in these cases1 or even whether they should be considered at all4 ,the greatest difference of opinion arises when an attempt is made to regulate the issue of stocks and bonds1 or to fix the rates which should be charged for transportation1 on the basis of a physical valuation4 ,arguments for and against rate regulation revolve in a circle1 and1 apparently1 there is no starting point which will satisfy every one4 ,the ,courts have ruled that the railroads are entitled to such rates as will enable them to earn a fair return on the value of their property2 the railroads claim that the only way to determine this value is on the basis of the earning capacity2 that is1 one side claims that the rates must be based on the value and the other that the value should be based on the rates4 ,it is evident1 however1 by this time1 that the railroads must submit to regulation1 therefore a way must be found to break into the circle1 and it would seem to be incumbent on them to direct their energies along lines which will tend to make such regulation fair and just rather than to oppose it entirely4 ,there is little claim that unduly large dividends are paid1 but there is a feeling in the mind of the public that the railroads are over-capitalized4 ,is it not possible1 therefore1 to break into the circle at this point1 and decide1 by means of a proper valuation1 as to the fairness or otherwise of the capitalization8 ,the objection to this1 on the part of the railroads1 is that the value of the purely physical elements is by no means the whole value of their property1 but that something should be added for the so-called intangible values4 ,to emphasize the difficulties of appraising the intangible values in any way which will permit the application of such value to the determination of rates for transportation1 the opponents of physical valuation cite what is now the familiar instance of two mythical roads between the same termini1 the first with good alignment and easy grades following a valley1 and the second forced into the mountains1 having not only heavier grades and more curvature1 with consequently a higher cost of operation1 but also more expensive construction4 ,the value of the purely physical features of the former1 of course1 would be much less than those of the latter1 but its actual value as a property would be greater4 ,how then should the rates on the two roads be fixed8 ,the fallacy of using this example as an argument against physical valuation as a basis for rate-making is in assuming that there would be two railroads built under such circumstances1 with no other features than the two termini and the line between4 ,one has only to call to mind such examples of competing lines as those of the ,denver and ,rio ,grande between ,denver and ,salt ,lake1 the ,union ,pacific between ,cheyenne and ,ogden1 the ,lackawanna and ,new ,york ,central between ,new ,york and ,buffalo1 or many others1 to realize that there are1 on all roads of this nature1 many other factors than the actual cost of operating through trains between the termini1 which determine the through rates4 ,one would hardly suppose that at this late date any one believes that it is proposed to use only the value of the purely physical property of railroads as a basis for rate regulation1 yet the ,new ,york ,sun1 a paper of national prominence and usually most ably edited1 devoted a column of its editorial page#bj to a discussion intended to show that rate regulation1 based on physical valuation alone1 was an impossibility4 ,in addition to citing the example given above1 the following is put forward as the reductio ad absurdum of the argument for rate regulation based on physical valuation4 ,it is said3 ,suppose there are two bridges over the ,ohio1 the cost of the construction of each being the same1 one between ,cincinnati and ,newport and the other twenty miles below where there is nothing but a village on either shore4444 ,on what basis would the proponents of physical valuation1 as the determining value in rate making1 adjust a toll charge on these respective bridges8 ,the example is far-fetched1 and in no way applicable to the question of the adjustment of rates on railroads1 but inasmuch as it is seriously put forward from a responsible source1 it seems worth while to consider it4 ,assuming1 as apparently the propounder does1 that the proposition is uncomplicated by any questions of franchises1 public rights in the land on which the bridge and its approaches are built1 etc41 then there is no question but that the owners of either bridge have a perfect right to charge what toll they please4 ,on the other hand1 suppose the permission of the ,war ,department1 or some other governing body1 had to be obtained in order to build piers in the river1 or even to build the bridge at all2 the argument used in asking for this permission is that the bridge is needed as a public convenience2 or it is desired to occupy certain streets for the approaches1 again is used the argument of public convenience1 and so on4 ,these privileges are granted on the tacit understanding1 at least1 that the public convenience is to be served1 and the ,courts rule that1 in such cases1 in consideration of the equity which the public has in the property by reason of the rights granted1 a fair return on the value of the property1 but no more1 should be the basis for establishing the rates of toll4 ,would the ,sun claim that the value of the rights and franchises given by the public in such a case1 be included in the value of these bridges1 and that a higher total income should be derived from one bridge than the other because the value of the streets on which the approaches had been built is greater in one case than the other2 or that a greater income should be derived in one case than another because the cities furnish more people than the villages8 ,is there any particular reason1 except for the slightly larger depreciation and cost of maintenance1 and1 bearing in mind the fact that both bridges cost the same1 why1 if there is ten times as much traffic on one bridge as on the other1 the toll should not be proportioned accordingly1 to provide the same income on each8 ,if the ,sun had imagined a bridge built by private individuals1 with their own money1 between two villages1 the inhabitants of which1 at the time the bridge was built1 having been willing to grant almost any franchises or privileges in order to get the bridge1 the villages in course of time growing to large cities1 and the old bridge having been replaced by a heavier modern structure1 the example might have been more nearly comparable to the railroad situation4 ,in this case1 the original toll1 of say #aj cents a head1 may have1 in the early days1 only barely returned a meager rate of interest on the investment1 or even for some years resulted in a deficit4 ,would the ,sun uphold the owners of the bridge if1 since the villages have grown to cities1 they still insisted on collecting the original toll1 if it could be shown that a new bridge could be built and would be a paying investment with a toll of1 say1 #b cents1 except for the fact that the original bridge was built in the only location where it was practical to build a bridge at all8 ,or is it reasonable to say that the foresight and energy of the owners of the bridge1 even though it may have been one of the principal factors in enabling the villages to grow into cities1 entitle them to capitalize their enterprise on the basis of a #aj-;cent toll8 ,it cannot be denied that the energy and foresight of the original builders should be recognized in fixing the rate of toll1 but there is a limit to the value of this1 and it is because of the feeling on the part of the general public that the capitalization of similar intangible values on the part of the railroads and other public service corporations is too large1 which1 whether true or not1 has caused the present agitation against them4 ,if the capitalization is reasonable1 there must be some way to demonstrate the fact1 and it seems as if a properly made physical valuation1 with due allowance for the intangible values1 is at least a step in the right direction4 ,the ,sun states in its editorial that3 ,the scheme of physical valuation1 as a basis for rate making1 is flatly rejected as unworkable by practically all the ablest railway authorities of the country1 and that the only true measure of value is the earning capacity4 ,to quote only one1 namely3 ,dr4 ,emory ,r4 ,johnson1 who is generally regarded as an authority and not by any means predisposed in favor of the public as against the railroads1 it is found that he states in his ,american ,railway ,transportation that3 ,the earning capacity of the railroad cannot be equitably or logically made the sole criterion of value1 because the rates1 and hence the earnings1 should depend to some extent1 at least1 upon the amount of capital justly entitled to profit4 ,it would seem to be self-evident that the earnings alone1 either gross or net1 are not necessarily an indication of the value of the road4 ,gross earnings are not1 because1 if a minimum proportion of them is used for maintenance and betterment1 the value of the property will steadily decrease2 whereas1 if the opposite policy be followed1 it will increase4 ,on the same principle1 the net earnings offer no criterion as to the manner in which the property has been kept up1 and alone are1 therefore1 no measure of its true value4 ,as an example of the arguments used by some of the opponents of physical valuation1 the following quotations are made from an article by ,mr4 ,henry ,fink1 ,chairman of the ,board of the ,norfolk and ,western ,railway4#ba ,referring to the fluctuation in the costs of construction1 he says3 ,as the cost of materials and labor fluctuates 444 it follows that what may be a fair valuation of a railroad one year may not be so one or two years later4 ,hence1 it would be necessary to make new valuations from time to time4 ,further1 in the same article1 referring to a valuation based on the market value of bonds and stocks1 he says3 ,unlike the physical valuation1 this method has a rational basis4444 ,it is true that prices of stock fluctuate--at times violently--but this difficulty can be overcome in a measure by using the average prices for long periods4 ,it is strange that it did not occur to so able a man as ,mr4 ,fink that the value of the physical property might also be based on average prices for long periods2 the cost of railroad construction and equipment as a whole does not fluctuate nearly so violently as the stock market4 ,the report on ,the ,basis of ,unit ,prices1#bb by ,w4 ,d4 ,pence1 ,m4 ,am4 ,soc4 ,c4 ,e41 the ,engineer of the ,wisconsin ,railroad ,commission1 in connection with the ,appleton ,water-works case1 is an excellent example of a fair and impartial study of this phase of the subject1 and the conclusion of the ,commission in this matter can only be regarded as reasonable by any one who is disposed to be at all fair-minded4 ,it says3 ,if the standard by which the reasonableness of charges is to be determined should fluctuate with the market prices of material1 labor and land1 no schedule of rates could be established for any length of time1 for1 under the circumstances1 a rate that would be reasonable to-day might be very unreasonable to-morrow4 ,the principles of the law applicable to the subject certainly involve no such absurd consequences4 ,another instance of an argument based on technicalities is found in the ,railway ,age ,gazette4#bc ,in an editorial on ,valuation and ,rate ,regulation1 it is said3 ,it has been supposed in the past that rate-making is an exercise of judgment4 ,it seems to be assumed by many that after a valuation has been made it will be merely an exercise in mathematics4 ,suppose the value of a railway for state purposes is #ej1jjj1jjj4 ,then1 on this theory1 all that will have to be done will be to multiply this amount by #f per cent4--or whatever may be regarded as a fair return--and so adjust the rates as to enable the road to earn1 say1 #c1jjj1jjj a year1 but1 the writer goes on to ask1 how are the specific rates to be fixed8 ,a great majority of those who advocate valuation say that they should be based on the cost of the service4 ,the proper method1 then1 would be to ascertain the exact cost of hauling each commodity and then base rates on these ascertained costs1 making them just high enough to allow the road a fair return4 ,then the article goes on to point out the difficulties of doing this1 which of course we all know1 and finally concludes that3 ,the theory of basing rates absolutely on the cost of service is unjust and impracticable4 ,in the present state of the art this is probably true1 but why is it necessary to change the present theory of rate-making because the rates are to be lowered or raised8 ,if1 for instance1 it is shown that it is necessary to reduce the rates sufficiently so that the net earnings will be reduced1 say1 approximately #aj1 is it beyond the capacity of the traffic officials of a railroad to adjust their rates accordingly8 ,in an editorial in another part of this same issue the ,gazette advocates the raising of rates to meet higher prices of supplies and higher wages2 it is surely as feasible to lower rates as it is to raise them1 and1 even though it were necessary to base rates on the cost of service1 it does not seem as if that would be entirely impractical1 inasmuch as it is the whole argument advanced for raising the commutation rates on the railroads entering ,new ,york ,city4 ,will the ,gazette say that the arguments put forward by these railroads are all wrong8 ,mr4 ,fink1 in the article#bd already referred to1 states3 ,it cannot be said that 444 railroads make tariffs2 they can only adjust them to varying conditions4 99 99 99 99 99 ,adjusting freight rates is practical work of men who have special training for it and large experience4 ,they may not all be able to explain underlying principles1 such as the value of service1 but they have used this principle for years1 and apply it1 intuitively in every case which comes before them4 ,surely this body of men is equal to whatever adjustment may be necessary4 ,rates will probably never be arranged to suit every individual shipper2 but if the people1 as a whole1 believe that the railroads are fairly capitalized on a reasonable basis of value1 and the rates1 in the aggregate1 are adjusted so that unduly high profits are not made1 individual complaints of injustice may easily be taken care of4 ,the most important considerations affecting the regulation of railroad rates arise in attempting to fix the amount which shall be considered a fair return on the investment4 ,if a certain rate of interest is fixed as the maximum which may be earned1 all incentive toward improvement or progress is removed4 ,the effect of this would be1 of course1 to retard all development4 ,once a railroad was earning its legal rate of interest1 there would be no necessity of cutting down grades1 building larger locomotives to handle larger trains1 investigating the economics of operation and location1 in order to introduce the thousand and one economies which are being developed day by day1 or for our railroad presidents to lie awake nights thinking how they are to save that million dollars a day for the benefit of the always ungrateful shipper4 ,this objection against rate regulation1 and incidentally against physical valuation1 can undoubtedly be overcome4 ,one proposal which has been made is somewhat along the lines on which it is proposed to finance the ,new ,york ,subways1 the profits to be divided between the railroads and the ,state1 after a certain rate of interest had been earned4 ,there is nothing novel about this1 as several railroad charters have been granted with a provision that all earnings1 over an amount necessary to provide a certain rate of interest1 should be paid to the ,state4 ,another suggestion#be is that the reasonable rate of return be fixed as a percentage of the gross income1 irrespective of the amount of capital required to produce it4 ,there are probably other ways in which this might be worked out and adjusted1 and this phase of the subject surely does not present any insuperable objections4 ,that the railroads have little to fear1 in regard to capitalization1 from a properly made valuation1 is shown by the results in the ,state of ,washington1 where the valuation was undertaken solely for the purpose of fixing rates1 the result being a determination of the market value of the three principal railroads of the ,state--the ,northern ,pacific1 ,great ,northern1 and ,oregon ,railroad and ,navigation ,company--at an amount considerably in excess of their capitalization4#bf ,it is true that rates were lowered in this case on some commodities1 but it does not necessarily follow that every change of rates on the basis of valuation must be toward a lower scale4 ,railroad rates are low and have stayed low while the cost of everything else has been raised1 and yet1 while this fact is well known to the general public1 they still believe that1 in some way or another1 the railroads are getting or have been getting more than their proper share of profits4 ,evidently there is something wrong somewhere1 and it is not going to be set right by calling the public fools and ridiculing their presumption for meddling in any way with railroad affairs4 ,mr4 ,f4 ,w4 ,whitridge1 the ,receiver of the ,third ,avenue ,railroad1 of ,new ,york1 while stating#bg that he had only just discovered that there was such a thing as valuation1 at the same time held up the whole scheme to ridicule1 though he admitted that3 ,the people of this country have1 ,i think wisely1 made up their minds1 in consequence of great corporate abuses1 that public service corporations should be subject to regulation1 etc4 ,he nevertheless ridicules the efforts of the authorities1 particularly their endeavors in the matter of valuation1 with its irreverence for facts4 ,they seem1 he says1 to be singing the song of the ,banderlog who dreamed of ',something noble1 grand1 and good ,won by simply wishing we could4' ,valuation1 however1 has gone far beyond the point where it can be considered a visionary scheme1 or can be held up to ridicule2 and it has been worked out far enough to show1 at least1 that there is a rational basis1 on which a determination of values can be made1 which will do justice to both sides2 furthermore1 the ,supreme ,court of the ,united ,states has not only ruled that valuation must necessarily be precedent to rate regulation1 but has gone so far as to specify at least some of the elements which must be taken into account1 and it may be worth while noting that1 in spite of the author's criticisms of the ,washington ,state ,valuation1 it is the only one1 thus far1 in which an attempt has been made to comply with the rules laid down by this ,court4 ,the results in ,washington1 however1 indicate clearly the need of regulation of the railroads1 as a whole1 and not varied regulation by individual ,states of the parts of systems within the borders of each4 ,arguments on either side can be prolonged indefinitely1 and many good reasons for and against physical valuation are advanced from time to time1 just as they may be on any proposition4 ,some of the principal objections have been referred to here in an endeavor to show that they are not insuperable2 the point which concerns us now is that to-day we are confronted with a fact and not a theory1 and that fact is that the railroads are going to be regulated1 and that their proper development is held back and general business is hampered by the feeling of uncertainty as to the outcome4 ,physical valuation is not a panacea for all evils1 but a properly made valuation of the physical elements1 with a due allowance for the intangible values1 based possibly on some such method as that developed by the ,washington ,state ,commission or by ,professor ,adams in ,michigan1 is surely as good a way of breaking into the circle of argument as any that has been proposed thus far4 ,the equipment of freight trains with air brakes and safety couplers was practically forced on the railroads by the pressure of public opinion led by laymen1 yet one will hardly find a railroad man now who will not admit that this is good practice1 not only from the standpoint of safe operation1 but from that of economy as well4 ,the early attitude of the railroads in this matter is already being quoted by the advocates of valuation1 and inasmuch as we have to admit1 as we surely do1 that a start is going to be made somewhere along the line of obtaining some more definite information in regard to the true relation of the value1 capital1 and profits1 of railroad properties1 than the mere statement by the railroads themselves that they are all that is good and fair1 would it not be wise on their part to do all they can to have the start made properly rather than oppose it8 ,some of the most prominent and progressive railroad men of the country have already arrived at the point of believing and saying that regulation properly carried out may not be an unmixed evil1 in fact1 would probably be beneficial1 but they still balk at valuation1 without1 however1 suggesting any other means whereby the general public is to obtain the information on which to base an intelligent opinion as to how such regulation is to be carried out4 ,the speaker does not for a moment underestimate the difficulties incident to the determination of the intangible values1 or forget the difference between the problem presented by the comparatively new lines in the ,state of ,washington and a valuation of1 say1 the ,pennsylvania ,railroad or the ,new ,york ,central4 ,no one who gives any real thought to the problem pretends that the value of a railroad is the value of its purely physical property2 but1 because the matter of determining the intangible values is difficult and complicated1 is it necessary that we should sit back and fold our hands and say it can't be done2 that in the whole country there is no man or body of men1 or engineers1 if you please1 with brains and ability enough to solve the problem8 ,as for cost1 is it not worth #aj1jjj1jjj1 which is more than #dj per mile for all the railroads in the country1 or about three times as much as the cost of the most careful appraisals yet made1 to have the question put once and for all on a stable basis1 satisfactory to all1 if the problem be approached in a fair1 broad-minded1 common-sense way1 by engineers big enough to command the respect of both sides8 ,aside from the question of rate regulation1 is it not worth this much to the railroads of the country to be able actually to prove that the amounts at which they are capitalized are reasonable1 as in the great majority of cases they probably are8 ,there are one or two points which1 it seems to the speaker1 cannot be too strongly emphasized3 ,first1 that valuations properly made may be the means whereby confidence may be restored1 not only in the mind of the general public1 but in that of the investor2 but1 in order to obtain this result1 the railroads should urge1 with all the power they possess1 the necessity of having such valuations made by a body of men1 some of whom1 at least1 should be engineers1 big enough to entitle their opinions to the respect of both sides1 and thoroughly qualified by training and experience for the work4 ,second1 that1 as far as possible1 regulation should be general or national1 so as to avoid the complication of dividing all roads at the ,state lines1 and of having different regulations in different ,states4 ,third1 that there need not necessarily be any relation between rate regulation and rate-making4 ,rate regulation can well be confined to rates in the aggregate1 rate-making applies to the adjustment of individual rates1 and must necessarily be the work of men well versed in all the varied elements which control it and the particular conditions affecting the business of each particular road4 ,the speaker believes that valuations made in this way and with these objects in view will do no harm to the railroads1 and will do much to restore confidence and give us the much needed peace and quietness to carry out necessary development4 99 99 99 99 99 ,,charles ,h4 ,,higgins1 ,,assoc4 ,m4 ,,am4 ,,soc4 ,c4 ,e4--,mr4 ,riggs' able and timely paper is of great interest and worth to all concerned with the matter of values1 whether of public service corporation property1 or other property2 and what engineer is not concerned with values8 ,one cannot but wish that an index accompanied the paper1 as its usefulness would be thereby greatly increased1 particularly as1 by its arrangement1 such subjects as depreciation1 non-physical values1 etc41 are treated of in many different portions of the paper4 ,the ,wisdom of ,having a ,physical ,valuation4--,it is hard to understand how any thoughtful person can now doubt this1 for we are in a period of regulation and taxation of public service corporations1 and the only question is whether they shall be regulated and taxed with a full understanding of the investment involved1 or by arbitrary methods1 such as the #b cents per mile passenger rate1 which has been so popular in many ,states1 under widely different conditions and irrespective of the cost of the service4 ,the time would seem to have arrived when the thoughtful public service corporation manager would welcome a fair valuation of the company's property1 as protection against legislation conceived in ignorance of the capital invested4 ,relation ,between ,railroads and ,other ,properties4--,the relation between appraisals of railroad and of water1 gas1 and traction companies is very close1 and the same general principles apply4 ,in the former1 however1 it is complicated more often by the fact that the lines of a railroad extend through many ,states1 with terminals in one or two1 and1 further1 that the railroads have many subsidiary1 controlled1 or dependent companies1 such as coal1 lighterage1 terminal1 car1 warehouse1 contracting1 elevator1 stock yard1 and supply companies1 often owned1 wholly or in part1 by men in the railroad management4 ,agreements with these companies may greatly affect the non-physical values1 as determined by the methods advocated in this paper1 which may otherwise be sound4 ,valuation of ,all ,properties4--,the author says that the valuation of all railroad properties in the country would be of interest4 ,it would be more2 it would be of value infinitely greater than the cost4 ,the mere presence of light prevents many vices1 and this is as true in corporation practices as in the streets4 ,it is in accord with ,dr4 ,woodrow ,wilson's pitiless publicity2 and1 which is1 perhaps1 more important1 it is the basis1 or should be1 of all legislation concerning the regulation of these great highways4 ,one and ,only ,one ,fair ,value4--,nothing in ,mr4 ,riggs' paper is of more value than his insistence that there is one and only one fair value of the physical property of a railroad1 no matter for what purpose it is to be used4 ,how futile are the misdirected efforts of those who would have it otherwise1 for1 no matter what the purpose of the appraisal may be1 who can foresee the use that may be made of it when it becomes public property8 ,cost of ,reproduction4--,cost of reproduction less depreciation seems to be the established method--that recognized by the ,courts--for arriving at the value of the physical property4 ,cost1 as the author contends1 can only be an element in determining the present value1 for the owner of a stone bridge has as much right to any appreciation in the value of masonry as the owner of land has in the increased value of his property2 and1 though the cost early in the life of the structure is usually near its value1 it may lose that position4 ,what relation exists between the value of the ,pyramid of ,cheops and its cost8 ,now1 as then1 our unit measure of value is changing4 ,cost is certainly of historic interest1 but present value is the subject for present uses4 ,the points in favor of inspection to determine the physical condition of the object to be valued are convincing1 where the structure may be readily inspected4 ,mortality tables mean little without a history of maintenance4 ,with perfect maintenance there would be no physical depreciation4 ,maintenance versus ,depreciation4--,depreciation and maintenance are interdependent1 so much so that some engineers have advocated dropping the term1 depreciation1 and substituting deferred maintenance4 ,a little thought will make this clear4 ,while this term would not apply in the case of a single rail or car1 it is not illogical when applied to a system1 built and renewed piecemeal and maintained at a certain standard of usefulness1 that is1 on all well-managed undertakings of magnitude1 units are constantly being replaced1 thus maintaining a standard of efficiency4 ,this standard1 on the entire system1 is usually found to be between #gj and #ij of the cost of reproduction4 ,some items are even improved1 and the cost is charged to the maintenance account1 such as that referred to in the paper as consolidation and adaptation of roadbed2 and only a few1 such as steel rails1 steadily and progressively become less useful1 and even these have a bottom value1 that of scrap steel4 ,nor are examples numerous where all the rails are laid at one time1 and they are extremely rare where all are replaced at approximately the same time4 ,when the rails on a street or section are renewed1 the cost cannot properly be charged to capital account1 except in so far as the new rails are of a more valuable type than the old ones2 for1 if this were done1 there would be no limit to the capitalization as time goes on4 ,furthermore1 the moment it is admitted that1 by reason of a change in the art1 we may have depreciation through obsolescence1 we admit that through a change in the art we may have appreciation through the opposite of obsolescence4 ,this being the case1 the use of mortality tables to determine present value is misleading1 unless it is done with the full itemized accounts of maintenance1 which are seldom1 if ever1 available4 ,the author's position in regard to the need of inspection of each item is well taken4 ,dead versus ,live ,properties4--,these1 perhaps1 are not happy expressions1 but they serve to emphasize a vital distinction which must be made in the valuation of properties4 ,the difference may be as great as between a corpse and a man2 here1 also1 the distinction is hard to define4 ,we say the soul has departed1 or the spark of life is extinguished1 but these expressions do not contain a satisfactory scientific definition4 ,so1 as ,mr4 ,riggs points out1 the physical property of a going business may not be valued as so much junk1 even if the non-physical values are to be determined separately4 ,the ,franchise a ,contract4--,the ,courts hold a franchise to be a contract1 something often forgotten1 both by the public and by corporations4 ,the speaker1 however1 understands this only to mean1 even where the franchise is in perpetuity1 that the property of the corporation cannot be taken for public use without just compensation4 ,in a sense1 then1 there can be no such thing as a perpetual franchise4 ,using the word franchise with its restricted meaning1 the unreasonableness of the rates may be measured by the value of the franchise4 ,physical versus ,non-,physical ,values4--,the following division has been made by the author between physical and non-physical property1 for the purpose of valuation3 ,that the ,physical ,value1 or present value of the physical property1 should fairly represent the actual capital invested in the property at the date of appraisal2 that it should be made up of the sum of the various elements which constitute the cost of reproducing the property together with any appreciation which may have been added to any of them1 less all depreciation4 ,that the ,non-,physical ,value is the difference between the 'fair value' as defined by the ,courts1 or the reasonable value of the property as a business or producing property1 and the physical value1 or actual present worth2 and that the only proper method for determining such values involves a study of income accounts4 ,this ,non-,physical ,value may be3 positive1 or a value in excess of the physical property1 or negative1 or less than the physical value4 ,in the case of a property having a negative intangible value1 a deduction should be made from the physical value4 ,this division is convenient but arbitrary4 ,it is the division of an engineer rather than of an economist2 for these so-called non-physical values are like the breath of a man's life2 without them1 the physical value is like the discarded body4 ,again1 the use of negative non-physical values1 while convenient1 may not be wholly logical4 ,these remarks are not directed at ,mr4 ,riggs1 for he is careful to say that he is dealing only with active enterprises1 and not with those which are inert1 and the speaker realizes that he is not attempting primarily to build up a logical argument1 but to formulate certain rules to overcome practical difficulties met by all who have attempted valuation work4 ,as many who have not given this matter much thought are apt to be misled by the distinction made between physical and non-physical values1 they should bear in mind that the line between them is like the equator1 an imaginary one4 ,water4--,the water is as much a part of the cost of putting that line there as the rails1 remarked a corporation official1 of admirable character and wide experience1 pointing to a trolley line from the window of a ,pullman car2 and1 bearing in mind what he meant by water1 this is undoubtedly so4 ,the cost of promoting the enterprise1 the discount on the hazard1 the loss of interest during its infancy1 the labor of building up the undertaking--these are all real elements of cost1 and may remain in the property as value1 but1 like all other items of cost1 they have their reasonable limits1 which1 in each individual case1 can be determined within narrow bounds4 ,purpose of a ,valuation4--,as ,mr4 ,riggs points out1 there are four reasons for a valuation3 ,taxation1 rate-making1 purchase1 and control of the issue of securities1 one of which is usually the primary cause for the valuation being made2 and he argues that there can be but one fair value of the physical property1 whichever of these reasons may prompt the appraisal4 ,this is fundamental1 for fair value is used in the sense of true value1 which1 to the writer1 seems to be a more apt expression4 ,it is rather surprising that it does not appear in the paper4 ,its use1 of course1 is old2 in the ,constitution of ,new ,jersey1 #ahge1 we find3 ,property shall be assessed for taxes under general laws1 and by uniform rules1 according to the true value4 ,each of the three matters1 taxes1 rates1 and authorized capitalization1 are interdependent and1 in the long run1 cannot be considered separately4 ,this can be emphasized by a reductio ad absurdum3 ,modern civilization is so dependent on transportation by rail that unquestionably all taxes could be raised by assessment on the railroads1 if these roads were allowed to fix their rates and were protected in the collection of them2 but how would this method differ from that of the ,romans1 of farming out the collection of taxes8 ,not materially1 and no one advocates a return to that method4 ,this is absurd1 but it serves to emphasize the relation between taxes and rates4 ,taxes can only come from the rates4 ,overhead ,charges versus ,unit ,values4--,there is much in various parts of this paper concerning overhead charges1 but very little about the items considered in determining the unit values or unit prices used2 and does not the latter greatly affect the former8 ,for example1 in discussing the ,michigan appraisal1 the author says3 ,for many items1 such as clearing1 grubbing1 earthwork1 masonry1 etc41 the price was fixed by agreement during the discussion at a figure which represented the fair average cost of this particular item during the #e-year period preceding the appraisal4 ,the fair average cost under what conditions8 ,this word cost is understood by different men in as many different ways as the word value4 ,mr4 ,riggs very clearly gives the items included in fair value as finally arrived at by him1 but it would seem to be as important to define fair cost as used in arriving at the unit prices1 for otherwise the chain has a weak link4 ,what may be considered a fair cost per unit of measure for a particular item differs greatly3 ,first1 with the point of view and breadth of horizon of the man stating such cost2 and second1 with the methods of letting contracts and accounting with which he may be familiar1 as applied to such items of work4 ,because of the first1 a fair average unit cost may mean one thing to a contractor1 another to a division engineer1 still another to a chief engineer1 and a fourth to a manager or consulting engineer2 and because of the second1 the understanding of the term may differ among men of the same class4 ,all of this quite aside from what may be termed the personal equation of the individual4 ,thus the subject of overhead charges can only be discussed profitably in the light of knowledge concerning what has already been included in fixing the unit prices used4 ,for example1 the element of hazard common to all construction1 but differing in degree on different classes of work1 may be included in the unit cost used1 or it may be added as a percentage to resulting sums1 but it cannot rightly be included twice4 ,this is equally true of other elements of cost of a similar character4 ,the foregoing is pertinent1 for any valuation will probably be attacked in the ,courts1 and the unit values will be one of the most tempting points for assault1 for the very reason that this wide difference of understanding in regard to cost1 and particularly in regard to unit costs1 exists4 ,this same difference of understanding is usually the reason for the wide difference in unit costs testified to by able engineers and1 consequently1 for the distrust often felt for such testimony4 ,the methods followed in taking expert testimony usually work to make confusion worse confounded4 ,the judge or layman1 hearing two engineers testify to widely different unit prices as a fair average cost for certain work1 forms a low opinion of their judgment1 or worse1 whereas the real difficulty may1 and usually does1 lie in a different understanding of the meaning of the term cost1 or unit cost4 ,to the speaker1 this seems to be the weakest point in an admirable paper4 ,paving4--,whether the value of the paving between and for a space outside of the tracks is an element of value in a street-car line1 or whether the cost incidental to the construction and maintenance is in the nature of a tax1 is a much disputed point in all valuations of street-railway properties1 and an important one1 for it may amount to #ae1jjj1 or more1 per mile4 ,it is interesting to remember that the custom of requiring street-railway companies to maintain the pavement between the rails and for a space of about #b ft4 outside of them1 which has become almost universal1 developed during the use of horses to draw the cars1 the animals causing great wear on that portion of the street4 ,this question of values is a difficult one4 ,it would seem that the most tenable position is that3 ,if the fee to the pavement is not in the company1 and if the rule concerning cost of reproduction less depreciation is to be followed1 the cost of taking up and relaying the pavement is an element of value in the physical worth of the track1 for it would be impossible to reproduce the track without incurring the cost of such work4 ,s4 ,d4 ,,newton1 ,,assoc4 ,m4 ,,am4 ,,soc4 ,c4 ,e4 7by letter74--,the general scope of this paper is admirable4 ,the author's views and definitions are unusually sound1 clear1 and forcibly expressed4 ,to one minor detail1 however1 the writer is unable to subscribe4 ,referring to the physical property element of value1 he states that3 ,this consisted of those things which are visible and tangible1 capable of being inventoried1 their cost of reproduction determined1 their depreciation measured1 and without which the property would be unable to produce the commodity on the sale of which income depends4 ,take the case of an industrial spur for some minor industry along a line of railroad4 ,it is often a question in the minds of the management whether or not the car-load business done by such an enterprise is sufficient in quantity to warrant the expense of a spur track4 ,there are probably other facilities in the neighborhood which could be used to take care of this business at the expense of some inconvenience2 in a large proportion of cases1 the railroad will handle the business anyway1 and the spur can in no sense be called a necessity4 ,still1 it is visible1 tangible1 and capable of being inventoried1 and should be included in an inventory of the property the same as any track or section of track belonging to the ,company4 ,this may also be said of an extra settling basin or filter bed in the case of a water-works plant4 ,if such basin or bed were not in existence1 and a leak should occur in the original plant1 the business of supplying water to its customers could1 in all probability1 be carried along in some manner until the break could be repaired2 nevertheless1 such a tank or bed is desirable1 and its value should most certainly be included in an inventory4 ,take the extreme case of a piece of machinery which is utterly broken down or so far out of date as to be entirely worthless for the purposes for which it was designed4 ,yet such machinery has1 at least1 a scrap value1 and as such it should be included in the inventory as part of the tangible assets of the concern at the date in question4 ,of course1 in many instances1 certain interests endeavor to have inventoried items which should either be omitted altogether or included at a much reduced valuation from that sought to be placed on them1 and1 in such cases1 the very best judgment of the appraising engineer must be called into play in order that injustice may not be done to either party2 but to say1 as ,mr4 ,riggs' definition virtually does1 that nothing should be inventoried which can1 either with or without inconvenience1 be dispensed with1 is absurd1 and the writer does not believe that such is the meaning the author intended to convey4 ,probably1 if the word economically were inserted in the definition1 it would more nearly represent the proper idea4 ,,william ,v4 ,,polleys1 ,m4 ,,am4 ,,soc4 ,c4 ,e4 7by letter71--,in his very thorough and painstaking paper ,mr4 ,riggs states that it is confined to a discussion of methods for arriving at a correct figure of cost1 and disclaims any intention of considering the propriety of using said figure when reached4 ,inasmuch1 however1 as he devotes the next eight or ten pages to a dissertation on law1 political economy1 rate-making1 finance1 and advice to railroad employees1 with a word of encouragement to the good1 and firm reproof to the bad ones1 it is fair to assume that he intends this disclaimer in a ,pickwickian sense1 and that the real intent of the paper is to show that the physical valuation of property is1 with certain determinative1 corrective factors1 a proper standard for gauging taxation1 bond issues1 and kindred evils4 ,is it not a fact1 however1 that taxation is based on a much more intangible structure1 and that the net earnings must necessarily have more to do with it than the physical valuation of the property--whether it be that of a wicked public service corporation1 or that of an honest haymaker--rather on what their property can produce1 than on what it would cost to produce the property8 ,is it not rather a battle of business acumen between the taxer and taxee1 a battle which1 among other things1 is regulated more or less by the fact that an extreme in either direction will bring disaster to one or both1 followed by the inevitable reaction and readjustment8 ,take1 for instance1 an extreme case3 ,a manufactory is erected on comparatively worthless ground4 ,a million dollars or more is invested in a plant1 with the result that surrounding real estate values go up with a bound4 ,supposing that the manufacturer has not made any previous arrangements for immunity1 and the assessors are both acute and honest1 the property will be taxed for a large figure1 which tax1 if the factory is making money1 will be paid1 with more or less grumbling1 up to the economical breaking point4 ,suppose that1 owing to a sudden permanent change in business conditions1 it becomes impossible to operate this plant1 and it is abandoned4 ,a corps of experts may be thrown into the mill1 before the last employee has left the building1 and may carefully scrutinize and caliper the machinery1 count the bricks in the wall1 tap the stay-bolts in the boilers1 and bore into the furniture to see whether it is solid or veneer1 and when they are through and their figures are all in1 they have not arrived at anything that is of the slightest use as a basis for a bond issue or taxation1 and very little that would be of use for sale4 ,in such an extreme 7but by no means unheard-of7 case physical value bears no relation to real value4 ,this is not to say that a physical valuation is without worth1 and even great worth in some cases2 it is merely offered as an opinion that the physical value is in many 7and probably most7 instances a very treacherous guide to the real value--a far poorer guide1 as a general rule1 than the accounting department2 a minor quantity1 in fact4 ,it seems doubtful whether there is a scientific way of arriving at the true value of a going property by the physical-valuation route4 ,there is too large a percentage of values which1 being intangible1 are matters of judgment4 ,at best1 the determination of value must be that of opinion1 and the worth of that opinion hinges principally on the practical qualifications and disinterestedness of the person who gives it4 ,unfortunately1 or fortunately1 as the point of view may be1 the disinterested person is not apt to be qualified1 nor the qualified person to be disinterested1 and it seems extremely probable to the writer that1 while weapons may be changed and excuses vary1 the tax war will be waged as of yore1 and the fool and his money will continue along diverging paths until something more ingenious than physical valuation is invented1 however well the valuation may be made4 ,c4 ,p4 ,,howard1 ,m4 ,,am4 ,,soc4 ,c4 ,e4 7by letter74--,while there may be no material differences of opinion as to the principles on which a physical valuation should depend1 such a detailed description of organization and methods as that presented by the author should be of great service to others undertaking similar investigations4 ,it may not be amiss1 however1 to mention certain features affecting the non-tangible values which should be more fully considered in any general discussion of the subject4 ,the author calls attention to one or more particulars in which the methods of the ,michigan appraisal may fail as a method of determining a value for use as a basis of rate-making4 ,later1 after quoting various court decisions1 he dismisses this phase of the subject with the words3 ,in view of these dicta1 it is needless to argue whether a rate of #f or #aj1 or #ae1 or more1 be reasonable4 ,a value for purposes of rate-making might more properly be called a permissible value4 ,the writer holds no brief for the corporations1 and would not like to fall under the imputation of being apparently incited by1 either the direct interest of corporations1 99 99 99 or an effort to confuse the subject of valuations1 but will venture the following1 which1 while it does not exactly represent any particular case1 it is hoped may be recognized as an illustration drawn from life4 ,a1 ,b1 ,c1 and their associates1 being familiar with a certain territory1 its resources1 transportation facilities1 and growing development1 believe that the time has come to build another railroad through their ,state or ,states4 ,they have made careful estimates of the amount of tonnage that may be expected from the development of its mines1 timber1 farms1 etc41 and conclude as follows3 ,first4--,the road1 completed along the most approved lines1 will cost1 with equipment1 #ej1jjj1jjj4 ,second4--,it will take five years to construct and equip the road and put it in fair running order4 ,third4--,the traffic1 when fully developed according to their hopes and expectations1 will eventually afford at usual tariffs a handsome profit1 say1 from #h to #ab per annum on the capital invested4 ,this condition1 they believe1 in all human probability1 will be attained in from #e to #aj years after completion4 ,fourth4--,that half the traffic anticipated will pay #e on the investment4 ,fifth4--,they are obliged to admit 7though the chances of this are so remote as to be in their opinion negligible7 that1 due to unforeseen causes1 obstruction1 competition1 etc41 there is a possibility that1 as has so often happened in the past1 the enterprise may prove a financial failure1 or that the period of prosperity may be postponed so far into the future as to amount to practically the same thing4 ,here is a bold undertaking2 but were it #e1jjj1jjj instead of #ej1jjj1jjj1 the conditions would be essentially the same4 ,nevertheless1 they have the courage of their convictions and go ahead4 ,now1 with all the risks and uncertainties attending an enterprise of this sort1 if the ultimate profits were limited in advance to #e or #f on the capital invested1 less depreciation1 who but the ,government itself could afford to build a railroad8 ,evidently1 when an existing railroad makes small additions from time to time to extend or take care of its business1 the risk is not so great4 ,such extensions will continue more or less under any limitations4 ,for rate-making1 it is evident that an appraisal based on earnings will utterly fail of its purpose if made during the lean years immediately following construction4 ,if made some years later1 when the property has begun to pay1 the risk and necessary financial loss of the lean years should be remembered1 as any one building a road in the future will necessarily have the same problems to meet1 together with the expenses of interest1 depreciation1 loss from operation1 etc41 both during the construction and the lean years following1 all of which must properly be considered a part of the real cost of constructing and developing a property4 ,j4 ,e4 ,,willoughby1 ,m4 ,,am4 ,,soc4 ,c4 ,e4 7by letter74--,the determination of the cost of reproducing the property of any steam railway involves1 together with other items1 an estimate of the present cost of3 ,first4--,the acquirement of the right of way1 to the extent1 in the form1 and on the location of that held in connection with the railway to be reproduced2 ,second4--,the construction thereon of the roadway1 to the form and dimensions1 and of the materials which the roadway to be reproduced exhibits2 and ,third4--,the seasoning and adaptation of the roadway to the state of perfection which the roadway to be reproduced exhibits at the time the estimate of cost of reproduction is made4 ,the first conception1 for fixing the cost of the several items1 is to consider the railway to be reproduced as being non-existent at the time the estimate is made1 but having the environment which then exists along the operated railway1 although that environment may be largely of the railway's own creating4 ,the cost of the right of way is to be fixed as ungraded and unimproved property attached and forming a part of the adjoining improved property1 which adjoining property will be entitled to receive1 in addition to the market value of the land taken1 all consequential damages due to the taking off of the right of way in the form and location that the land has actually been taken1 and for the purpose of railway construction and operation4 ,this adjoining property is to give credit on the consequential damages for the incidental benefits which it derives1 if any1 from the construction and operation of the railway4 ,in fixing these values1 the drift of public sentiment--the bias of juries of view and of trial juries--at the time the estimate of cost of reproduction is made must be considered1 since that sentiment may affect enormously the cost of the right of way4 ,the amount to be paid for a right of way is in the end that which a condemnation court will award4 ,the question as to whether or not the right of way was originally donated can no more enter into the determination of the cost of reproduction1 for the purpose of lessening the estimate of cost of acquiring the right of way1 than the fact that donations of lands or bonds 7or of convict labor and slave labor1 as in the ,south prior to #ahfj7 made by governmental authority or private enterprise1 at the time of the original construction1 can be used to reduce the reproduction cost of the excavation made in the formation of the roadway4 ,no rule as to the sale of property for commercial purposes in the vicinity of an operated railway can be rightfully adapted as covering the line as a whole4 ,while the cost of right of way through farm or timber lands bears a general relation to the value of those for agricultural purposes1 where improvements thereon bear but a small proportion to their total value1 this relation is wholly wanting in the cost of a right of way through a village or city or at any point where the improvements on the property bear a large proportion to its total value4 ,the relation is also wanting where a right of way is obtained through agricultural lands devoted to special purposes1 like that of country homes for the rich4 ,it is also wanting where the right of way is taken out of the narrow river lands in the ,appalachian ,mountains1 where the total value of the whole farm is dependent on the small acreage of flat land along the river bank4 ,the general rule of prefixing a constant to the current selling price of lands1 in order to determine the estimated cost of right of way1 should be limited to agricultural and timber lands1 and to those which1 owing to their extent1 the carving out of the right of way does not wholly destroy for the continuation of agricultural and timber operations4 ,for villages and cities1 and for lands devoted or adapted to special purposes1 an accurate estimate of the cost of reproduction of the right of way can be determined only by a specific investigation of the conditions in each community4 ,while it is difficult to conceive all the activities and sentiments which have growth in1 from1 and of railway operation1 as being in existence without the railway1 it is only through such an assumption that one can estimate correctly the make-up of the items of cost of reproducing a railway as such railway may now exist4 ,to assume that the railway1 not existent for the purpose of estimating the cost of reproduction1 will now receive the donations of land and moneys that were made half a century ago1 is merely going back to a determination of what the road has actually cost2 and that is contrary to the intent of the theory of the cost of reproduction4 ,the conception of a parallel line is not correct1 for it imposes thereby a further burden on properties which have already contributed to the public good1 probably to an extreme extent1 and gives an abnormal cost for right of way1 as shown when a railway seeks to enlarge its terminals in a crowded community1 or to find a new entrance into a populous city4 ,so1 too1 in estimating on the formation of the roadway1 one must consider the roadway to be reproduced as being obliterated--all cuts and borrow-pits refilled1 and all embankments and spoil banks removed from the right of way--but all other lines of transportation1 except the railway to be reproduced1 must be considered as being in existence as they actually are at the date when the estimate of cost of reproduction is made1 and that such other lines of transportation are available for bringing in machinery1 tools1 teams1 materials1 and supplies for the construction of the railway to be reproduced4 ,it is only by such an assumption that the benefit of the improved means and methods of construction now prevalent can be obtained2 but it is not permissible to estimate for the construction of a railway with different grades1 alignment1 roadbed1 widths1 or with different materials than that of the railway to be reproduced merely because such construction at this day might be actually cheaper or better than to construct it in exact duplication4 ,for example1 if the rock cuts on the roadway to be reproduced be only #ah ft4 wide1 with 3#a slopes1 one must not figure on the greater economy of steam-shovel excavation1 because the steam shovel cannot be worked in cuts of that width2 nor can the spoil from such cuts be carried long distances to eliminate a possible solid-rock borrow originally made elsewhere1 because long hauls are practicable in steam-shovel work1 but wanting in excavations where the mule is the transportation force4 ,so1 too1 it is not permissible to estimate on reinforced concrete bridges to take the place of more costly cut-stone arches1 if cut-stone arches are the structures that have been actually built4 ,the idea of cost of reproduction is not synonymous with the idea of the cost of building a railway capable of serving the same transportation purpose4 ,if all our railways were to be built anew1 in the light of our present knowledge1 and with our present traffic offerings and financial resources1 vast changes would be made in the character of construction4 ,the physical fact of existing construction prevents a theoretical substitution of what is the best construction for any community1 together with its costs for the construction which was actually made years ago4 ,in the event that an estimate of reproduction costs be made for a ,state as a whole1 or for a great railway system as a whole1 the conception of reproduction is modified so that the construction may take the form of progressive construction1 the principal lines being built first and the less important lines afterward4 ,this method will require the estimate for interest during the construction period to be greater4 ,the money cost of the seasoning and the adaptation of the roadway to such a condition as will permit heavy trains to be run at high speeds1 is great1 but the amount is not readily ascertained4 ,an estimate of cost of reproduction1 to be true1 must consider this item2 and probably the more usual method of ascertaining it is to assume it to be an amount in some proportion to the cost of the excavation4 ,this proportion will vary with the character of the material through which and of which the cuts and fills are made1 and with the methods of construction necessarily adopted4 ,there are many railways on which this cost will exceed #be of the total cost of excavation4 ,after the estimate has been made1 including the item for seasoning and adaptation1 there should be added a contingent fund to cover the omitted work1 consisting of small borrow-pits and ditches1 undetermined foundations1 unexpected conditions encountered1 unavoidable force account work1 minor changes of streams and highways1 damages to adjoining lands due to the methods of construction and to diversion of water1 etc4 ,this item will not exceed #e of the cost of the roadway if the estimate be accurately made4 ,the more convenient form into which an estimate of cost of reproduction of a steam railway is to be put is to follow the sub-accounts1 as prescribed by the ,interstate ,commerce ,commission for ,expenditure for ,road4 ,each item given in that accounting has a place in the estimate4 ,these comments are confined to the items covering the roadway1 namely1 ,right of ,way and ,station ,grounds1 ,grading1 ,tunneling1 ,bridges1 ,trestles1 and ,culverts4 ,,henry ,c4 ,,adams1 ,,esq4#bh 7by letter74--,to the writer this paper seems to be the most complete and comprehensive discussion of the general question of valuation of property invested in public service industries that has come under his notice4 ,it is especially important in that it is a summary of the discussion on this most difficult subject during the past ten years1 and the writer thoroughly agrees with the general conclusions reached by ,mr4 ,riggs4 ,there is one point1 however1 which might possibly have been developed more completely1 and that is the treatment of discounts1 which presents itself from time to time in the general discussion4 ,mr4 ,riggs quotes with approval the following3 ,if a company can market its #ej-year1 #d per cent1 bonds at #ij per cent4 of par1 it means that the company's credit is on a #d per cent4 basis2 that it could market a like security paying #d per cent4 at par4 ,this is1 of course1 correct as far as the mathematics of the proposition is concerned1 but it seems to overlook that peculiar psychology of the market which enables a corporation to secure a larger amount of actual cash for a given interest annuity when bonds are sold at a discount than when they are sold at par4 ,aside1 however1 from the accuracy of the above quotation and of ,mr4 ,riggs' apparent acceptance of it as the final word on discounts1 one may ask if it recognizes all the elements necessarily involved in a discussion of the problems raised by discount financiering4 ,from the literature of the subject one may read the following claims3 ,discount is a measure of the risk involved in a new enterprise2 discount is a market adjustment that reflects the current value of money2 discount is a sacrifice of principal for a slightly reduced interest annuity2 discount is a dividend declared before the dividend is earned2 and many cases are cited in which a discount is merely a promoter's fee for services rendered4 ,the writer does not care to discuss at this time these various points of view from which discounts may be regarded4 ,they are mentioned merely to suggest that the subject is not as simple as some writers seem to think4 ,any valuation of public service industries1 from whatever point of view it may be regarded1 must1 from the nature of the case1 touch the problem of fundamental equities2 and one of the elements of this problem which has not as yet been fully analyzed is this element of discounts4 ,from the point of view of taxation1 such an analysis is not perhaps essential2 but if the valuation is to be used as a basis of determining reasonable rates1 or as a measure of reasonable capitalization1 it seems to be essential4 ,the writer is sure this discussion will not be construed as in any sense a criticism on ,mr4 ,riggs' paper2 it is rather a suggestion of an unwritten chapter in the literature of valuation4 ,the ,american ,society of ,civil ,engineers is to be congratulated in securing from one of its members so complete and satisfactory a discussion of the principles and methods for the valuation of public service corporation property4 ,,carl ,c4 ,,witt1 ,m4 ,,am4 ,,soc4 ,c4 ,e4 7by letter74--,the appraisal of the railway property in ,michigan was a wonderful performance in a great many ways1 not the least of which was the thoroughness of the work1 considering the short time available1 and the writer desires to express his appreciation of this paper1 as it is a valuable addition to the meager literature on this subject4 ,more recent appraisals1 made by ,states traversed by the same railway systems as those involved in the ,michigan appraisal1 have been made with a freedom from opposition by railway companies due to the educational effect of this pioneer work4 ,particularly is this true of the recently completed appraisal1 by the ,board of ,railroad ,commissioners of ,south ,dakota1 of the physical property of the railways in that ,state1 of which work the writer was the ,engineer in charge4 ,no opposition was met2 in fact1 some of the railway companies had established regular departments for furnishing inventories and appraisals1 had completed the necessary field work in ,south ,dakota before the inventory had been requested by the ,state1 and were able to furnish a very complete appraisal in a short time after the request for it was made4 ,this appraisal was made in compliance with an act of the ,legislature of #aijg1 which required the ,board of ,railroad ,commissioners to ascertain the true cash value of all the property of every railroad company in ,south ,dakota used in the operation and maintenance of their respective roads4 ,no attention was paid to the purpose of the appraisal1 but one of the first uses made of the information thus secured was in the litigation following the passage of an act by the ,legislature of #aiji1 prescribing a maximum passenger fare of #b cents per mile on all railroads operating within the ,state4 ,in connection with a rate case of this kind1 some questions have been raised regarding proper bases for land values1 the use of an item for adaptation and solidification as an element of physical value1 the value of the intangible assets1 etc4 ,the lands of all railway companies were appraised at a cost to reproduce or re-purchase at the time of appraisal1 regardless of the original cost of the property4 ,the sales method was used for determining the market value of adjoining property4 ,there has been a very large land movement in ,south ,dakota in the last five years1 and as most of the country is prairie1 with similar soil over large areas1 it was not difficult to determine the average market value of the land for farm purposes1 at the date of the appraisal1 and the gradual trend of values for five years previous to that date4 ,an average multiple of #bej was used to arrive at the cost of reproducing or purchasing the right of way4 ,this multiple was based on investigations made of recent right-of-way purchases1 and inasmuch as there are no large terminals in ,south ,dakota1 the same average multiple was used throughout the ,state for both town and farm property1 investigation showing that town property could be secured for slightly less and farm property for slightly more than the average multiple used4 ,in each supplemental appraisal the land values will be corrected to correspond to the changes in surrounding values1 as the railway company is entitled to any increase1 due to natural causes1 based on the cost to reproduce at the time of appraisal4 ,this is a well-established theory1 as shown by ,mr4 ,riggs4 ,no allowance was made for the item commonly known as adaptation and solidification1 except in the item of contingencies and in the consideration of the present value of the ballast4 ,in some recent appraisals1 large sums1 based on a percentage of the cost of grading1 have been allowed for this item4 ,while there is no question that large sums of money are expended in maintaining a safe track on a new bank1 and that this expense gradually diminishes as the roadbed becomes solid1 due to the pounding of the trains and the action of the elements1 this expense is1 and properly so1 charged to maintenance1 and is paid for out of the operating revenues4 ,now1 in the trial of a rate case1 exhibits showing the operating expenses1 including maintenance charges1 are introduced1 and to include this same item in the appraisal of the physical property leads to a duplication1 for if the passenger or shipper pays for this maintenance charge1 it should not be counted as an item of physical value as a basis for determining what is a reasonable rate4 ,the case is similar to that of a locomotive3 ,when new1 it is kept in the vicinity of the shops1 because trouble from lack of proper adjustment and weak parts is likely to develop1 and the maintenance charges may be much higher than a few months later when the machine has found itself and1 as an operating machine1 is more efficient than when new4 ,however1 no one will insist that it has an added physical value in dollars and cents1 or that the excess cost of repairs and maintenance during its early life should be added to its cost of reproduction now2 in fact1 it is a second-hand machine1 and the maintenance charges must be paid for out of its use4 ,generally1 when a roadbed is turned over to the operating department by the construction department1 it is in good line and surface1 and if an appraisal were made at that time its condition would be #ajj2 but as soon as it is placed under traffic1 it begins to depreciate1 as shown by the fact that it requires constant attention to keep it up4 ,if the roadbed is cross-sectioned at each station and actual quantities calculated from cross-section notes1 there would be no depreciation1 but if the grading quantities are calculated from profiles of the line1 as constructed some time previously1 and for a standard width of sub-grade1 with a percentage added for shrinkage1 and allowance made where banks have been widened1 etc41 it will probably be found to exceed the actual measured quantities1 because the action of the elements in washing the slopes1 the wearing of the shoulders of the embankment due to foot traffic1 etc41 will show some depreciation in quantities4 ,it is common practice to carry the item for grading over to the present-value column at #ajj1 or1 with no depreciation4 ,this practice1 together with the present condition of the ballast due to maintenance1 and that part of contingencies which covers washing of slopes1 filling of ditches1 sink holes1 etc41 certainly takes care of all adaptation and solidification which should enter into a valuation of physical property4 ,no appraisal was made of the intangible assets4 ,a great many arguments have been advanced for and against such an appraisal1 and in ,south ,dakota it was held that the earning ability of any corporation due to its franchise1 strategic location1 efficient organization1 going-concern value1 etc41 while perhaps an element of value to be considered in a transfer of the property or if assessed on an income basis1 should not enter into a valuation which would be used for determining a just and reasonable return on the investment1 because the greater the earning power the greater would be the return1 and that this condition would produce a never-ending increase in returns2 whereas1 when the returns reach a point at which they will not only pay a fair dividend on the investment1 but take care of any depreciation in the physical condition of the property and make all needed improvements in roadbed1 buildings1 and equipment1 demanded by the traveling public1 shippers1 increased traffic1 or natural causes1 they should be kept to that point4 ,there are several hundred miles of railway in ,south ,dakota which have been built out of the surplus earnings of the parent corporation--in other words1 with money supplied by the traveling and shipping public--but which are owned by the railways and on which they may earn another surplus for constructing more extensions1 etc41 etc4 ,the original ,south ,dakota appraisal1 as of ,june #cjth1 #aijh1 on forms similar to those used in ,minnesota1 has been supplemented by yearly appraisals corrected for all additions and deductions made during the fiscal year4 ,for this purpose a new set of forms#bi was prepared1 with the various items classed in accordance with the ,classification of ,expenditures for ,road and ,equipment1 as prescribed by the ,interstate ,commerce ,commission1 and arranged so as to facilitate showing the yearly changes4 ,r4 ,a4 ,,thompson1 ,,assoc4 ,m4 ,,am4 ,,soc4 ,c4 ,e4#cj 7by letter74--,this paper is considered by the writer to be the most complete treatise ever written on the valuation of public service corporation property1 and the author deserves the sincere thanks of the entire ,engineering ,profession and all others interested in this most important question4 ,its presentation is most timely1 in view of the agitation1 particularly on the subject of railroad valuation1 which is now engaging the attention of ,congress and the law-making bodies of the several ,states1 as it contains much valuable information relative to decisions of ,courts1 in addition to clear and concise expositions of the methods in vogue for the appraisement of corporate property1 etc4 ,it is a fact--rapidly coming to be recognized by legislative and judicial bodies--that the prescription and regulation of tolls1 charges1 and assessments against public corporations cannot be made systematic and intelligent unless there is provided some estimate of the value of the property involved1 based on the cost of its replacement or reproduction4 ,particularly is this true of railroads2 and such regulation of the affairs of these corporations as has heretofore been essayed by ,state and ,national commissions1 has generally been on illogical bases1 unsatisfactory alike to the proponents and the companies4 ,results have been had1 it is true1 after a fashion1 but there have been endless disputes and litigation1 with the prime questions involved no nearer solution than before4 ,one has but to contemplate the varied and often antagonistic legislation promulgated by the several ,states1 relating to corporation management1 and the many rulings and decisions of the different courts and commissions on the subject of regulation1 assessment1 and adjudication of corporate rates1 revenues1 taxes1 and tolls1 to become convinced of the complicated and tangled condition of the situation1 and to realize the necessity for the early establishment of some logical basis on which to establish the fabric of corporate control4 ,while it is not maintained that an appraisement of the physical property of public service corporations will be the panacea for all such ills1 the writer firmly believes with the author that such appraisal1 as a beginning1 is absolutely necessary1 and when effected on some fair and reasonable basis1 will contribute largely to the successful solution of many of these intricate problems4 ,with the estimate of the physical value of a property before it--which represents money actually invested1 together with such accruals to costs as it may be determined that the owner is reasonably entitled to have considered--any ,court1 tribunal1 or commission is in a better position to mete out impartial justice1 whether it be the regulation of a rate1 the assessment of a tax1 or the imposition of a fine4 ,although the author's experience in valuing corporate property has been principally in connection with the ,michigan appraisal of railroads1 and to him is largely due the credit for devising methods for1 and carrying forward to successful completion1 this thorough and most excellent work1 it is refreshing to note his inclination to give credit to the work of others along the same line in other ,states1 which1 it is to be regretted1 has not always been the case with writers on this subject4 ,there is no doubt that the work of the ,michigan and ,wisconsin ,boards of ,appraisal--conducted under the advice and direction of some of the most eminent and talented engineers and economists in the ,united ,states1 and practically without regard to expense--is the most complete and perfect of its kind heretofore attempted2 yet there are many features in regard to the organization and execution of its details about which there may be an honest difference of opinion1 as viewed by those who have been similarly employed4 ,it is but natural--as suggested by the author--to find the individual character of the appraiser 7which has been moulded by his environment1 training1 and former service7 reflected in his opinion1 and this would be most probable in the organization for1 and carrying on the work of1 appraising a railroad property1 which involves consideration of practically every phase of engineering and economics4 ,the judgment of any man is essentially warped along the lines of his experience1 and he is necessarily biased and prejudiced in favor of or against certain practice4 ,as a consequence1 therefore1 it is not reasonable to suppose that any one man1 or set of men1 can formulate a system for valuing corporate property which will be perfect in all its details1 and be free from objection and criticism4 ,the writer was employed for a number of years as ,engineer for the ,railroad ,commission of ,texas1 and had charge of the valuation of railroad property under the ,railroad ,stock and ,bond ,law of that ,state4 ,a paper on the methods used by this ,commission was prepared by him and published by the ,society4#ca ,this ,stock and ,bond ,law was enacted in #ahic1 and the railroads then existing were valued in #ahid and #ahie4 ,the average value of #h1hfj miles was #ae1hdd per mile4 ,this valuation was made by ,charles ,corner1 ,m4 ,am4 ,soc4 ,c4 ,e41 now ,resident ,engineer of the ,rhodesia ,railways1 ,south ,africa1 and ,mr4 ,h4 ,j4 ,simmons1 now ,general ,manager of the ,el ,paso and ,southwestern ,railway ,system4 ,the actual cost of this work is not available1 but is estimated at about #b per mile4 ,the engineers making the appraisal secured maps1 profiles1 and all available information from the offices of the railroad companies1 including all the construction records and estimates of quantities which were preserved4 ,appraisal was made only after one of the engineers had made a personal examination on the ground1 accompanied by assistants to aid in measuring structures and estimating quantities4 ,all valuations made since #ahie have been of new railroads making application for issuance of securities1 and in all cases the deeds for right of way and depot grounds1 the contracts for construction1 the actual quantities of construction of all kinds1 the plans and specifications for all structures and construction1 and all other information which the engineer desired1 were submitted by the railroad companies to enable an accurate appraisal of the value of the property to be made4 ,it is not possible for valuations of this character to be made under more favorable circumstances4 ,up to ,october1 #aiji1 more than #c1ejj additional miles had been valued1 and in all cases the estimates limited the securities which the companies might issue4 ,writers on railroad valuation have generally been inclined to discredit the work of the ,texas ,railroad ,commission and the system of appraisal used by it4 ,one writer1 of more or less prominence1 has referred to it as the cheap method4 ,while it may be true that other appraisals have been more expensive1 it is a fact that those of the ,texas ,commission have served their purpose well1 and the railroads1 as a rule1 have made little complaint4 ,as a matter of fact1 it is highly probable that the valuations of railroad property made by the ,texas ,commission have been of greater utility1 as far as the public is concerned1 than those of all other ,states combined1 and1 at the same time1 no injustice has been done the railroads4 ,it appears that those who have interested themselves in investigating the ,texas method of railroad valuation--including the author--have failed to construe the real meaning and intention of the ,stock and ,bond ,law4 ,apparently1 it was passed for the purpose of limiting railroad indebtedness--and is referred to by ,mr4 ,riggs as serving only this purpose--but while its effect has been to accomplish this most successfully1 its enactment carried with it a deeper significance4 ,this law was passed at the same time as the ,general ,railroad ,commission ,act of the ,state1 which gave to this ,board absolute control over all freight rates and tariffs1 and also other powers not possessed at that time by any other ,state commission4 ,the decisions of the highest ,courts at that time laid stress on the right of carriers to maintain rates which would afford a reasonable return on stocks and bonds outstanding4 ,hence1 to delegate the regulation of rates to any tribunal by any law which did not carry with it also the right to supervise and restrict mortgage indebtedness to some reasonable extent1 appealed to the legislators as being essentially ineffective4 ,the effect of the law has been to reduce steadily the average outstanding stocks and bonds of the railroad companies of the ,state from an average of #dj1hjb per mile in #ahid to #ca1iaj in #aiji--;and this1 too1 in the face of a recognized increase in the physical value of the properties--thus depriving the railroads of one of their most potent weapons of offense when contending against the ,commission's orders4 ,it is a matter of common knowledge that the indebtedness per mile of railroads of other ,states has increased greatly during this period4 ,it is also a fact that the railroads of ,texas have1 except in rare instances1 contended that injustice has been done them in the enforcement of this law1 and the market value of their stocks and bonds has steadily risen4 ,also their physical condition is on a par with that of railroads in other ,southern and ,western ,states1 and their incomes from operation are as substantial4 ,the practice of watering their securities has been effectually stopped1 as regards local issuance1 and any interest which might have accrued on such securities has been saved to the public4 ,it has been contended that the ,texas valuations of #ahid-ie were too low1 and did not1 even at that time1 represent the fair value of the properties4 ,this is perhaps true to a certain extent1 but it must be remembered that the costs of materials and construction then were less than at any time before or since2 and1 viewed from the present-day standpoint1 they seem to have been inadequate4 ,it must also be considered that real estate values throughout the entire ,state were very low1 compared with present values and with those of lands in other ,states4 ,although the writer admits that the margin was very narrow1 still he is of the opinion that the valuations as made represented closely the cost of reproduction of the physical properties at the time4 ,the valuations of #ahid-ie stand to-day on the ,commission's records as the value of the property1 except in cases where there has been application and necessity for re-valuation4 ,the machinery of the law did not provide that these appraisals should be kept up to date4 ,the mortgages on these railroads are still outstanding1 and there has been no call for another appraisal1 except in a few instances4 ,the ,commission has decided that in its opinion the present value of any of the railroads already appraised is represented by the original valuation plus the value of all permanent improvements and betterments added4 ,this principle has been carried out with those railroads which have applied for re-valuation for any purpose1 and the ,commission has admitted the same in testimony which it has given before the ,courts4 ,since the appraisals which the ,texas ,commission makes are primarily for the purpose of limiting indebtedness1 and the carriers are entitled to have these at least equal the cost of their property--the investment with certain additions to cover promoters' profits--no consideration can be given to depreciation of structures and equipment1 although the application for valuation and process of issuing of securities may be had several years after completion4 ,the writer holds that there is strong argument in favor of not taking into account depreciation1 and of estimating the value of the property as being entirely new1 whatever purpose the valuation is proposed to serve4 ,this is apparent1 as already stated1 when the valuation is to serve as a basis for limiting the issue of stock and bonds4 ,is there any logical reason why a valuation for this purpose should not also serve--as far as it pertains--as a basis for taxation or for regulating freight rates8 ,as far as the ,state is concerned--and to be consistent--should not one valuation serve all purposes8 ,suppose that a ,state should create a board clothed with powers of rate regulation1 taxation1 and authority to restrict indebtedness1 and also prescribe that it should appraise the value of the property of the railroads1 and use that appraisal as the basis for its acts4 ,would it be logical for that board to make and apply one system of valuation for one purpose and another system for another purpose8 ,manifestly1 it would have declared that a valuation was a valuation for all purposes1 at least as far as the physical property was concerned2 and1 when devising a method for making its appraisals1 it should incorporate therein all the elements of value which might apply logically to either purpose4 ,the writer believes that depreciation of roadbed and structures would have no place in such an appraisal1 on the one hand1 nor its negative1 but fully as intangible and difficult of concrete estimate1 adaptation and solidification of roadbed1 on the other4 ,it should not be understood that the writer maintains that taxation boards should not go beyond the valuation of physical property to arrive at a final basis for assessment4 ,there are certain intangible elements which should be taken into consideration when taxing property1 chief of which is the net income4 ,it is only as far as physical valuations apply in either case that he considers that there should be uniformity4 ,he does not approve at all of incorporating in an estimate of the physical value of a railroad property such an element as adaptation and solidification of roadbed1 which is credited with so much importance in the ,minnesota valuation4 ,in the first place1 such an element is incapable of being measured in tangible terms and reduced to a dollars-and-cents basis2 second1 it cannot be reproduced in the sense that other property is reproduced1 and its value does not appear in the capital account of the railroad2 and third1 it results from the action of the seasons on the one hand1 and the working over of the roadbed by the maintenance forces on the other1 the cost of which appears in operating expenses4 ,one is constrained to believe that the engineer who insists on incorporating such an element in an appraisal of the physical value of a railroad is hard put to find material with which to swell his estimate4 ,when noting the large difference in value per mile of the railroads of ,minnesota1 as compared with those of ,michigan and ,wisconsin--adjoining ,states--it would appear that undue prominence had been given to this and similar factors4 ,the writer's experience as appraising engineer for more than #aj years with the ,texas ,railroad ,commission1 and for the past #b years as a construction engineer--having built about #afj miles of railroad in ,oklahoma and ,texas--confirms his belief that1 in the absence of actual figures of cost1 right of way and other railroad real estate should be appraised at but little in excess of the market value of abutting property4 ,the practice of the ,texas ,commission has been to add from #be to #ej per cent4 ,the conditions under which railroads were built in ,michigan1 ,wisconsin1 ,iowa1 and ,minnesota cannot have been radically different from those in the ,southern and ,western ,states4 ,in ,texas it has been a rare instance when a railroad has had to purchase all of its right of way4 ,also1 contiguous lands have greatly increased in value since the advent of the railroads4 ,it would appear highly illogical to advocate that these increased values should be multiplied by #c--or even #a--;and used as a basis for taxing the railroads on the one hand1 or taxing the public on the other1 by permitting indebtedness to be issued against it1 the interest on which the latter must pay4 ,the railroad recently constructed by the writer traversed fertile and thickly populated areas1 already quite well served with transportation facilities4 ,only a small fraction of the necessary real estate was purchased by the railroad company1 and only in a few cases of such purchase did it pay largely in excess of the market value of the land--and these were where the road interfered with houses and other farm improvements4 ,in cities and towns1 land was acquired at practically its fair market value4 ,for rural property1 the ratios used by ,professor ,taylor in the ,wisconsin appraisal appear to be quite fair1 but in cities they are too high--especially for the ,southwest4 ,the ,minnesota ratios appear to be unreasonably high4 ,any appraisal of the physical value of railroads--in the absence of figures as to their actual cost--is necessarily only approximate1 and is correct only within certain limits4 ,especially with regard to the old roads1 where original cost data cannot be had1 the values applied to property and construction must be largely speculative4 ,it is impossible to build two railroads in the same territory1 on the same specifications1 for the same amount2 yet1 on the basis of cost of reproduction1 an appraisal board must apply the same value to each4 ,the writer believes that unless there is more uniformity as to methods of valuing corporation property1 as between the ,states1 all valuations will be more or less discredited1 as they should be1 by the ,courts4 ,it is to be hoped that this paper will be generally discussed by the ,profession1 and will lead to the adoption of more uniform methods4 ,,charles ,h4 ,,ledlie1 ,m4 ,,am4 ,,soc4 ,c4 ,e4 7by letter74--,the following is suggested as a method of procedure for determining the fair and equitable value of a property3 #ast4--,examine carefully the statutes governing corporations of the class under examination4 #b;d4--,form an opinion as to whether or not the locality can support such a property1 by inquiry regarding the different businesses carried on1 bank clearings1 railroad facilities1 what the surrounding country produces1 etc4 #c;d4--,find from the archives of the company a general description of the property1 from its conception to the date of appraisement4 #dth4--,by close examination of the minute books1 directors and executive committees1 there can be ascertained all the details of organization1 issuing of stock1 bonds1 and other forms of indebtedness1 contracts for equipment1 supplies used in the construction1 etc4 #eth4--,obtain from the general manager or the superintendents an explanation of the details of operating and maintaining the property1 including the different classes of service1 rates1 etc4 #fth4--,go over the property1 examine it carefully1 and talk to any and all employees from whom it is thought that any information can be gained4 ,the foregoing will give a general knowledge of the property under examination1 and will enable one to begin the real work4 ,the examiner's assistants must be competent and experienced men4 #gth4--,examine all the vouchers1 from the beginning of the company down to the date it began operation2 classify their contents under the respective heads for the different classes of material used in the construction1 for example1 pipe1 engines1 cable1 etc42 then prepare blank tables for each heading1 having columns for size1 quantity1 prices1 and total2 and abstract each voucher4 ,do the same with the vouchers for labor1 general office salaries1 general expenses1 interest1 taxes1 legal1 etc4 ,this1 when completed1 will give the detailed cost1 as shown by the vouchers4 ,next check the vouchers back through the books1 and draw up a statement1 which will show the total book cost and1 no doubt1 will differ from the voucher total4 ,it is likely that many items will be found for which no vouchers exist1 a list of these is made and if the officers cannot give a satisfactory explanation of any of them they are omitted4 ,the total of what remains is added to the voucher total and represents the cash expended for the benefit of the original property1 as shown by the books and vouchers4 #hth4--,take all the remaining vouchers of the company 7it is supposed that the examiner has already been informed by the officers1 and by his inspection of the records1 of the extensions and betterments which have been made71 separate the vouchers for materials1 labor1 etc41 from those on operating1 etc4 ,next classify them by years1 and then proceed as set forth in #gth1 and add the different yearly amounts to the total of the original plant4 ,this will show the amount of cash expended 7according to the vouchers and books7 on the property1 for its physical plant1 organization1 etc41 from its beginning to the date of appraisement4 ,every examining engineer should know 7or can obtain7 the prices for materials1 labor1 etc41 during these periods of original construction1 extension1 etc4 ,if the prices are the same1 or about the same1 as at the time of purchase1 the above total stands as the cash expended2 if there should be much difference--and sometimes there is--take the detail of the materials as found in the vouchers1 affix the proper prices1 and do the same with labor1 etc41 and this total will be what1 in the judgment of the examining engineer1 the plant should have cost4 ,a mean between this latter total and that in #hth is taken1 in order to be fair and equitable4 ,this amount1 in place of that given by #hth1 is then used as the cash expended on the physical property4 ,if no difference is found in prices1 then the total cash as shown by #hth is considered as the total to be hereafter used4 #ith4--,a careful detailed inventory is now made of the physical property as it exists at the date of examination4 ,this often requires some excavation in order to determine sizes1 quantities1 and conditions4 ,the prices used to ascertain the total of the inventory are made by taking the average of all those paid for materials1 labor1 etc41 of the same class1 during each year of the property's existence4 7,the writer considers it manifestly unfair to use the current prices in this calculation1 for they may be very much below or above those actually paid1 and in either event an injustice would be done1 whereas1 if the average prices are used1 the examiner cannot be accused of unfairness47 ,to this total cost1 as shown by the inventory1 #e is added for engineering and superintendence2 #c for general office salaries1 #b for general expenses1 #a for legal and organization expenses1 and from #e to #aj for contingencies4 7,this latter percentage depends on the judgment of the examiner1 who1 after studying the local conditions carefully1 can determine from his own experience what difficulties have been met in the construction4 ,it is not believed that a hard-and-fast rule can1 in equity1 be laid down for this latter percentage47 ,this total represents the value of the tangible property1 based on the inventory4 ,the inventory cost and that set forth in #hth 7or possibly as modified by prices current when the plant was built7 are averaged1 and this result1 plus the supplies on hand1 is the fair and equitable amount of cash which has been expended on the property4 ,this is used in finding the ,fair and ,equitable ,value4 #ajth4--,next take the inventory of the plant set forth in #ith1 affix the current prices at the date of appraisal1 and to this total add the same percentages for engineering1 etc41 as set forth in #ith4 ,this gives the cost of reproducing the property1 with the same classes of materials1 size and make of engines1 etc41 as is now in it1 to which total add the cost of materials on hand for the total of cash required to be expended at current prices to reproduce the plant as it exists4 ,it is often found that this latter total is greater than that set forth in #hth1 for the reason that the engines1 etc41 may be of types which are now abandoned or obsolete1 and the manufacturing company1 having to make patterns1 etc41 would charge more for them than the original price at the date of purchase4 ,this reproduction cost at current prices is only to give the examiner information he may or may not require later in the investigation to determine some point that might arise in ascertaining the ,fair and ,equitable ,value4 ,the writer considers it unfair to call the reproduction value the cost of a modern plant which will give the same service and output1 because one is not dealing with the value of a modern plant1 but with that of an existing property4 #aath4--,from this cost 7using the detailed inventory to find the extent of property still in existence71 calculate the amount of depreciation for each section of the plant1 this being based on the present condition of the different parts and what their future life may be4 ,the total depreciation is then deducted from the result found in #ith1 and this remainder is used as the ,fair and ,equitable ,value of the tangible property at the date of appraisal4 ,the intangible value 7called by many names7 must now be determined4 ,it consists of rights1 from the ,state1 county1 city1 or any one or more combined1 which the company must have in order to carry on its business4 ,these rights in nearly all ,states are taxable1 and taxes are collected on them4 ,the ,supreme ,court of the ,united ,states has in the past held that they are property1 notwithstanding what ,state ,courts and ,commissions have set forth on this subject1 and in the writer's examinations they will be treated as property until the ,supreme ,court of the ,united ,states decides otherwise4 ,there are in general three classes of franchises1 namely3 ,i4--,those granted by the ,state to conduct a business1 where no county or city franchise is necessary1 only requiring the company to obey the ordinances for excavation1 etc4 ,the charter of the ,laclede ,gas ,company1 of ,st4 ,louis1 ,mo41 is an example of this class4 ,,ii4--,those granted by the ,state to carry on a business subject to a county or city franchise4 ,,iii4--,those granted by a city to an individual1 singular or plural1 or a company1 to do business within its limits or a section thereof4 ,in each case the right may be a contract1 for it may require a payment for the franchise granted1 either in a lump sum or in yearly installments1 or in the form of services rendered1 such as for light1 etc41 free service of some kind1 or a combination of any two or all of them4 ,the manner of determining the value of ,intangible ,property is as follows3 7a7 ,the gross collected earnings are audited for each year during the period the company has carried on its business4 ,the same is done for all vouchers1 i4 e41 operating1 maintenance1 salaries1 legal1 general expenses1 interest1 insurance1 and taxes1 and includes every item disbursed4 ,whatever this latter amounts to1 is deducted from each year's gross earnings as already found1 and the result is the true net earnings or deficit for each year4 7b7 ,the true net earnings are added together and the mean taken2 if1 in the period from the beginning to the date of appraisement1 any deficits are found1 these are deducted from the total of the plus-earnings1 the result is divided by the total number of years1 and this gives the true average net earnings4 ,this is then capitalized at the legal rate of interest of the ,state in which the property is located4 ,the result is used as the value of the ,intangible ,property4 #abth4--,the amount given by #aath is added to the result obtained by #ith1 and this total is the ,tangible and ,intangible ,value of the property1 and the ,fair and ,equitable ,value of the property at date of appraisement4 ,if it is found that grave mistakes in design or judgment have been made by not employing competent people1 and money has been wasted in construction1 the plant is re-designed1 for the original plant1 and its cost estimated4 ,the same is done for each extension1 using the prices paid at the different periods1 and this result is used in place of #ith1 as the cash cost at the date of appraisement4 ,in determining the intangible value1 if it is found that the management has been careless in order to make large net earnings1 at the expense of the physical property1 estimates are made of what the property can be operated and cared for 7here the practical knowledge of operation1 etc41 is necessary71 and these results1 plus taxes1 etc41 are subtracted from each year's collected earnings4 ,the mean or average of these results is considered as the true net earnings1 which are capitalized and added as set forth in #abth4 ,the writer holds that consumers or purchasers should not pay for avoidable error or ignorance1 and the amount of the securities issued on the property is not considered as entering into the matter of ,fair and ,equitable ,value2 when they do1 the method is somewhat different4 ,the mean true net earnings are used in determining the intangible value1 because franchises have average values1 as earnings and expenses fluctuate in corporations1 and1 when intangible values are to be considered1 they must not be based on the last year's net earnings1 for if they are1 they may give a very large result in one year and a small one in the next2 therefore1 to be fair1 the mean true net earnings should be the basis of the intangible value4 ,if the company has been over-capitalized1 and no sinking fund or depreciation has been set aside1 it is the present owner's misfortune4 ,if the company calls something a betterment1 and it is found that the betterment has only replaced something1 it is not allowed1 but is classed as maintenance2 on the other hand1 if the replacement is larger1 and capable of rendering greater results1 such as a larger engine1 pipe1 cable1 etc41 the cost1 less the cost of what it replaces1 is allowed as a betterment1 and if the old part is sold the proceeds are deducted from the betterment charge1 for if it is credited to maintenance1 it increases the true net earnings4 ,this is often done1 but is not the correct way to treat the matter1 for it increases the intangible value4 #acth4--,when new rates are to be established for a period of future years1 the manner of determining the ,fair and ,equitable ,value is the same as has been heretofore set forth4 ,the new rates are based on averages1 and the first step necessary is to ascertain what gross revenue the company must have in order to pay all classes of operating expenses1 maintenance1 depreciation1 taxes1 interest on the ,fair and ,equitable ,value of the property1 and a reasonable profit4 ,to obtain this amount1 the procedure is as follows3 7a7 ,find the percentage of increase of the operating expenses for each year over the prior one1 for a period of generally five years preceding the date of examination 7a longer time may be taken if1 in the opinion of the examiner1 it is necessary71 and then ascertain the average annual increase of the percentages4 ,the result thus obtained is taken as the increase percentage for the operating expenses for the new period of time4 7b7 ,in order to determine what the operating expenses will average during the time the new contract is to run1 take the amount of the last year's operating expenses as a basis and add to it the percentage found by 7a74 ,this total is the operating cost for the first year of the new contract4 ,the amount for the second year is found by adding to the cost of the first year the percentage found by 7a71 and so on for each year of the new period4 ,these results are added together and their average is then used as the mean cost of operation for each year during the full period4 7c7 ,the same method is followed for maintenance and taxes1 in order to find the average maintenance and taxes for the new contract's life4 7d7 ,depreciation on the plant begins from the date of appraisement1 and is estimated on the physical property by using for each section the percentages used in determining the ,fair and ,equitable ,value4 7e7 ,interest at the rate of #f is allowed on the ,fair and ,equitable ,value1 and #f profit4 ,the question of extensions and betterments to the original plant must now be taken into consideration4 7f7 ,the amount of the betterments and extensions have already been found for each year of the property's existence1 and an average of them is taken as the amount the company will spend on extensions1 etc41 during each year of the new contract4 ,on this sum #f interest and #f profit is allowed1 and1 for depreciation1 the same percentage as used in the original plant4 ,it will be seen that all the expenses of operation1 etc41 of these extensions have been allowed in 7b71 where the increase has been added for each year for these extensions and betterments1 as they are assumed to increase the cost of operation1 etc4 7g7 ,the amounts found by 7b71 7c71 7d71 7e71 and 7f7 are now added together1 and to the sum #e is added for interest1 taxes1 operation1 etc41 which may be caused by the necessary increase in capital expenditures1 for a greater growth than could be foreseen at the time the new rates were established1 for losses1 etc4 ,this total is used as the basis for establishing the new schedule of rates4 #adth4--,the next step is to determine what part of the amount found by 7g7 must be paid by the different classes of consumers4 7,i7 ,first ascertain the yearly percentage of increase in the output of the plant for the five years before the new contract is to go into effect 7or longer if1 in the opinion of the examiner1 it is necessary72 then find the average increase of percentage during the before-mentioned five years4 ,add to the last year's output the percentage found above1 this result representing the output for the first year of the new contract4 ,continue this operation for each year in the same way as the operating expenses were found in #acth 7b74 ,the average of these results will be the average estimated output during the life of the new contract4 7,,ii7 ,next find the amount of the total output each class of consumers used during each of the five years1 and then find the average yearly use during this period4 ,put these into percentages of the amount of the average output for the five years1 and then use the percentages as the amount each class of consumer will use of the average output found in 7,i7 during the period of the new contract4 ,this gives the average amount of the output each class of consumers will use during the average life of the new contract4 7,,iii7 ,next find the average percentage of the total revenue each class of customers paid during the five years4 ,take these percentages as the average percentage each class will pay of the average revenue necessary during the time the new contract is to run4 7,,iv7 ,having found the average amount of the required revenue that each class must pay1 and the average amount of the total output each class will use1 dividing the former by the latter for each case will give the rate each class is to pay during the new period4 ,it is often found in plants that large extensions have been made to supply a special contract for a long period of time1 and these extensions are set aside for the exclusive use of this contract4 ,in such cases exclude the cost1 etc41 of this part of the plant from the ,fair and ,equitable ,value in the matter of adjustment of rates4 ,in determining the operating expenses1 etc41 in such a case1 find the percentage of the total output this special output amounts to2 then1 using this percentage1 find what part of the total power-house expenses of all kinds are caused by this special contract4 ,this result is deducted from the total power-house expense1 and the remainder is the power-house cost of furnishing the consumers with their share of the total output4 ,if it is found that special employees are required to deliver this special output1 their cost is deducted1 and the same for the maintenance material used4 ,taxes and interest on the cost of this special equipment are found by ascertaining the percentage this cost of the special equipment bears to the whole plant4 ,the above results are deducted from the total operating1 maintenance1 taxes1 and interest disbursements1 and ,fair and ,equitable ,value1 and the remainders are used as the cost of the last year's expenses for furnishing the consumers with their share of the product and the ,fair and ,equitable ,value4 ,the same method is used in determining the revenue paid by the consumer4 ,the above result1 i4 e41 cost of operating1 etc41 is then used as the basis for estimating the expenses for the period of the new contract1 as heretofore set forth4 ,if the charter comes under ,class ,,ii or ,,iii1 the city no doubt has incorporated a clause for the adjustment of rates1 and the method used above is followed4 #aeth4--,where the franchise has expired and is going to be renewed1 the same method holds4 #afth4--,where the franchise has expired and the city has paid a certain amount for service1 and is to buy the property1 the same method is used1 except in determining the intangible value4 ,for determining the latter1 the amount the city pays for service is deducted from the gross collected revenue4 ,from expenses is deducted the same percentage as the amount of the city's payment is of the gross revenue2 a net revenue is found from this1 the taxes paid are deducted1 the remainder is capitalized as heretofore set forth1 and is the intangible value4 ,whatever the latter amounts to is added to 7or deducted from1 in case of deficit7 the ,fair and ,equitable ,physical ,value1 and the result is the price the city should pay4 ,cities generally claim1 and so do their experts1 that they should only pay junk value1 or the cost of a modern plant to give the same results4 ,this is eminently unfair1 because the city buys a property which is in full operation and it receives the full revenue1 in addition to obtaining service for itself at a less cost than it heretofore paid4 ,the difference between the cost to the city of furnishing the service itself1 and what it paid the company1 is profit1 but there is a charge against this of loss in taxes4 ,these two latter items1 namely1 profit and taxes1 generally balance each other1 although the writer has known of cases where the city was the gainer4 ,there are many points which can be advanced to establish the fairness of the methods outlined herein1 but they would take some time to explain1 and therefore the writer has only set out the plan he follows in his examinations1 hoping that it may be of some aid in establishing a uniform method which will be upheld by the ,courts4 ,it may be stated that recently this method was used in an examination1 going back thirty-five years1 and the results were accepted by both sides without question4 ,the writer has refused a number of examinations when told in advance what result must be found1 as well as in expert work1 where the examiner is expected to help make a case1 regardless of his honest judgment1 for1 by accepting such work1 the engineer hurts his reputation and lays the ,profession open to such remarks as ,judge ,lacombe recently made in the case of the ,peoria ,water-,works ,company vs4 ,central ,railway ,company4 ,the writer is fast coming to the conclusion that a great deal of legal trouble is caused by the decisions of commissions1 the members of which have not had experience in these matters4 ,if a commission consisted of an able lawyer1 a financial man1 and an engineer who has had a broad operating experience1 its decisions would carry weight1 and the ,courts would not be burdened with so many appeals4 ,,william ,g4 ,,raymond1 ,m4 ,,am4 ,,soc4 ,c4 ,e4 7by letter74--,this is1 perhaps1 the best paper on the valuation of public service property that has yet appeared4 ,the author's analysis is very clear1 and his arguments are convincing4 ,three points the writer would like to consider2 two of them briefly4 ,the item1 going value1 even if it is determined on logical reasoning1 as suggested by ,professor ,mead1 would seem to be a dangerous item1 and one which might result in absurdities when estimated by an unscrupulous1 ignorant person4 ,moreover1 the term has been differently defined1 and there is no certainty as to just what it means4 ,the writer sees no reason for the existence of such a term1 or of such a separate quantity as this term is supposed to represent4 ,the term1 franchise value1 or1 value of the franchise1 is used to represent the difference between the capitalized net earnings and the value of the physical property4 ,of course1 there is such a difference1 either positive or negative1 but there seems to be some objection by the ,courts to calling this franchise value4 ,the writer1 therefore1 would suggest that1 since franchise value is a very elusive item1 depending on the life of the franchise1 the attitude of the community toward the corporation1 the activity of competing corporations1 and numerous indeterminate items1 the term1 business value1 or1 going concern value1 be used instead of franchise value4 ,going concern value is not as good a term as business value or value of the business1 because it may be assumed to include both the value of the business and the value of the property4 ,value of the business would presumably include the value of the franchise1 and perhaps would not always be represented exactly by the difference between the capitalized net earnings and the value of the physical property1 but would be this difference affected by some judgment percentage resulting from a consideration of the probable continuance of the franchise4 ,mr4 ,riggs has truly said that the value of the physical property must not be made to depend on the purpose for which the valuation is made2 that1 for the business for which it is used1 the value of the physical property is the same1 regardless of the purpose for which a valuation is desired2 but valuations are made for different purposes1 and1 while there is room for argument as to the proper valuation to be used for capitalization1 taxation1 or sale1 there are perfectly definite methods suggested for valuing property for these purposes4 ,the writer has never seen a statement--that appealed to him as at all rational--of a proper method of valuing property for rate-making4 ,indeed1 the writer has said#cb that proper traffic rates have no relation to valuation except that the minimum net income should be at least sufficient to pay interest on the physical valuation4 ,the writer is not absolutely certain of the correctness of this position1 for a study of the public right to regulate a corporation which is performing a semi-public function seems to indicate that the public has a right to say1 not only that rates shall be non-discriminatory1 but also that they shall be reasonable4 ,now1 the writer is familiar with three bases for the determination of what constitutes reasonableness of rates4 ,one1 which applies to rates as a whole1 is this3 ,that the net income should produce not more than a reasonable interest rate on the actually invested capital4 ,another is the rate that the traffic will bear1 and the third is a rate that represents what the service is worth to the purchaser4 ,of course1 a difficulty arises in determining reasonable rates on any one of these three bases4 ,the only difficulty with the first one is in determining what is a reasonable interest rate on invested capital1 and1 as far as the writer has read1 no ,court has yet determined what this is1 although some ,courts have held that #e is a not unreasonable return1 that #h is a not unreasonable return1 and1 if the writer's memory serves him right1 that even #ae is a not unreasonable return4 ,there is great difficulty in the determination of what the traffic will bear4 ,it is a matter of the exercise of judgment and of experiment1 and must be applied to a considerable extent to particular rates1 for particular commodities1 for particular places4 ,the third basis would seem to be the most difficult to use1 although it is one which has recently been established in important ,court decisions1 and is mentioned by ,mr4 ,riggs4 ,what is a monopoly-provided service worth to the user or purchaser8 ,suppose that a gas company charges #a4fj per #a1jjj cu4 ft4 for gas1 and a very considerable part of the populace living in the city served purchases gas at this price4 ,presumably the purchasers pay what the service is worth to them1 and what they are willing to pay rather than suffer the inconvenience of tallow candles1 oil lamps1 or to pay a high price for electric lights4 ,suppose that through a period of five years1 by a series of reductions voluntarily made1 the price of gas finally reaches #a4ae per #a1jjj cu4 ft4 ,is this gas worth any less to the consumer at the end of the five-year period than it was at the beginning8 ,so far as the writer can see1 it is1 for only one reason1 namely1 that it can be had for less2 but this has been a voluntary reduction on the part of the supply corporation1 and who shall say that the service is not worth less than #a4ae to the consumer1 or who shall say that it was not worth less than #a4fj at the beginning of the period suggested8 ,the figures here given represent an actual case which has occurred during the last five years1 within the writer's knowledge4 ,there seems to be a growing feeling among the people that rates as a whole must be fixed so as to yield only a reasonable return to the corporation1 and1 apparently only for want of the suggestion of a better method1 a reasonable return has been held to mean a reasonable return on the capital invested4 ,believing that there may be some ground for the claim that rates as a whole should be thus fixed1 and that the return should not be unreasonable1 let us consider how what is reasonable may be determined4 ,in the first place1 it appeals to the writer that the invested capital is not the proper basis for estimating reasonable rates4 ,if it shall be finally established that a corporation is entitled to realize only a reasonable interest rate on the capital invested1 there will be no more public service corporations organized2 but1 if the reasonableness of the return may be based on the capital invested and the business done1 there will still be good inducement to capable men to engage in public service business4 ,it would seem that the rate of return that is reasonable differs for the capital invested and for the business done--that is to say1 if the capital invested is #a1jjj1jjj1 an ordinary investment return of from #d to #e may be sufficient2 and if the business done with this million-dollar plant amounts to #aj1jjj1jjj a year1 a reasonable return may be #aj or even #ae of the whole4 ,now1 as has been suggested by ,mr4 ,riggs1 it is manifestly impossible to capitalize the net earnings as a basis for determining reasonable rates1 because these net earnings are the result of certain rates already established1 the reasonableness of which may be in question2 and if1 instead of speaking separately of interest rate on capital actually invested and profit rate on business done1 it is desired to obtain a value on which to base reasonable rates1 the following is suggested as a method3 ,determine the physical value and the annual interest on this physical value at an assumed reasonable rate1 say #e2 determine the annual expense of conducting the business1 and assume a business man's profit rate1 say #ae1 and find the profit that should be earned on the business done4 ,this1 added to the total interest charge1 should give the net income1 over and above operating expenses1 that may be considered reasonable1 and this sum1 capitalized at any given assumed reasonable interest rate1 would give a value which might with reason be used as a basis for rate-making1 rates being deemed to be reasonable as a whole which furnish from year to year a simple reasonable interest rate on this established value4 ,of course1 there is no necessity for establishing such a value1 as the reasonableness of the rates will be determined when it is learned that they produce not more than a fair interest rate on the actual physical value of the property plus a fair profit rate on the business done4 ,this method is not free from the objection that what is a reasonable interest rate and what is a reasonable profit rate have never yet been fixed1 but it is much easier to fix these separately than to fix what is a reasonable return on the capital actually invested or the physical valuation of the property4 ,w4 ,h4 ,,williams1 ,,esq4 7by letter74--,before entering upon the discussion of the more essential elements of the problem presented by this paper1 it seems worth while to correct one or two misapprehensions under which ,mr4 ,riggs seems to labor1 and to call attention to the rather extraordinary temper in which he approaches the grave questions with which he deals4 ,mr4 ,riggs' first serious misapprehension is that railway officers1 as a class1 are1 with substantial unanimity1 opposed to any official valuation of railway properties1 and that this opposition was voiced through the writer's discussion of ,professor ,henry ,c4 ,adams' paper in favor of valuation1 at the last annual 7,december1 #aiji7 meeting of the ,american ,economic ,association4 ,of course1 on that occasion1 the writer spoke1 as he now speaks1 only for himself1 but1 more than that1 he then expressly disclaimed any such opposition1 undertook to make suggestions as to the manner in which a proper valuation could be obtained1 and directed his criticisms plainly at a proposal which contemplated1 as he then observed3 ,an incomplete and misleading valuation bearing the stamp and carrying the weight of governmental sanction1 which can be of no practical advantage to the ,government1 the public1 or the railways2 but may easily injure the public and the railways by disturbing the confidence of the former and hampering the activities of the latter4 ,the writer then added3 ,it seems very clear that such a valuation as is proposed would be wholly useless to the ,government for any practical purpose1 because it would omit so many factors essential to any fair appraisement of the worth of the enterprises as going concerns4 ,bearing in mind that the foregoing was addressed to the particular proposal made by ,professor ,adams1 that being the topic on which the writer was invited to speak1 a proposal expressly limited to the ascertainment of cost of reproduction less depreciation 7the equivalent of cost of replacement with second-hand materials in a condition equivalent to that of the materials in use and hereinafter referred to as cost of replacement7 under the pseudonym of physical value 7or sometimes inventory value71 it would seem as though ,mr4 ,riggs should sympathize with the writer's view1 rather than with that of ,professor ,adams4 ,certainly1 ,mr4 ,riggs is fully aware of the inadequacy of mere cost of replacement to serve any useful purpose1 for1 after saying that3 ,no account may be taken of the purpose for which the resultant figure of value is to be used2 and the result should not vary1 no matter what the purpose may be4 ,he says1 in another place3 99 99 99 it is clear that the worth of the physical property1 being the cost of reproduction less depreciation1 is not necessarily the value of the property4 99 99 99 ,and1 defining what he calls the non-physical or intangible elements of value1 says3 ,these are those things which1 added to or taken from the worth of the physical property1 make up the value1 and include whatever accrues to the property by reason of its operation1 or by reason of grants1 contract rights1 competition1 or location1 which at the time of appraisal affect favorably or unfavorably the worth of the property4 ,the second misapprehension that is worthy of notice seems to have grown out of a curious sensitiveness1 on the part of ,mr4 ,riggs1 as to any suggestion1 other than his own1 of criticism of any work undertaken or theories advanced by ,professor ,adams4 ,as to every reader1 other than ,mr4 ,riggs1 it is surely quite unnecessary to say that no attack has been made upon ,professor ,adams by the writer at the ,new ,york meeting of the ,american ,economic ,association or anywhere else4 ,certainly1 it will be conceded that some difficulty would attend an effort to respond to an invitation to discuss before a scientific body a paper written by one of its members without making any allusion to the author of the paper or to his views or work1 and those who have any knowledge of the history of official railway valuations in the ,united ,states1 and especially of the proposal to undertake a ,federal investigation of cost of replacement1 are fully aware that ,professor ,adams has been from the beginning1 and now is1 the ,hamlet of the drama1 without whom it would become dull and lifeless4 ,strangely enough1 ,mr4 ,riggs seems to wish to deny to ,professor ,adams this prominence1 for he says3 ,professor ,adams was associated with the ,michigan appraisal1 but had no connection whatever with the 'physical valuation1' to which such objection is taken1 and his appointment was made after the work of physical valuation had been fully outlined and was well under way4 ,it is true that the scheme devised by ,professor ,adams1 and adopted at his suggestion by ,governor ,pingree1 required the employment of civil engineers for the preliminary work which necessarily had to precede the final valuation by ,professor ,adams1 but the bare statement of this fact is utterly misleading4 ,professor ,adams' own testimony in one of the ,michigan tax cases happily places his responsibility for the whole plan entirely beyond controversy4 ,he said3 ,in #aijj ,i was called upon by the ,michigan ,state ,tax ,commission to determine whether railroads were paying a tax rate on their value equal to the rate on other property4 ,with that problem in view1 ,i formulated this inventory plan4 99 99 99#cc ,any discussion of the proposal for a ,national inquiry concerning cost of replacement which omits to show that its most persistent advocate1 ,professor ,adams1 has advocated and actually conducted or controlled several successive valuations1 in ,michigan1 as ,statistician to the ,interstate ,commerce ,commission1 and as special employee of the ,bureau of the ,census1 made in accordance with other methods than those which he now proposes to apply1 is seriously inadequate2 as seriously inadequate as it would be to omit to state that1 using what purported to be the same method1 ,professor ,adams1 by changing the details of its application and decreasing the rates of interest used in his computations1 raised his valuation of ,michigan railways from #aeb1ieh1bjb to #agg1fhi1bib or #af4ag1 each of the two calculations being presented to the public1 with assurances that it disclosed the actual taxable value1 and there being barely eighteen months between them4 ,the writer is by no means alone as an object of ,mr4 ,riggs' dissatisfaction because of public criticisms of ,professor ,adams' plan for estimating cost of replacement4 ,thus1 of a statement in which ,professor ,taylor1 who conducted the ,wisconsin inquiry1 questioned the validity of some of ,professor ,adams' methods1 he writes3 ,undoubtedly this statement was made in good faith1 and has gained currency by not having been corrected1 but it is not the fact4 ,in another place1 referring to a statement of comparative costs to the respective ,states for valuation work1 made by the ,railroad ,commission of the ,state of ,washington1 he says3 ,it does not appear to be good taste either to criticize costs of work in other ,states1 or compare the costs in ,wisconsin and ,michigan with the cost in ,washington4 ,referring to a paper by ,charles ,hansel1 ,m4 ,am4 ,soc4 ,c4 ,e41 who took part in the ,michigan valuation1 ,mr4 ,riggs says3 ,the one point to which special attention is drawn is ,mr4 ,hansel's astonishing misconception of ,professor ,adams' plan of work4 ,this misleading statement appears in the first paper and is reiterated in the second4 ,again1 of the report of the expert of the ,washington ,railroad ,commission1 who had the temerity to declare that it found little value either in ,professor ,adams' methods or his estimates of the cost of the work1 ,mr4 ,riggs says3 ,such sentences1 and others which1 by inference if not by name1 reflect on work executed by men of high professional standing1 are hardly in good taste1 even if true1 in a report to a railroad commission of another ,state4 ,yet ,mr4 ,riggs does not fail to criticize the method of valuation1 applied by ,professor ,adams in ,michigan1 in terms quite as definite as any used by others4 ,thus1 he condemns the method used to estimate the value of the non-physical elements appertaining to the ,michigan railways1 on the grounds 7first7 that it made this value a mere derivative of the rates existing1 and 7second7 that it made no allowance for negative values when cost of replacement exceeded real value1 saying3 ,it will be seen that1 in the case of a property in which the surplus earnings depend on excessive rates for service1 it will fail as a method of determining a value for use as a basis of rate-making2 and it fails1 in the form in which it was used in #aijj and #aijb1 to bring out those negative or subtractive elements which may be determined from the income accounts1 in the case of properties which do not earn a fair return on the investment4 ,of the published statistics of ,american railways1 compiled in the office of which ,professor ,adams is the responsible head1 derived from annual reports made in accordance with forms prescribed by the ,interstate ,commerce ,commission under his guidance1 and containing items selected from and depending on the uniform railway accounting system devised by ,professor ,adams and imposed on the carriers by the ,commission1 ,mr4 ,riggs writes3 ,the published statistics are in such form that only the careful student of affairs can understand or analyze them1 and but few of the public officials who receive them are able to read the reports of the properties and comprehend them4 ,railway officers fall quite generally under ,mr4 ,riggs' condemnation1 for1 of them he says3 ,as a body 99 99 99 it is doubtful if any equal number of men1 of equal intelligence1 have as limited a knowledge of the fundamental truths of government1 or knowledge so colored by bias4 ,it is also doubtful whether any equal number of men have in their ranks so few who bear an active part in the duties and activities of citizenship1 or who exercise large influence on their neighbors4 ,such assertions as the foregoing need no comment2 their intemperance is their most effective refutation2 yet a few recent examples may be cited3 ,paul ,morton resigned as ,vice-,president of the ,atchison1 ,topeka and ,santa ,fe to become ,secretary of the ,navy in ,mr4 ,roosevelt's cabinet2 ,jacob ,m4 ,dickinson1 ,general ,solicitor of the ,illinois ,central1 became ,mr4 ,taft's ,secretary of ,war2 his successor with the ,illinois ,central1 ,william ,s4 ,kenyon1 later became ,special ,assistant of the ,attorney-,general2 ,lloyd ,w4 ,bowers1 ,general ,solicitor of the ,chicago and ,northwestern1 was ,solicitor-,general of the ,united ,states from early in ,mr4 ,taft's administration until his death a few months ago4 ,thus1 within but four or five years1 the ,federal ,government took four of its highest officers from the railway officers located in only one of the country's great cities--,chicago4 ,of a recent address by one of the ablest and most public-spirited of railway officers1 he says3 ,this address well expresses the spirit of the railway managers and employees toward all forms of investigation1 and the complete lack of understanding1 on the part of these managers1 of the legal and moral relations which they bear to the communities which they serve4 ,belonging to this so hateful class1 and having also ventured to question whether ,professor ,adams has said the last and most perfect word on the subject of railway valuation1 the writer is neither surprised nor disheartened to find that he1 also1 has caused ,mr4 ,riggs undisguised dissatisfaction4 ,it is a misfortune apparently inseparable from his profession and his conception of his obligations to his employers and to the public4 ,as has been already noted herein1 the question is not whether railway property shall be officially valued1 but rather 7first7 as to how the value which is to be ascertained is properly to be defined1 and 7second7 how the determination of value1 as properly defined1 can be made most accurate4 ,the essential difference between the view advocated before the ,american ,economic ,association by ,professor ,adams and that of the writer was1 and is1 that the former now desires to exclude all elements of value which are not physical and tangible1 while the writer holds that1 if it is worth while to ascertain1 on a general scale1 at the cost of a necessarily large expenditure of taxpayers' money1 and as to a particular date1 so unstable a fact as railway value1 the kind of value the ascertainment of which could be of sufficient utility to warrant the effort can be nothing less significant than the fair value which the ,courts have said is a proper element for consideration in fixing reasonable rates of charge4 ,the fundamental difference between these two conceptions of value is admirably indicated by the following quotations1 both of which rest on the authority of the ,interstate ,commerce ,commission4 ,,fair ,,value4 ,the present value of a railroad property is necessarily very largely a matter of opinion only2 it depends upon a vast number of contingencies and uncertainties1 a road apparently of great value to-day may soon become worthless by the opening of a competing line having superior advantages or by the competitive struggles of other lines which operate to reduce the income of all2 the value of a railroad largely results from the personal characteristics of its officials2 the policy pursued by directors for the conservative and economical or progressive and daring1 is a great factor in the determination of the current value of the property2 a railroad property is not necessarily worth what it would cost to replace it and1 on the other hand1 it may be worth very much more than that4#cd ,,replacement ,,cost4 ,the bill in question makes use of the phrase 'fair value4' ,unless there is some legislative necessity1 which we do not perceive1 we question the advisability of using this phrase4 ,it would seem to us preferable to substitute a phrase which indicates the fact that ,congress desires an inventory valuation of railway property4 ,by inventory valuation is meant that the property of the several railways shall be listed in detail1 and that each kind or class of property so listed shall have assigned to it a valuation to be determined from the point of view of the contracting engineer1 and not from the point of view of a court or board of arbitration which1 from the nature of the case1 cannot judge of what is 'fair value' except in the light of some specific use to be made of the valuation4#ce ,as has already been noted herein1 and amply verified by quotations1 ,mr4 ,riggs is fully aware that replacement cost and real value can rarely1 if ever1 coincide1 and therefore plainly agrees1 as to that elementary and essential point1 with the writer and disagrees with ,professor ,adams1 who would ignore or destroy every non-physical element of value in the property of all public service corporations4 ,mr4 ,riggs' recognition of the inadequacy of mere replacement cost is shown also by the excellent and convincing example which he cites#cf of competitive railway routes between two ,michigan cities which were built and are maintained and operated under such conditions that the far more costly of the two1 which inferentially has correspondingly higher replacement cost1 has much lower earning capacity1 both as to gross and net1 and is therefore actually worth much less than its less costly competitor4 ,mr4 ,riggs explicitly favors full recognition of the non-physical elements in every valuation2 and1 therefore1 may be ranked as an opponent of any such scheme of valuation as that advocated by ,professor ,adams before the ,american ,economic ,association1 or in the letter of the ,chairman of the ,interstate ,commerce ,commission1 hereinbefore quoted4 ,mr4 ,riggs1 however1 believes that the determination of the cost of replacement is an essential first step toward the ascertainment of real value4 ,he says3 ,the worth of the physical property is primarily that on which the value of the whole property rests4 ,the thought which the writer would place in opposition to the foregoing is that3 ,physical property has no value which is not an expression of its adaptation to economic needs4 ,this is only another way of expressing the inevitable economic law1 from which there is no escape1 either in theory or in practice1 that has been stated and sanctioned by the ,supreme ,court of the ,united ,states1 as follows3 ,but the value of property results from the use to which it is put1 and varies with the profitableness of that use1 present and prospective1 actual and anticipated4 ,there is no pecuniary value outside of that which results from such use4#cg ,mr4 ,riggs' own definition of value is not inconsistent with the foregoing4 ,he says3 ,the value of a property is its estimated worth at a given time1 measured in money1 taking into account all the elements which add to its usefulness or desirability as a business or profit-earning proposition4 ,the view of ,mr4 ,riggs is that3 ,while 444 the worth of the physical property1 being the cost of reproduction less depreciation1 is not necessarily the value of the property1 444 the physical worth must bear some very definite relation to value4444 ,and he is1 further3 ,strongly of the conviction that this relation is such that 'value' cannot be ascertained without a determination of physical worth4 ,it is exceedingly difficult to comprehend just what ,mr4 ,riggs means when he describes the relation between real value 7which he recognizes so clearly as value in use7 and cost of replacement as very definite4 ,certainly1 he does not mean that it is a constant relation1 or one which can be ascertained until there has been independent determination of both of the aggregates whose relation it expresses4 ,in fact1 the emphasis which ,mr4 ,riggs places on replacement cost has led him into the grotesque fallacy of arguing that a correct estimate of real value is only to be attained by ascertaining3 7first7 cost of replacement1 7second7 real value1 and 7third7 correcting the aggregate first obtained by applying whatever very definite relation 7ratio7 is necessary to make it agree with the second aggregate1 which was from the beginning the only aggregate really wanted4 ,the accuracy of this characterization of his proposed procedure is made perfectly clear by the following quotation3 444 the true method of valuing a corporate property is first to determine the cost of reproduction of the property and its depreciation1 and modify this figure by any applicable positive or negative non-physical elements of value4 ,it is submitted that the clear meaning of the foregoing is that both replacement cost and real value as derived from use must be separately and independently ascertained1 and that1 these aggregates having been compared1 the former is to be corrected by whatever allowance for non-physical value may be required to make it agree precisely with the latter4 ,the obvious suggestion flowing from this discovery of his theory is that only value in use is wanted1 as that is the only real value1 and as it must be separately ascertained in any event1 no other and pseudo value need be taken4 ,the essential character of the method is as described1 even when it is applied through determination of the annual value of the use and the assignment of one portion of such annual value to return on the capital value of the physical property and another portion to return on the capital value of non-physical property4 ,the real nature of the method is not even effectually concealed by the capitalization of the income assigned to physical property at one rate and the income assigned to non-physical property at a different and higher rate4 ,in fact1 if it is necessary to conclude that a portion of the net annual income of railway property is normally paid to1 or in respect of1 a portion of capital entitled to a lower rate of return1 and the remainder to or in respect of a remainder of capital entitled to a higher rate1 the appraisal of the physical property is an excessively costly1 cumbersome1 and inaccurate expedient for determining the amount or value of either portion of the capital4 ,yet that is exactly what was done in ,michigan by ,professor ,adams1 the valuation he then made being completed before he altered his view by deciding that the non-physical elements of value are entitled to no consideration whatever1 and that only cost of replacement is worthy of inclusion in an official valuation4 ,but is there any real distinction between the physical properties and the immaterial elements1 such as the foregoing extract seems to assume8 ,is not the superficial appearance of such a distinction plausible but deceptive8 ,a locomotive is an entity2 so is a railway4 ,the separate parts of a locomotive are most of them independently valuable2 so are the separate parts of a railway2 but a large share of the value of the locomotive is the result of the nice adjustment of these separate parts to each other and to the work to be done4 ,take a hundred different-sized locomotives1 each adapted to different work under different conditions1 and separate each piece of metal2 it would be possible to value all these parts1 but the aggregate would be far less than the value of the locomotives from which they were taken4 ,again1 it would be possible to construct from these parts a hundred locomotives of such poor design1 their respective parts so out of adjustment and balance1 that they would be worth even less than the parts out of which they were assembled4 ,the highest paid intelligence has not yet contrived the perfectly balanced locomotive1 but a large part of the so-called physical value of every locomotive represents this sort of highly paid intelligence put forth at every stage from the opening of the mine where the ore was obtained to the delivery of the completed locomotive4 ,take ten railways of a thousand miles each1 every one of them efficiently constructed1 and equipped with proper terminals1 stations1 signals1 rolling stock1 and trained employees1 and each properly adapted to the requirements of its territory and traffic2 separate them into piles of ties and rails1 groups of locomotives and cars1 acres of land1 unorganized bodies of men of varied capacity and training2 what sort of intelligence will it require to build up out of these masses ten railways as efficient and useful as those that originally existed8 ,why1 then1 should the physical value of the locomotive include the assembling of its parts in proper balance and the physical value of the railway exclude the cost of the much more complicated adjustment of its elements of machinery and labor and location to each other8 ,at an early point in his discussion1 ,mr4 ,riggs makes an announcement1 highly becoming on the part of one who proposes to deal with the problem solely from the point of view of a civil engineer1 that he does not intend to argue the public utility of any sort of valuation1 but only the method by which it may best be made1 should one be determined upon4 ,he says3 ,this paper is confined to a discussion of the methods which should be used in arriving at a correct figure of cost of reproduction and depreciation--it does not take up questions involving the propriety of those figures when reached4 ,the propriety or legality of using such figures as a basis for an assessed valuation1 as a basis for rate-making 7rate-making being an art in itself involving complications as great as those encountered in valuation71 or any arguments as to the justice or injustice of legislation restricting issues of stocks or bonds1 will be conceded no place in this paper4 ,it is assumed that all these questions would have been taken up and a satisfactory answer reached before a valuation could have been ordered4 ,two pages after the foregoing paragraph1 under the sub-heading ,the ,relation of ,public ,service1 or ,quasi-,public ,corporations1 to the ,people1 ,mr4 ,riggs proceeds to violate the wise1 though self-imposed restriction1 and devotes no less than eleven pages to a defense of the project on grounds of alleged public policy4 ,in these pages he concludes that such a valuation as he proposes--not a mere determination of replacement costs1 but a real valuation1 with proper allowance for all elements of value in use--would be of service in connection with 7a7 taxation1 7b7 public control of rates1 and 7c7 public control of issues of capital securities4 ,in supporting valuation as an expedient in taxation of railway property1 ,mr4 ,riggs seems to rely on a table made up from ,professor ,adams' ,bulletin ,no4 #ba1 as expert employed by the ,federal ,bureau of the ,census1 which table shows that the assessment of the railways of ,wyoming for taxation purposes in #aijd was but #g4e of their commercial valuation1 as estimated by ,professor ,adams1 and that this ratio varied greatly throughout the different ,states1 running as high as #aad4d in ,connecticut4 ,of course1 nearly every one knows1 even if ,mr4 ,riggs does not1 that the relation between the real value and the assessed value of all other kinds of property varies greatly from ,state to ,state1 and even in different portions of the same ,state4 ,on account of this variation1 no table such as that offered by ,mr4 ,riggs in support of his argument can have any value unless supplemented and explained by data covering the assessment of other kinds of property4 ,it is worth noting1 en passant1 that the so-called ,commercial ,valuation1 on which ,mr4 ,riggs rests this part of his argument1 assigns a value equivalent to #cb1jed per mile to the railways of ,michigan and one of #de1baa per mile to the railways of the prairie ,state of ,nebraska4 ,possibly this variation in the estimate of value is partly expressed in the conclusion that ,michigan railways are assessed at #gj4i of their value and ,nebraska railways at but #ah4e per cent4 ,obviously1 there is no more need of uniformity among the ,states in the taxation of railway property than in their methods of deriving revenue from other kinds of property4 ,also1 ,mr4 ,riggs admits that1 when the ,michigan valuation for taxation was made1 it was not diminished1 as it should have been1 by the use of negative1 non-physical value4 ,this is fully equivalent to an admission that the method was unjust to every railway not capable of earning the full return on its replacement cost4 ,he says3 ,the use of a negative or subtractive non-physical value was considered1 and advised by ,professor ,adams4444 ,professor ,adams and his associates1 therefore1 applied only positive values1 where any such were found1 although advocating the use of negative values4 ,and1 of the method then used1 he says3 444 it fails1 in the form in which it was used in #aijj and #aijb1 to bring out those negative or subtractive elements which may be determined from the income accounts1 in the case of properties which do not earn a fair return on the investment4 ,and again3 444 where the earnings have been fairly uniform and stationary for a period of years1 and the property does not earn a sufficient sum to care for depreciation and annuity1 it is clear that the value as an earning investment is less than the determined physical value1 and that the physical valuation should be reduced by some amount to arrive at the 'fair value4' ,in his argument favoring the use of a valuation in rate-making1 ,mr4 ,riggs affords no support to ,professor ,adams' contention that1 for that purpose1 only replacement cost should be considered1 and that1 after fixing the rates on the basis of the least favorably located and least efficient line1 so as to afford it a bare return on its replacement cost1 the surplus earnings at the same rates of its more favorably located or better operated competitors should be confiscated under the guise of a special tax4 ,this extraordinary proposal1 the character of which is so illuminating as to the attitude toward railway property and investments of the most prominent and persistent advocate of so-called physical valuation1 is best stated in ,professor ,adams' own words1 which are as follows3 ,i cannot evade the conclusion that equity1 as between various classes of roads1 can never be attained until all the excess of revenue over the ,constitutional limit be made a contribution to the public treasury1 and that this contribution be made as a substitute for all taxes of all kinds and all sorts4#ch ,on the contrary1 ,mr4 ,riggs distinctly upholds the right to earnings in excess of the bare return1 at the minimum rate of interest1 upon the cost of replacement1 saying1 inter alia3 ,it is contended that the determination of rates that will be just and fair to all competing companies involves other consideration than the valuation of either physical or intangible properties1 and that when all these rate-making problems are properly solved1 there will remain large intangible values on the well-designed plants4 ,professor ,adams has himself admitted that there is no possibility of utilizing any valuation for the purpose of fixing specific rates1 as such a task is far beyond the capacity of any conceivable system of cost accounting4 ,supplementing this admission1 ,mr4 ,riggs' opposition to the plan proposed by the former and its gross injustice1 so apparent to every one but its author1 destroys the last element of plausibility in the suggestion that any sort of valuation could be of utility in that connection4 ,the writer is not overlooking the fact that the ,courts1 when under the necessity of repelling efforts to confiscate railway properties under the guise of rate regulation1 and in view of the form in which this necessity has commonly presented itself1 have accepted fair value as an element of importance in their inquiries2 but if the railways are entitled to charge rates based on the value of the services they perform1 it is clear that the question whether a rate or a schedule of rates is reasonably adjusted to the value of the service or services is very different from the question whether a fair return upon fair value has been allowed4 ,assuming1 however1 the need of an appraisement in every litigated case involving railway schedules1 it is evident that each case would have to have its own appraisement1 for value is ever changing and unstable4 ,mr4 ,riggs himself says3 ,it is true that the 'value' of a property is an unstable figure1 subject to fluctuations due to natural or artificial causes1 and that a material change in value may occur suddenly4444 ,professor ,adams proposed to keep his replacement cost up to date by annual accretions equal to annual expenditures for extensions and betterments2 but this plan is illogical and inconsistent1 for it proposes to ignore that very essential difference between original cost 7less a proportionate allowance for wear and tear7 and present worth1 which is the very basis of the argument in favor of any valuation at all4 ,equally obvious objections1 growing out of the instability of the ascertained value of any particular date1 apply to any plan which does not provide for a re-appraisement every time the aggregate is to be used4 ,the objections to the use of any valuation for rate-making which have been cited are valid1 and should be convincing1 but they are insignificant by the side of the fundamental objection that1 as ,mr4 ,riggs says1 as a business proposition1 the value of any property depends on its earnings1 while those who would thus utilize a valuation are attempting to reverse the fact and make earnings depend on the value4 ,such a reversal is impossible4 ,ascertain real value and you have a consequence of earnings1 past1 present1 and prospective1 nothing else2 use this as a basis for a rate schedule and you get1 as a mathematical result1 the present rates4 ,the only way to derive any other result from this method would be to use as the basis some figure other than the real value1 a method which would only be resorted to through moral turpitude or intellectual incapacity4 ,one might almost assume that ,mr4 ,riggs knows this1 for he says3 ,value is given to a property1 either by reason of the fact that it is an instrument for earning profit1 or that it does earn profit or gives promise of profit4 ,the substance of ,mr4 ,riggs' argument on capitalization control is that ,american railways are not often over-capitalized1 but such evils do obtain in other industries1 and therefore railway issues of capital securities ought to be restricted4#ci ,unfortunately1 he gives no clue to the methods he would have applied1 nor as to how far he would go in interference with the normal action and interaction of commercial forces in determining what securities can and ought to be issued4 ,railways are not over-capitalized4 ,table #i1 a comparison of official valuations and capitalization1 originally compiled by ,mr4 ,slason ,thompson1 is instructive4 ,,table #i4 ,state4 ,year4,valuation by commission,state proportion of or tax board4 capitalization4 ,minnesota #aijg #daa1gce1aid #ccd1igi1fia ,south ,dakota #aiji #ajf1did1ejc #ajh1iaa1jjj ,wisconsin #aiji #bhd1jff1jjj #bdi1bii1jfj ,texas #aiji #dac1jjj1jjj #dab1dfe1gdc ,washington #aijh #ahf1jjg1dij #aec1dic1idj ,total #a1dja1cjc1ahg #a1bei1jdi1dcd ,excess of total valuation over total capitalization #adb1bec1gec ,in view of frequent suggestions1 in the public press and elsewhere1 which indicate that there is a widespread opinion that the securities of railways have generally been watered1 ,table #aj is given4 ,it is an analysis of the consolidated balance sheet as given in the reports of the ,interstate ,commerce ,commission for #aijh and #ahij4 ,table #aa shows the length1 in miles1 of main and other tracks in #aijh and #ahij4 ,the ,commission1 in its annual report1 shows the securities issued per mile of road 7first main track71 but does not show the results per mile of main track 7i4 e41 #ast main track1 #b;d1 #c;d1 #dth1 and other main tracks71 nor does it show the results per mile of all tracks 7i4 e41 main tracks1 yard tracks1 passing tracks1 and industrial tracks74 ,from the consolidated balance sheet1 it will be noted that the securities per mile of road have increased #bi1 while per mile of main track they have increased only #bd1 and per mile of all tracks they have increased but #ad per cent4 ,however1 deducting the investments in stocks and bonds of other corporations1 and showing the results only for the securities issued on account of the cost of road and #ab equipment1 we have an average per mile of road of #fb1chh1 an increase of #ab2 and an average per mile of all main tracks of #ef1aff1 an increase of #h2 and an average per mile of all tracks of #db1hfd1 or a decrease of #j4g per cent4 ,it will be noted that a considerable part of these increases is due to increased cost of equipment1 and the advantageous results obtained from such investment have been clearly shown4 ,of the investment in the track itself 7cost of road71 it will be noted that the cost per mile of main track has increased only #e1 while the cost per mile of all tracks shows a slight decrease in #aijh as compared with #ahij4 ,these comparisons are more significant and convincing in the light of the large expenditures since #ahij for the reduction of grades1 revision of line1 interlocking towers1 automatic block signals1 increased weight of rail1 increased capacity of bridges1 improved stations and terminals1 elevation of tracks1 and the many other items going to make up the additions and betterments1 and increasing the book cost of the property4 ,the figures plainly prove that there has been no general practice on the part of the railroads of the country1 from #ahij to date1 of issuing capital securities without securing full value for the vast amount referred to4 ,why1 then1 should any restriction be placed on the form or manner of their future appeal for the very large volume of capital necessary to keep abreast of ,american industrial development8 ,why should they be limited as to what form of security they may offer in return for the cash capital which they must obtain if they are to serve the public adequately and properly8 ,,table #aj4--;,,consolidated ,,balance ,,sheet ,,for ,,railroads ,,of ,,the ,,united ,,states4 ,,exclusive ,,of ,,terminal ,,and ,,switching ,,roads4 ,,assets4 ,total4 ,per mile of road4 #aijh4 #ahij4 #aijh4 #ahij4 ,,railroad3 ,cost of road #ab1jce1aie1djcg1ccc1jif1dcj #ef1bfh #ea1djj ,cost of #a1agh1ega1acg #dbb1bij1iea #e1eaj #b1ifj equipment ,material and #bbf1bej1dfb #fc1ghe1iej #a1jeh #ddg supplies ,total #ac1ddj1jag1jjbg1hai1agc1cca #fb1hcf #ed1hjg ,,investments3 ,stocks owned #b1aae1cac1cgi #dhi1jdi1hei #i1hij #c1dbh ,bonds owned #a1bga1caa1eab #bda1aae1ffe #e1idd #a1fij ,total #c1chf1fbd1hia #gcj1afe1ebd #ae1hcd #e1aah ,,current ,,assets3 ,cash and #a1bac1ege1bgb #cjg1hga1ahh #e1fgd #b1aeh current assets ,sinking1 #aed1ige1dji #abe1jie1ihg #gbd #hgg ,insurance1 and other funds ,total #a1cfh1eej1fha #dcb1igj1age #f1cih #c1jce ,miscellaneous #a1bgg1deh1gie #gaj1cjj1ecf #e1igc #d1igi ,grand #ai1dgb1fea1cfii1fib1fji1eff #ia1jda #fg1ici total--,all assets ,,liabilities4 ,,securities ,,issued3 ,capital stock #g1bhi1eig1ifdd1agi1aef1iij #cd1jha #bi1bic ,bonds #i1dda1bjj1bfa #d1dfb1egg1jgi #dd1ada #ca1bhj ,total #af1gcj1gih1bbeh1fda1gcd1jfi #gh1bbb #fj1egc ,,current ,,liabilities3 ,accrued #be1cda1iid #agg interest ,other current #a1aea1bcc1bee #ddj1eac1fbi #e1chb #c1jhh liabilities ,total #a1aea1bcc1bee #dfe1hee1fbc #e1chb #c1bfe ,miscellaneous #hde1aae1eeb #cid1iah1bja #c1ieb #b1gfh ,grand #ah1gbg1adg1jcbi1ejb1ejg1hic #hg1eef #ff1fjf total--,all liabilities ,profit and #gde1ejd1ccg #aij1aja1fgc #c1dhe #a1ccc loss balance ,grand #ai1dgb1fea1cfii1fib1fji1eff #ia1jda #fg1ici total--,all assets ,,assets4 ,per ,mile of main tracks4 ,per mile of all tracks4 #aijh4 #ahij4 #aijh4 #ahij4 ,,railroad3 ,cost of road #ej1fef #dh1aji #ch1fei #dj1jcc ,cost of #d1ifa #b1ggj #c1ghf #b1cje equipment ,material and #ieb #dai #gbg #cdh supplies ,total #ef1efi #ea1bih #dc1agb #db1fhf ,,investments3 ,stocks owned #h1ijc #c1bjh #f1gie #b1fgj ,bonds owned #e1cea #a1ehb #d1jhc #a1caf ,total #ad1bed #d1gij #aj1hgh #c1ihf ,,current ,,assets3 ,cash and #e1ajh #b1jbj #c1hih #a1fha current assets ,sinking1 #feb #hbj #dih #fhc ,insurance1 and other funds ,total #e1gfj #b1hdj #d1cif #b1cfd ,miscellaneous #e1cgg #d1ffj #d1ajc #c1hgh ,grand #ha1ifj #fc1ehh #fb1edi #eb1iad total--,all assets ,,liabilities4 ,,securities ,,issued3 ,capital stock #cj1fhb #bg1dag #bc1dae #bb1hae ,bonds #ci1gch #bi1bgg #cj1cbg #bd1cfb ,total #gj1dbj #ef1fid #ec1gdb #dg1agg ,,current ,,liabilities3 ,accrued #aff #ahh interest ,other current #d1hde #b1hij #c1fih #b1dje liabilities ,total #d1hde #c1jef #c1fih #b1edc ,miscellaneous #c1eeg #b1eia #b1gae #b1aef ,grand #gh1hbb #fb1cda #fj1aee #ea1hgf total--,all liabilities ,profit and #c1ach #a1beg #b1cid #a1jch loss balance ,grand #ha1ifj #fc1ehh #fb1edi #eb1iad total--,all assets ,it ought also to be borne in mind1 in this connection1 that1 while there could be no lawful mode for the revision of existing capitalization1 should it in any instance be found to be too small or too great when measured by the results of such a valuation1 the future issue of securities must be controlled by the necessities of the carriers and the state of the market1 and is also practically restricted by the ,interstate ,commerce ,commission's accounting system1 which declares what expenditures may and what may not be carried into the capital account4 ,the law cannot compel any company to repudiate any existing security1 and if it could it is not to be supposed that ,congress would compel such an impairment of contract rights2 public policy will not permit in practice restrictions that would prevent the issue of securities to meet the actual needs of the public and the carriers2 the accounting system prevents issues of any other sort4 ,further restrictions would be cumulative and superfluous4 ,,table #aa4 ,track4 #aijh4 #ahij4 ,increase4 ,percentage of increase4 ,single track #bac1hhh4cfadb1ffe4hi #ga1bbb4dg #di4i ,second track #bj1bji4je #h1dcg4fe #aa1gga4dj #aci4e ,third track #b1jha4af #gfj4hh #a1cbj4bh #agc4e ,fourth track #a1djh4ii #efa4ha #hdg4ah #aej4h ,total1 all main tracks #bcg1ehg4efaeb1dbf4bc #he1afa4cc #ee4i ,yard track and sidings #gc1gbh4eg #cj1gej4ag #db1igh4dj #aci4h ,total mileage operated #caa1caf4acahc1agf4djabh1aci4gc #fi4i 7all tracks7 ,the ,interstate ,commerce ,commission in #aijh report that their ,balance ,sheet covers 'miles of road' aggregating #bac1hhh4cf miles1 whereas their statement of mileage represents all roads reporting to the ,commission whether or not they furnished a ,balance ,sheet4 ,to analyze the ,consolidated ,balance ,sheet1 we have revised the statement of mileage to cover same roads as are included in the ,general ,balance ,sheet4 ,the 'miles of road1' i4 e41 miles of first main track1 are actual4 ,the ,commission's report not showing separately for each line the miles of other main tracks or yard tracks and sidings1 the figures shown in the statement of mileage are approximate4 ,it includes mileage of all second1 third and fourth tracks4 ,undoubtedly1 practically all of the second tracks1 third tracks and fourth tracks are owned1 or operated by1 roads furnishing the ,commission with a ,balance ,sheet4 ,mileage of ,yard ,tracks and ,sidings is based on the proportion which the single-track mileage of roads represented in the ,balance ,sheet bears to the total single-track mileage of roads reporting to the ,commission4 ,mr4 ,riggs considers seriatim nine objections to the ordinary methods of estimating cost of replacement which were mentioned specifically by the writer1 as among the most important commonly omitted items1 in an address before the ,new ,york ,traffic ,club1 delivered during ,january1 #aiji4 ,he concedes that the writer is correct in urging that allowances for working capital with which to carry on the business and for impact and adaptation ought to be included1 and were omitted in ,michigan and have been usually omitted4 ,these are two of the nine objections specifically raised4 ,as to five others1 ,mr4 ,riggs seems to be in considerable doubt4 ,concerning the objection that an allowance of #c for interest during construction is too low1 he contends that it was justified in ,michigan by the assumption1 that the whole work of replacement would be accomplished in one year1 and also that on long roads partial operation would commence as various sections of the line were completed4 ,he admits that these assumptions clearly would not be proper under different conditions1 but appears to hold that they were warranted as to the ,michigan work4 ,another of the writer's objections was the absence of an allowance for wear and tear of materials during the period of construction4 ,as to this1 ,mr4 ,riggs says3 ,this deterioration is a necessary incident to any construction work4 ,it has not been customary or usual to take account of it4 ,to add to the amount capitalized on account of this item would be manifestly improper4 ,the only way in which this could be cared for would be in an adjustment of the depreciation reserve when raised to cover that which takes place during the construction period4 ,of course1 the depreciation account1 when there is one1 is a charge to operation4 ,therefore1 ,mr4 ,riggs' anxiety to disagree with the writer has led him into a frame of mind in which he is prepared to find that it is manifestly improper to charge to capital the real cost of construction1 but is quite proper to charge to operation a part of the cost of construction1 even though this results in carrying into the operating account items of expense incurred long before operation began or could have begun4 ,mr4 ,riggs thinks that the writer was incorrect in objecting that a uniform price for earthwork was used1 thus ignoring the varying character of soil and length of haul1 but he admits that there was practically no classification in the ,southern ,peninsula of ,michigan1 or1 in fact1 on #ij of the mileage of the ,state1 and his defense goes no further than to assert that the price 99 99 99 was not much out of the way when considered as a fair average for the territory4 ,his criticism of the objection to the use of a uniform price list for materials1 and ignoring the source of supply and the cost of delivery at the point of use1 is equally forced1 for it admits that no effort was made to use different unit prices as between counties1 and only contends that in a number of cases differences in prices were made4 ,the absence of an allowance for interference by labor troubles1 weather conditions 7which he admits are a frequent source of annoyance1 delay1 and sometimes of expense71 ,mr4 ,riggs defends on the ground that it is an expense difficult to separate and set up1 and therefore ought to be covered by an allowance for contingencies4 ,on the same ground1 he could easily carry every item of cost of replacement into the contingent account4 ,the two remaining objections specifically raised by the writer are squarely attacked by ,mr4 ,riggs4 ,as to one of them1 the propriety of an allowance for carrying charges up to the time of attaining a revenue basis1 has been admitted by the ,railroad ,commission of ,wisconsin1 but it is a broader question than ought here to be discussed4 ,the writer will only suggest1 at present1 that in some form or other1 these charges must be on the whole and in the long run met out of net operating income1 and that the cheapest way1 for the user of the services supplied1 is to carry them into the capital account--otherwise there must be an early amortization of this item1 which cannot do otherwise than to throw a heavy burden on the early schedules of charges4 ,the language of the ,wisconsin ,railroad ,commission on this subject merits quotation1 and is as follows3#dj ,but new plants are seldom paying at the start4 ,several years are usually required before they obtain a sufficient amount of business or earnings to cover operating expenses1 including depreciation and a reasonable rate of interest upon the investment4 ,the amount by which the earnings fail to meet these requirements may thus be regarded as deficits from the operation4 ,these deficits constitute the cost of building up the business of the plant4 ,they are as much a part of the cost of building up the business as loss of interest during the construction of the plant is a part of the cost of its construction4 ,they are taken into account by those who enter upon such undertakings1 and if they cannot be recovered in some way1 the plant fails by that much to yield reasonable returns upon the amount that has been expended upon it and its business4 ,such deficits may be covered either by being regarded as a part of the investment and included in the capital upon which interest is allowed1 or they may be carried until they can be written off when the earnings have so grown as to leave a surplus above a reasonable return on the investment that is large enough to permit it4 ,when capitalized1 they become a permanent charge on the consumers4 ,when charged off from the surplus1 they are gradually extinguished4 7,these facts alone1 however1 do not always furnish the best or most equitable basis for the disposal of such deficits47 ,whether they should go into the capital account1 or whether they should be written off1 as indicated1 are questions that largely depend on the circumstances in each particular case4 ,the other objection that is squarely opposed by ,mr4 ,riggs is the refusal to allow for unavoidable discounts on the securities sold4 ,here he quotes with complete approval an unnamed writer1 who contends that the impropriety of such an allowance is proven because1 as between an issue of #aj1jjj1jjj in bonds 7par value7 at #d and at #d1 the #d bonds bringing #ij and the #d selling at par1 there is an annual saving1 in issuing the #d of #ej1jjj in interest1 and that1 if the issue is to be for fifty years1 this saving is #b1ejj1jjj1 or #a1ejj1jjj in excess of the discount4 ,of course1 these figures are correct1 but both ,mr4 ,riggs and his unnamed authority seem strangely to have overlooked the fact that if a railway construction requires #aj1jjj1jjj1 it cannot be obtained by issuing #aj1jjj1jjj in par value at #ij4 ,the comparison1 of course1 ought to be based on the issue of enough bonds at each rate to obtain equal sums of money4 ,as #aj1jjj1jjj in par value of bonds sold at #ij would produce #i1jjj1jjj1 the following comparison is based on the issue of enough bonds at each rate payable in fifty years to secure that sum4 ,fifty-,year ,bonds1 #d sold at par4 #d sold at #ij4 ,amount of capital required #i1jjj1jjj #i1jjj1jjj ,par value of bonds necessary #i1jjj1jjj #aj1jjj1jjj ,annual interest charge #dje1jjj #djj1jjj ,if #d bonds are used3 ,annual saving in interest #e1jjj ,fifty years saving in interest #bej1jjj ,loss1 original discount #a1jjj1jjj ,net loss #gej1jjj ,of course1 the foregoing figures are not absolutely accurate1 for the real net loss in the issue of the #d rather than the #d bonds at these prices would be the difference between the #e1jjj annual saving in interest and the amounts which would have to be set aside annually for fifty years to produce #a1jjj1jjj1 the amount of the discount1 at the end of that period4 ,but the table is sufficiently accurate to expose the curious error into which ,mr4 ,riggs has fallen4 ,perhaps it will convince him that it would be better1 hereafter1 not to stray so far outside the field of civil engineering4 ,mr4 ,riggs has little sympathy with those railway men who venture to express the opinion that regulation ought not to extend so far as to render it impossible to conduct the railway business in a business-like way4 ,his animadversions on railway men in general have already been illustrated herein4 ,he finds nothing worse with which to characterize a previous utterance of the writer's than to say of it3 ,the manifest impatience with all forms of governmental interference with corporations1 which so often characterizes the utterances of prominent railway officials1 appears in this paper to a marked degree4 ,at the risk of incurring further displeasure1 the writer will not omit now to observe that1 in his judgment1 the whole question whether railways shall be generally and officially valued1 and how and by whom the task shall be performed1 is primarily conditioned by the country's need of managing its legislative control of railway methods so as not to restrict unduly the flow of capital into that industry4 ,the steady pressure for legislation during the last five years has so extended legislative regulation that1 for the first time1 the sturdy1 frugal1 conservative1 small investor stands in the forefront of the problem4 ,his views of the stability and future prosperity of the ,american railway industry now dominate the situation4 ,what they are may be read in the facts attending recent efforts to finance necessary improvements of old and prosperous railways4 ,it developed before the ,interstate ,commerce ,commission during the recent hearings in connection with the proposed partial adjustment of rates to the diminished purchasing power of the money in which they are paid1 that one of the greatest of ,eastern railway systems1 paying #h annual dividends on its stock1 which is very widely distributed1 had offered new shares to its stockholders at a premium of #be1 and had found them unsalable at that figure1 so that it was obliged to recall the offer and put them out at par4 ,other testimony disclosed the failure of one great company to obtain an offer of more than #he for its #d bonds1 while another had been forced to go to ,france to raise #aj1jjj1jjj1 and many others have been forced to the expedient of issuing short-term notes at relatively high rates of interest4 ,it also appeared that extensive proposals for new branch lines had been abandoned or postponed1 in view of the impossibility of obtaining funds on reasonable terms4 ,other testimony shows that locomotive shops and car builders are putting out not more than half of their capacity2 that the supply trade is receiving no new orders4 ,never1 since the beginnings of the ,american railway industry1 has the ,american and foreign investor been so reluctant to supply necessary capital1 or so doubtful of the future of railway enterprises4 ,this fact is not due to absence of confidence in the industrial future of the ,american people1 but is directly attributable to the unanswered inquiry as to how far the policy of legislative control is to extend4 ,either this question must be answered in a manner satisfactory to the investor1 or the credit of the ,government must be made available for the extension and improvement of railway facilities1 either through ,governmental guaranties of adequate returns to capital1 or through ,government ownership2 for adequate and properly constructed and equipped railways the public must and will have4 ,thus far1 the ,american public is ready neither for ,federal guaranties nor for ,federal ownership2 it is to be hoped that it will never be ready for either4 ,in this situation1 if a ,federal valuation is to be undertaken1 it is primarily important that it should be under such auspices and by such methods that the investor will not be alarmed as to its consequences4 ,this is not a suitable occasion to attempt to lay down all the considerations applicable to such a valuation1 but it ought to be perfectly clear that it must relate to value in use1 not to some concept of value limited to replacement cost which excludes some of the most important elements of value 7which are also those most worthy of a return1 because they represent the highest and most difficult social and industrial services71 in order to obtain a means of excluding these same elements from possibilities of adequate reward4 ,one of the most important items to be considered is the cost of progress1 which is sometimes referred to as abandoned property1 or as obsolescence4 ,for illustration1 in the revision of the grade and line of a road1 whereby the capacity of existing track is doubled1 the present instructions of the ,interstate ,commerce ,commission require the charge to operating expenses of the cost of that portion of the old line no longer continued in use4 ,if1 however1 the doubling of the capacity of the line be secured by the construction of a second main track1 the entire cost of the new work can be charged to capital account and paid for from the proceeds of the sale of capital securities4 ,the latter method becomes the easier to finance1 but what of the comparative results8 ,say1 for example1 the original cost of material of existing property1 including equipment1 stations1 yards1 etc41 was #aj1jjj1jjj1 that the first main track cost #a1jjj1jjj1 and that to double the capacity of the main track would require a present expenditure of #a1jjj1jjj1 either for 7#a7 a reduction of the grades and curves of the first main track1 or 7#b7 for the construction of a second main track4 ,the increase in capacity is identical1 but in the first case the cost of train service to handle the tonnage is decreased #ej1 and some reduction in maintenance is secured1 while in the second case no economies of operation are effected1 but the expenses may be increased4 ,undoubtedly1 ,road 7#a7 would be much more favorable than ,road 7#b71 yet the ,commission says a portion of the cost of perfecting ,road 7#a7 must be charged to operating expenses1 and cannot be capitalized4 ,what general manager will dare recommend such extensive improvements when the charging of a portion of the cost to operating expenses will show the dividend as unearned1 and thus render the securities of the company no longer legal investments for savings banks1 trustees of trust funds1 etc48 ,as an alternative1 he might permit the old line to remain1 and by placing thereon a few cars occasionally1 could consider it as still in use1 and carry it in his capital account1 thus avoiding the charge to operating expenses4 ,thus1 again1 is it the method and not the result that is controlled by these instructions4 ,what should be done is to permit the cost to be charged against the surplus accumulated during the years in which the property to be abandoned was used4 ,this would not affect adversely the operating income of the year1 and would not impair the credit of the ,company4 ,plainly1 the instructions of the ,commission tend to compel a method that is contrary to the economic law4 ,obviously1 any requirement as to valuation which would impose on the carrier such a result as that shown would compel the continuance of the less efficient service and prevent the progress which such replacements express4 ,the railway business is a continuing one1 and an improvement ought to be made whenever it can earn income1 not only on its own cost1 but on that of the property abandoned1 even though it cannot afford income sufficient to wipe out the whole capital charge for the latter in a single year4 ,there is no reason for requiring each item of capital to earn its cost in addition to its interest during its individual life4 ,such a requirement would cry halt to progress4 ,it is reasonable and proper that such charges to operation should be made as far as the rapid development of the art of transportation permits1 and such is the practice of every well-managed railway2 but1 to make the practice uniform and compulsory1 permitting no exceptions and allowing no scope for individual judgment1 is quite another thing4 ,when the conditions warrant such a course1 the railway ought to be permitted to adjust its accounts in a manner of which the following is typical3 ,replacing4 ,not replacing4 ,capital account #ai1gej #e1jjj ,additional net operating income attributable to #a1jjj #bej this item ,charge to operation for abandoned property #bej ,operating gain #gej #bej ,a valuation adjusted in recognition of this developmental need would include1 in addition to the item of #ae1jjj for the replacement cost of the new locomotive1 an item representing cost of progress of #d1gej for the former locomotive4 ,it is not to be overlooked that in actual practice it would be easy to obtain this allowance by cumbering the yards and round-houses with obsolete and superfluous equipment4 ,the plan of ,professor ,adams places a premium on such a course1 and there are many conditions under which it could and would be followed where it would be less obvious and more detrimental4 ,for example1 it might be that an additional track over a steep grade and a new alignment which would avoid it would cost the same4 ,the new alignment would give greater operating efficiency1 but it would require the charging off of the old line2 the new track over the grade would be more costly to operate1 but would leave the apparent capital unimpaired4 ,it is such possibilities as this that are giving pause to the investors who would otherwise supply funds for the needed development of the ,american railway system4 ,how far this development has so far required the abandonment of property capable of further use and having genuine capital value is indicated by available records4 ,the aggregate capacity of all equipment has increased much faster than the increase in number of locomotives and cars4 ,the reports of the ,interstate ,commerce ,commission only show this information for the years #aijb to #aijh1 both inclusive4 ,the average tractive power of locomotives in #aijh was #bf1cef lb41 as compared with #bj1dhe lb4 in #aijb1 being an increase of #e1hga lb41 or #bh4g per locomotive4 ,the average capacity of freight cars in #aijh was #ce tons1 as compared with #bh tons in #aijb1 an increase of #g tons1 or #be per cent4 ,undoubtedly1 the average capacity of locomotives and the average capacity of freight cars in #aijh was not less than #fj above the average capacity of #ahij4 ,l4 ,f4 ,loree1 ,m4 ,am4 ,soc4 ,c4 ,e41 ,president of ,the ,delaware and ,hudson ,company1 as ,reporter 7,for ,united ,states7 to the ,international ,railway ,congress1 held in ,paris in #aijj1 communicated with all roads in the ,united ,states then operating #ejj miles of line1 or more1 relative to the capacity of cars actually in service4 ,the result is shown in ,table #ab4 ,as a result of these improvements in roadway and equipment1 the average number of tons of freight handled per freight train in #aijh was #cea4hj tons1 as compared with #bif4dg tons in #aijb1 an increase of #ee4cc tons1 or #ah4f per cent4 ,the average tons per freight train in #aijh was #cea4hj1 as compared with #age4ab in #ahij1 an increase of #agf4fh tons1 or #ajj4h per cent4 ,these improvements have not been solely or mainly for the benefit of the carriers1 though there is no question that they have been prompted by railway self-interest4 ,the new car of #dj tons capacity is but #bj longer than the old car of #ac tons1 which means a great augmentation of the efficiency of the private sidings and tracks of the manufacturers1 as well as the side tracks and terminals of the railway4 ,who would retrace the steps of progress of the last decade or of the last two decades8 ,yet the project to tie railway earnings to replacement cost1 which makes no allowance for the costly steps in such progress1 is in reality a project to tie them to their present state of development and to prohibit future progress4 ,nor can it be forgotten that it is an inviolable law of ,nature that that which does not go forward must go backward--nothing can remain stationary4 ,the story of the crude millionaire who wanted to know the value of the plant of ,oxford ,university1 in order that he might duplicate it1 is not inappropriate1 and ought to have some significance to those who imagine that replacement cost would tell the story of railway values4 ,do they imagine1 because they are ignorant of them1 that a great railway organization carries no traditions of loyalty1 of persistence in the face of overwhelming difficulty1 of generous recognition of public needs and rights1 of courageous adherence to the real interests of its shareholders that inspire its personnel and provide a genuine esprit du corps8 ,do they find no superiority in one organization over another1 no systematic economies of method1 no especial adaptation to economic needs that has value more genuine than any replaceable element1 and is at least equally worthy of compensatory return8 ,,table #ab4--;,,classification ,,of ,,freight ,,equipment ,,according ,,to ,,the ,,capacity4 ,year4 ,no4 of ,five ,ten ,fifteen ,twenty ,twenty- ,thirty ,roads tons tons4 tons4 tons4 five tons4 ,reporting and tons4 7see under4 note74 #ahhj ,a-#g #ch1cii #aca1ihh #ddg1bgj #hi1dbj #g #ch1cii #aca1ihh #ddg1bgj #hi1dbj #ahij ,a-#g #af1dej #ga1ihb #ahb1age #fea1gdj #dda1dge #edh1fgj ,b-#ac #af1dej #gb1jhb #bdj1ijj #icc1jdj #fbd1abe #fch1ajj #ahic ,a-#g #a1ade #cd1jhh #add1gie #fbi1ghj #gcd1cej #hdb1fdj ,c-#ac #a1ade #cd1bch #bee1gie #iic1hdj #idg1ejja1aab1jgj #ahie ,a-#g #cee #ac1igh #abj1dce #ehi1adj #gdc1igea1jaa1jcj ,d-#ae #cee #bj1hfc #bde1gjia1ahf1cbja1ajc1ajja1dic1gjj #ahig ,a-#g #bj #f1dfb #ib1ehe #eee1ihj #gfa1aeja1bbd1jcj ,e-#af #bj #i1djg #afc1ahia1jbi1gefa1jhi1cjja1hbb1ecj #ahih ,a-#g #a1edj #id1bge #ebc1jhj #gba1dbea1cad1hdj ,f-#bg #fc1efe #i1dia #dah1eeab1aij1cfja1fed1hejd1hca1agj ,year4 ,no4 of ,thirty-,forty ,forty- ,fifty ,total ,total ,aver- ,roads five tons4 five tons number capacity1 age ,reporting tons4 tons4 and of in tons4 capac- 7see over4 cars4 ity1 in note74 tons4 #ahhj ,a-#g #ec1gcc #gjg1jgg #ac4b #g #ec1gcc #gjg1jgg #ac4b #ahij ,a-#g #d1jjj #ej #ia1bhaa1iaf1dib #ba4j ,b-#ac #d1jjj #ejaai1eacb1ebh1gdg #ba4b #ahic ,a-#g #d1jjj #ajc1caeb1cij1gih #bc4d ,c-#ac #d1jjj #ade1ddjc1hdh1ehh #bc4j #ahie ,a-#g #gj1jjj #d1jjj #ejajd1difb1feb1ifc #bd4d ,d-#ae #gj1jjj #d1jjj #ejaga1cjgd1jgd1bag #bc4h #ahig ,a-#g #gd1hfe #d1djj #dej #aejajh1aahb1gbj1jdb #be4b ,e-#af #ahc1aij #d1djj #dej #aejagd1caed1cbb1dcb #bd4h #ahih ,a-#g #ge1cbj #d1dhj #bgj #ej1iejajh1eeib1ghf1ahj #be4g ,f-#bg #hh1eae #h1hdj #bgjajd1gjjche1gfei1dji1iah #bd4d ,note3--,a--,figures cover only these roads3 ,reporting for #ahhj and all other years1 viz43 ,allegheny ,valley ,b4 ,m4 ,r4 ,c4 of ,g4 ,g4 ,r4 ,i4 ,penn4 ,lines ,w4 ,phila4 ,reading ,wis4 ,cent4 ,b--,includes roads under ,a1 also3 ,ches4 ,ohio ,c4 ,g4 ,w4 ,m4 ,k4 ,t4 ,n4 ,d4 ,c4 ,phg4 ,western ,vandalia ,c--,includes roads under ,a1 also3 ,ches4 ,ohio ,c4 ,g4 ,w4 ,mich4 ,cent4 ,m4 ,k4 ,t4 ,n4 ,d4 ,c4 ,phg4 ,western ,d--,includes roads under ,a and ,b1 also3 ,mich4 ,cent4 ,southern ,ry4 ,e--,includes roads under ,a and ,c1 also3 ,c4 ,r4 ,i4 ,p4 ,seaboard ,air ,line ,southern ,ry4 ,f--,includes roads under ,a and ,b1 also3 ,ann ,arbor ,b4 ,m4 ,c4 ,r4 ,i4 ,p4 ,c4 ,st4 ,p4 ,m4 ,o4 ,grand ,trunk ,lehigh ,valley ,mich4 ,cent4 ,o4 ,r4 ,r4 ,nav4 ,penn4 ,r4 ,r4 ,p4 ,b4 ,l4 ,e4 ,seaboard ,air ,line ,so4 ,pacific ,southern ,ry4 ,,table #ac4--,,statement ,,of ,,return ,,on ,,investment ,,in ,,road1 ,,equipment1 ,,etc41 ,,for ,,roads ,,in ,,the ,,official ,,classification ,,territory1 ,,for ,,eleven ,,years ,,ended ,,june #cj,,th1 #aiji1 ,,also ,,for ,,the ,,year #ahij4 ,year4 ,cost of road4 ,cost of ,general ,material and equipment4 expenditures4 supplies4 #aiji #d1ceg1dee1aja #fhf1aaf1bjf #ej1ehf1hab #ge1eej1ace #aijh #d1cjf1ijb1jch #ffi1gea1cbj #ea1cbd1aeg #hf1bja1gdh #aijg #d1dch1ehb1dch #ehg1fcg1gcc #ia1ibc1cch #aijf #d1bfi1jff1hjj #eac1jbh1jjd #hj1dgi1ccc #aije #d1aaj1hhc1ijd #dib1dih1dhh #fe1hge1jga #aijd #c1ijf1gff1dei #dfa1ida1fgg #gb1bdj1eba #aijc #c1hcj1ehj1ggf #dbf1hbb1cah #fd1deh1beg #aijb #c1gdd1bje1eeb #chi1iji1gee #ej1efe1bij #aija #c1fhb1hid1cdc #cgh1ede1ehj #dg1gdf1agh #aijj #c1fbj1fcj1ahg #cgg1aef1gjj #di1idj1hch #aihi #c1eff1bbc1eeg #cea1ijb1ieg #ca1afb1ijg ,total #dc1hcd1aid1aee #e1cce1caj1gch #aja1iaj1ifi #gaf1adc1faf #aa years ,average #c1ihd1ibf1dfi #dhe1jbh1bdi #i1bfd1fcd #fe1ajc1ife #aa years #ahij #b1ibg1bba1bcc #bhc1djg1aci #ce1bfb1bje ,total #df1gfa1dab1chh #e1fah1gag1hgg #aja1iaj1ifi #gea1dje1hba #ab years ,average #c1hif1ghd1cfe #dfh1bbf1dhi #h1dib1eha #fb1fag1aeb #ab years ,,table #ac4 7,continued47 ,year4 ,total4 ,operating ,operating ,net ,operating ,revenues4 ,expenses4 ,revenue4 #aiji #e1afi1gjh1bed #a1jcb1bhe1hij #gjj1fid1jjg #cca1eia1hhc #aijh #e1aad1agi1bfc #a1jdi1ede1ihd #gdf1ege1jid #cjb1igj1hij #aijg #e1aah1adc1eji #a1ada1cbd1aaf #gid1iih1hjc #cdf1bbe1cac #aijf #d1hfb1egd1acg #a1jdd1eeb1iji #gad1dfa1deb #ccj1jia1deg #aije #d1ffi1beg1dfc #idd1hje1fei #feh1ccg1dih #bhf1dfh1afa #aijd #d1ddj1idh1feg #hii1hfh1eai #fcf1bag1bag #bfc1fea1cjb #aijc #d1cba1hfa1cea #hga1fig1faa #fja1hfd1bhd #bfi1hcc1cbg #aijb #d1ahd1fhj1eig #ghb1ige1eei #ebh1fha1hib #bed1bic1ffg #aija #d1aji1ahf1aja #gcj1eij1add #dia1feg1hii #bch1icb1bde #aijj #d1jdg1gbg1gbe #fih1cfh1hbi #dfg1dfb1jic #bcj1ijf1gcf #ahii #c1idi1bhi1dba #faj1gbd1cja #dac1cij1cei #aig1ccc1idb ,total #di1ihg1eef1dgh #i1hjf1fci1ebaf1ged1cdj1eihc1jeb1bih1ibc #aa years ,average #d1edd1cbc1cag #hia1eab1fhd #fad1jcj1ifc #bgg1dha1gba #aa years #ahij #c1bde1hij1egg #ebd1gfg1ijf #cdh1chh1bfh #agf1cgi1fch ,total #ec1bcc1ddg1jeeaj1cca1djg1dbgg1ajb1gbh1h ffc1bbh1fgh1efa #ab years ,average #a1dcf1abj1ehh #hfj1iej1fai #eia1hid1jgb #bfi1jef1edg #ab years ,,table #ac4 7,continued47 ,year4 ,net revenue ,total ,net ,taxes4 ,operating from outside ,revenue4 ,income4 operations4 #aiji #b1dbe1gbf #ccd1jag1fji #cg1cig1igc #bif1fai1fcf #aijh #c1ddf1fjj #cjf1dag1dij #cf1jba1igd #bgj1cie1eaf #aijg #cdf1bbe1cac #ce1hgf1adh #caj1cdi1afe #aijf #ccj1jia1deg #cd1hfc1cad #bie1bbh1adc #aije #bhf1dfh1afa #bg1fge1baa #beh1gib1iej #aijd #bfc1fea1cjb #bh1jia1dfh #bce1eei1hcd #aijc #bfi1hcc1cbg #bf1ecg1ied #bdc1bie1cgc #aijb #bed1bic1ffg #be1big1dfe #bbh1iif1bjb #aija #bch1icb1bde #bh1gig1bfd #bae1acd1iha #aijj #bcj1ijf1gcf #bb1faf1hic #bjh1bhi1hdc #ahii #aig1ccc1idb #ba1fib1fid #age1fda1bdh ,total #e1hgb1cbf #c1jeh1aga1bdi #cai1hfh1ceh #b1gch1cjb1hia #aa years ,average #ecc1hdg #bgh1jae1efh #bi1jgh1ida #bdh1icf1fbg #aa years #ahij #agf1cgi1fch #ad1gec1eej #afa1fbf1jhh ,total #e1hgb1cbf #c1bcd1eej1hhg #ccd1fba1ijh #b1hii1ibh1igi #ab years ,average #dhi1cfj #bfi1ede1ijg #bg1hhe1aei #bda1ffj1gdh #ab years ,,table #ac4 7,continued47 ,year4 ,operating ratio4 ,percentage to cost ,mileage of line of road1 cost of owned4 equipment1 material1 and supplies #aiji #fg4hh #e4gch #ef1efc4da #aijh #ga4ac #e4bhg #ef1cbh4gi #aijg #fi4ff #f4jfc #ef1dae4be #aijf #fh4dj #f4jga #ee1iij4ab #aije #fi4fh #e4edb #ed1ifc4bj #aijd #gj4gj #e4cjd #ed1fdc4ej #aijc #fi4jd #e4fcj #ec1hgc4aa #aijb #fg4eb #e4dgb #eb1ihj4gj #aija #fg4cj #e4bce #eb1iaa4df #aijj #ff4id #e4adf #eb1die4be #ahii #fg4fi #d4ddg #eb1jji4ic ,total #fh4hh #e4dgh #eii1agd4gb #aa years ,average #fh4hh #ed1dgj4de #aa years #ahij #ff4ci #d4ihj #dc1jid4gc ,total #fh4ge #e4ddh #fdb1bfi4de #ab years ,average #fh4ge #ec1ebb4de #ab years ,if there were not abundant evidence that the railway industry is not excessively profitable1 there would be more reason on the side of those who continually put forward new schemes of restriction2 but1 not only is such evidence ample1 but there is no evidence of any sort tending to establish the contrary4 ,limiting the inquiry to the region east of the ,mississippi and north of the ,ohio and ,potomac ,rivers1 commonly known as ,official ,classification ,territory1 the statement in ,table #ac1 based on the book cost of railways1 with their equipment1 supplies1 and materials on hand1 is instructive4 ,the data are from the reports of the ,interstate ,commerce ,commission4 ,the amounts shown in ,table #ac as operating income are1 as should be remembered1 those earned1 and not those distributed as interest on bonds and dividends on shares1 which were necessarily much smaller4 ,bearing this in mind1 it is significant that the percentage of such operating income to cost of property has not but once in the last twelve years1 the most prosperous duo-decade in the ,nation's history1 exceeded #f1 and then only by a very small fraction2 and that the average for the whole period is less than #e per cent4 ,every one knows that the real value and the actual cost of the railway property in this region greatly exceeds its book cost1 so that these percentages are undoubtedly much in excess of the real rates of net earnings to value or cost of property4 ,p4 ,e4 ,,green1 ,,assoc4 ,m4 ,,am4 ,,soc4 ,c4 ,e4 7by letter74--,it is not often that there is presented to the ,society a paper which shows such thoroughness of understanding of a difficult problem1 and as much real experience in its solution1 as is manifested therein2 and the author is certainly to be congratulated on such a logical and forcible presentation of the subject4 ,there may be some points on which engineers who have been engaged in such work cannot agree with him2 but certainly it cannot be said that he has not argued very clearly and logically on nearly all the debatable questions4 ,those who have not had actual experience in making a valuation of a railway company's property cannot have any idea of the enormous amount of detail and labor necessary to make such a compilation of any real value4 ,it simply means that every detail of every structure of whatever kind must be investigated1 together with the various considerations covering intangible values1 which the author has so ably discussed4 ,the writer was fortunate enough to be employed on the valuation of the ,chicago and ,northwestern ,railway property in ,minnesota in #aijf1 and possibly some details of the manner in which the actual field work of the survey was done may be of interest4 ,the work consisted of making a compilation from records1 or from actual surveys when necessary1 of about #fbe miles of railway property1 including several important terminals4 ,the property had been built between #ahfj and #aija1 mostly in the early part of this period4 ,the portions which had been constructed during the latter part of the period1 say from #ahij to #aijf1 presented no difficulties1 as the records were very clear and complete1 but the portions constructed in the ,sixties had practically no records4 ,some had been built by small independent companies1 which were acquired later by the ,northwestern ,system4 ,on these old lines the records were practically nil1 and those in existence were soon found to be of absolutely no use4 ,even on the newer lines it was found that many changes had been made within a few years after their construction1 and that it was sometimes more economical1 as regards time at least1 to make a new survey of the property than to use the records4 ,after examining all the old records very thoroughly1 and endeavoring to get some order and information out of them1 it was decided that the only way to do the work properly was to make a complete survey and valuation of all the physical property4 ,several field parties were organized and also an office force1 about twenty men being put on the work4 ,the parties ran levels for profile purposes1 cross-sectioned cuts where necessary1 noted evidences of clearing and grubbing1 of the character of the cuts1 and the disposal of the material1 examined the ballast for depth and character1 examined the rails for age1 weight1 and condition1 and noted the kind and condition of the fences1 gates1 farm crossings1 planking1 whistle and highway-crossing posts1 culverts1 bridges1 and in fact every detail of construction4 ,advantage was also taken of the survey to re-station the lines1 to paint such stations on the rails1 and to set permanent posts1 so that afterward the stationing could be picked up at any time with little trouble4 ,in this way there was accomplished much work of value to the railway company1 for which there had been a demand by the division officials for years1 but which had not been done because of lack of men and money4 ,no attempt was made to assign depreciation1 as regards the rails2 this was determined afterward1 from the age of the steel in the track4 ,it was necessary1 however1 to make quite a thorough inspection of the ties1 and to note their condition1 as they were replaced year by year singly as they wore out4 ,almost every conceivable kind of timber had been used for ties at one time or another4 ,treated and untreated ties lay side by side2 and thus there was great difficulty in classifying them with regard to the kind of timber4 ,with bridge ties and timbers of frame and pile bridges1 there was not so much difficulty1 as they were open to inspection1 and had been inspected twice yearly by the ,division ,engineer and the ,superintendent of ,bridges and ,buildings1 and accurate records of their condition and renewals had been kept4 ,the depth and condition of the ballast also varied very widely4 ,in a very short time all the men on the survey became well acquainted with the character of the work they had to do1 and1 as the work went on1 the progress of the party day by day was very much more rapid4 ,at the beginning of the survey1 a progress of #f or #g miles of single track was considered a very good day's work2 at the end of the survey1 the parties were making from #ab to #ae miles per day4 ,there was considerable difficulty in setting proper values on the hundreds of buildings1 large and small1 owned by the railroad4 ,most of these buildings had never been constructed from plans1 and it was difficult to calculate what they had cost originally1 and what it would have cost to build them at the time of the survey4 ,however1 time books were searched1 and the contents of the buildings in board feet were calculated1 and1 while in many cases their age was not known from any records1 it was nearly always possible to find out from somebody just when they were erected4 ,as intimated before1 the railway company derived much actual benefit from the work1 outside of the accurate knowledge obtained as to the value of the property itself4 ,steel charts1 bridge records1 etc41 were established1 and profiles1 stationing1 continuous bench-levels1 etc41 were all re-run or re-established2 thus making the engineering work of the future more consistent and uniform1 and enabling more work to be done with a smaller force4 ,new maps of all the station grounds and terminals were obtained1 and all the records were put in better shape than they had ever been before4 ,examination of some of the old terminals brought to light many strange and out-of-date conditions4 ,old wrought-iron rails of antiquated pattern1 old cast-iron frogs1 etc41 of a pattern which had not been in general use for fifty years1 were found in the track4 ,on some of the little-used sidings1 the old wrought-iron rails were so worn that the tread of the rail was entirely gone1 only the web remaining to carry the traffic1 and such rails were still in use4 ,in such a valuation1 also1 many items1 some of considerable magnitude1 were found which were extremely difficult to classify and assign to their proper place4 ,such a one1 for instance1 as a soft1 sand rock deposit beside the track1 which for many years had furnished engine sand4 ,many thousand cubic yards of this material had been excavated1 but it had not gone into the roadbed as ballast1 or to make fills1 or to widen embankments4 ,it would hardly have been proper to classify such excavation as grading1 for it was an item of engine maintenance and train operation4 ,this is only one of numerous problems which had to be solved4 ,after all the survey had been made1 most of the work of compilation had to be done4 ,some of it had already been done in the office by the small office force1 but the great mass had to be done by the men who did the work in the field4 ,this task was of almost incomprehensible magnitude4 ,there were thousands and thousands of items1 and such a great mass of figures that the ordinary man would become lost in the maze4 ,the data had to be checked and re-checked by men who were not accountants1 and sometimes most ludicrous mistakes were discovered4 ,however1 it was at last accomplished1 and the writer's recollection of the ,present ,value of the ,chicago and ,northwestern property in ,minnesota is that it was somewhat more than #bc1jjj1jjj for the entire mileage 7about #fbe miles71 or an average of about #cg1jjj per mile of track4 ,hardly any of the mileage would be called high-class or trunk-line track1 but most of it might be classed as second-class or important branch-line railway4 ,e4 ,,kuichling1 ,m4 ,,am4 ,,soc4 ,c4 ,e4 7by letter74--,this paper is a very valuable addition to the literature of a comparatively new subject that is rapidly attaining great political importance1 and it gives abundant evidence of deep research and thought by the author4 ,the reasons for determining the true value of such properties1 as well as the general principles of making the valuation or appraisal1 have been set forth so clearly and convincingly that little can be added in this respect2 hence1 there is room for comment only about details4 ,one of the perplexing questions is the determination of the proper value of the right of way and real estate of a railroad4 ,the land was originally acquired at a certain cost1 essentially for public use1 and in the course of time its value1 as determined by reproduction cost1 usually becomes greatly increased by the development of the adjacent land by its various owners4 ,without the railroad1 such development and appreciation of land values would probably not have occurred1 and1 therefore1 it has been argued by many persons that1 for taxation purposes1 the railroad lands should be appraised at only their original cost1 while1 for capitalization purposes1 they should be appraised at a value measured by that of the adjacent land at the present time4 ,this claim is based on the theory that the railroad is like any other piece of public work1 such as a canal1 highway1 or pavement1 which is built for the use of the public1 and on which no tax is levied by ,state or municipality4 ,on the other hand1 it has been held by some of our ,courts that a proper valuation must take into account the appreciation or depreciation of land values2 but1 as the opinion of a ,court is not unalterable1 the soundness of this doctrine cannot be regarded as permanently established4 ,the author states#da that there can be no serious objection to this doctrine in relation to rights of way in the country and small towns1 although he admits that it is subject to exceptions in the case of cities and terminal and dock properties4 ,it will be of great interest to learn his reasons for making such exceptions in the case of the most costly lands1 and whether the valuation of such lands should be more or less than that of similar adjacent lands used for other purposes4 ,from the context the inference may be drawn that the valuation should be somewhat higher than that of adjacent similar land in the case of a steam or interurban railroad1 because its holdings form a continuous strip2 but to the writer this reasoning does not appear satisfactory4 ,the statement of the ,court1 that the value of land depends largely upon the use to which it is put and the character of the improvements upon it1 does not necessarily involve a higher valuation of the property than its cost1 and it is quite conceivable that the actual value of the property after being taken by a railroad may be much less than it was before4 ,the only reason in such a case for maintaining the purchase price is to conserve the general valuation of the adjacent similar real estate4 ,in dealing with the subject of depreciation1 the author has been very brief1 as he did not consider it essential for the purposes of the paper4 ,this is to be regretted1 as depreciation is an important feature in every valuation1 and so few trustworthy data concerning it are available4 ,the value of the paper would be greatly enhanced if the author would give the assumed average life of the principal components of a railroad1 based on some definite traffic1 and normal grades and curves4 ,much diversity of practice in this respect prevails1 and the final judgment of the numerous experts who were engaged in the ,michigan valuations cannot fail to be of great interest4 ,the same remarks are also applicable to the unit prices adopted for construction and equipment4 ,the subjects of expenses for organization1 engineering1 administration1 contingencies1 and non-physical values are treated very thoroughly by the author1 and particularly interesting is his discussion of the complex question of franchise value4 ,after quoting from numerous judicial opinions1 he reaches the conclusion that the franchise simply protects the owners of the property in their enjoyment of the earnings1 and that its value merges into the fair value of the property and becomes inseparable from the other non-physical elements of value2 also1 that the aggregate non-physical value of the property depends only on the net income for a period of years4 ,this method of estimation certainly has the merit of being simple1 rational1 and free from all hypothetical considerations4 ,it is1 however1 obviously governed by the rates charged for the services rendered1 and if these are likely to be altered at any time by governmental action1 a corresponding alteration in the fair value of the property will take place4 ,this consideration brings us at once to the intricate question of reasonable rates1 which involves the matter of reasonable design and construction of the property4 ,in most cases the working capacity of the plant must be much greater than the average annual demand for the service performed1 as so-called peak loads of relatively short duration must be provided for4 ,the magnitude of these peak loads1 however1 varies with the subsequent development of the territory1 which is necessarily conjectural2 hence it follows that a comparatively large amount of capital is often invested in an enterprise for the purpose of taking care of such anticipated temporary demands1 and on this investment a fair return should be granted4 ,this condition is particularly noticeable in municipal water-works plants1 where provision must be made for supplying water for fire service to an extent which may be several times greater than the normal hourly rate of consumption4 ,in the case of railroads1 such demands can usually be met by adding to the rolling stock at moderate expense1 while in a water-works the outlay is relatively greater because the entire plant must be adapted in the outset to the anticipated maximum delivery in the course of a comparatively long period of time4 ,the problem of rate-making has been excluded by the author from his present paper on valuation2 but1 inasmuch as he is so well qualified for the task1 and also because the non-physical value of the property depends mainly on the rates obtained for the service rendered1 it is hoped that he will deal with this feature in a subsequent paper1 thereby bringing out a discussion on the obscure subject of fair return4 ,it is noticeable that these phrases occur frequently in judicial opinions1 but the fundamental principles on which a definite conclusion should be reached are seldom set forth clearly4 ,,richard ,t4 ,,dana1 ,m4 ,,am4 ,,soc4 ,c4 ,e4 7by letter74--,the solution of this problem includes practically all the factors in the general subject of economics1 in which engineering occupies a large but by no means preponderant part4 ,mr4 ,riggs has done some very valuable and pioneer work in contributing this paper at this time2 and the writer1 in calling attention to what appears to be a radical error in it1 does not wish to be taken as attempting to detract in any way from its great value as a whole4 ,it is most important1 in the inception of such an investigation1 on the part of the members of this ,society1 to remove from the subject the stumbling blocks as they appear4 ,the author makes the following statement3 ,it is true that the 'value' of a property is an unstable figure1 subject to fluctuations due to natural or artificial causes1 and that a material change in value may occur suddenly1 but the 'value' of any given property on any given date is1 or should be1 from an engineering standpoint1 a definite sum which may not be varied or changed to suit the whim or will of the people for whom the work is done4 ,the fundamental conception of a value is so important in an investigation of this kind that it is worthy of careful and thorough discussion4 ,the appraisals which the writer has had occasion to make have generally been for one or other of the following purposes1 namely3 7,i7 ,taxation1 in the interest of the community or corporation taxed2 7,,ii7 ,bonding1 in the interest of the banker or representative of persons who contemplated lending money on the property2 7,,iii7 ,rate-making1 in order to determine what was a fair amount of money that the property should be allowed to earn for the owners4 ,now1 in general1 a proper value for any property for any one of these purposes is different from its proper value for any of the others4 ,this proposition is of immense significance1 for the reason that1 if the value for the property arrived at1 on one basis1 be accepted and applied for one of the other purposes1 it will inevitably result in gross injury and financial loss to some one4 ,in attacking this problem1 one must be careful to take the correct standpoint1 which is not necessarily that of engineering4 ,engineering science is indispensable for a large part of the work1 but there are other indispensables1 which would not ordinarily be recognized as engineering4 ,the writer takes the view that engineering is a part of economics1 rather than economics being a part of engineering4 ,to illustrate this point1 consider two objects1 one of which is concrete and simple and the other more complex4 7#a7 ,a steam shovel belonging to a railroad1 costing #aj1jjj1 new2 7#b7 ,the entire railroad as an operating entity4 ,assume for 7#a7 that the shovel has been purchased recently1 is in perfect condition1 and that the railroad has some work for it to commence on as soon as it can be properly installed4 ,what is its3 7,i7 ,taxable value1 7,,ii7 ,bonding value1 and 7,,iii7 ,rate-making value8 7,i7 ,the tax assessor cannot properly appraise it at #aj1jjj1 because it certainly would not sell for that sum1 and if the community should have to sell it for taxes the actual return minus the charges would be so much less than the #aj1jjj that the community's books would show a heavy loss2 and this practice1 if largely indulged in1 would bring the community into financial straits4 ,the community must be exceedingly conservative in its estimate1 for this very reason2 and1 therefore1 it has been customary1 almost universally1 to tax such articles practically on their sale value at what might be called panic prices4 ,the company which sold the shovel to the railroad would not buy it back two days after the sale for more than the original price minus what that company considers its selling charges1 say #bj2 so that1 in this case1 even if a customer were at the door1 the shovel would not be worth more than #h1jjj1 and a fair tax appraisal could not consistently be more than #h1jjj minus charges of1 say1 #bej1 or #g1gej4 7,,ii7 ,assuming that the railroad is a very small one1 that it wants to borrow money1 and desires to put up the shovel as collateral for the loan4 ,what would be its loan value to the lender8 ,in considering this point1 it is necessary to assume that no aid is rendered by the credit of the railroad itself1 but that the protection for the loan is to be furnished by the shovel only4 ,now1 the banker will reason that1 in the event of the note remaining unpaid1 he will have to sell the shovel to reimburse the bank for its loan1 and he will be required to consider the matter on a conservative basis4 ,he cannot lend on the shovel up to its full value1 for in the first place it is not a negotiable security4 ,if it were a security1 with a free market on some stock exchange1 he would probably lend to the amount of #hj of its value1 but a steam shovel in a sand bank on a railroad is by no means as convenient of exchange1 nor as easy to foreclose on as a stock certificate in a banker's box2 therefore he will lend1 or he ought to lend1 less than #hj of its sale value1 minus the selling charges4 ,if he lends more than this1 he is lending on the credit of the owner of the shovel rather than on the shovel itself4 ,granted that the maker of the shovel is willing to buy it back at its full selling price less the selling cost1 the maximum loan value of the shovel would be a little less than #fd of its purchase price1 or #f1djj4 ,to lend more than this on the shovel would not be conservative banking4 ,there is another bonding or loan value to this shovel1 when it is considered as part of the assets of the railroad1 the bonds of which are to be held by the banker1 under which circumstances a higher value than #f1djj would be admissible4 7,,iii7 ,if the value is to be determined with a view of ascertaining what is a reasonable figure that the owner of the shovel ought to be allowed to earn as a public utility organization1 the problem is entirely distinct from the foregoing two cases4 ,assume that the railroad is entitled to earn at least #f on its investment in the shovel4 ,now1 its investment is #aj1jjj1 because that is the money that it cost2 and nothing had been credited to its account1 since the shovel had just been purchased and had not yet done any work4 ,the shovel cannot be considered as being worth more than its cost1 and it can easily be shown it is not worth less for rate-making purposes4 ,these three illustrations1 which are very briefly outlined1 should demonstrate the fact that there is almost no relationship between any two of the different kinds of value which are being considered4 ,now1 from the standpoint of the railroad as a whole3 7,i7 ,should railroad property be taxed on the basis of what the entire railroad would bring on a foreclosure procedure8 ,obviously not1 because the railroad is taxed in sections4 ,the ,town of ,squedunk will tax the portion of the railroad that lies within that town1 and will have considerable difficulty in putting down as security for its own bonds the locomotives and cars which go through once a week or twice a day at #dj miles per hour4 ,to cover partly the flitting assets1 it taxes the railroad on a franchise value4 ,it may tax a railroad's land on the same basis that it taxes land owned by private individuals1 notwithstanding the fact that when the railroad buys the right of way it generally has to pay more money per acre than the householder or the farmer4 ,this unit cost to the railroad may be two or three times that to the farmer1 yet the writer has never heard of a community attempting to tax railroad property two or three times as heavily as adjoining property used for private or commercial purposes4 7,,ii7 ,on the other hand1 this same property is an absolutely sound asset for the railroad1 and the railroad probably bought the property from the proceeds of the sale of bonds4 ,if the public service commissions were to rule that the railroad may be allowed to issue bonds only to the amount of the taxable value of the property which is to be held as security for the bonds1 the result would be an absolute paralysis of railroad construction4 ,a bond is an obligation to pay so much interest for so many years1 and to pay back the principal at the end of its term4 ,the bondholder is interested in the absolute regularity of his interest1 and in the security that lies behind the principal1 and it is to-day the custom of banking houses to consider a bond well secured when1 in a territory of reasonably rapid growth1 the principal is earning say twice the interest on its bonds1 and when the cost of reproduction is in excess of the amount of the bonds1 provided that the property is in good physical condition4 ,if it should be necessary to foreclose on the bonds1 it is then reasonable to suppose that some one else will buy it in for at least the amount of its bonded indebtedness4 ,what can this possibly have to do with the taxable value of the track in the ,town of ,squedunk8 ,one may be #a4e times the other1 or three times the other1 depending on a multitude of circumstances4 7,,iii7 ,the value of the property for rate-making is a complex one to determine1 and1 of course1 there is no opportunity for a full discussion of it here4 ,one point1 however1 will serve to establish thoroughly the difference between this and taxable or bonding value4 ,if the community is prosperous and the business is a good one and honestly managed1 the railroad ought to be allowed to earn a reasonable percentage1 say1 at least #f1 on what has been put into it4 ,if the community should decree otherwise1 then people will not build railroads for investment purposes1 and all will lose money4 ,now1 it is a well-known fact that a new railroad's earnings have to grow for several years before they are on a normal basis1 and part of what the owners of the property have put into it is1 for example1 the interest on its cost before its earnings are on a normal basis4 ,this may amount to a considerable percentage of the original construction cost of the property1 if the business is several years in developing4 ,granted that the community ought to allow the property to earn a reasonable interest on what has been put into it1 then the rate-making value will be very much larger than the sum of the taxable valuation of all its different parts4 ,it will also be much greater than its bonding value1 because1 as a bond proposition1 it can borrow money up to a limited percentage of what it is actually worth4 ,,george ,t4 ,,hammond1 ,m4 ,,am4 ,,soc4 ,c4 ,e4 7by letter74--,the engineer called on to fix the valuation of public service corporation property has so little engineering literature on this special subject to guide him that he must feel grateful to the author of this excellent paper for adding so much of a kind that is very desirable4 ,estimating the cost of an engineering structure in advance of its construction is one of the most ordinary professional duties1 but how difficult it actually is1 and how much engineers differ with one another in their estimates on the same structure6 ,perhaps there is no professional duty which calls for so much study and so much experience1 or which tests so closely the ability and capacity of the engineer4 ,how seldom professional estimators agree with each other2 or designing engineers with contracting engineers2 as witness the bids received at the public lettings of contracts when compared with the engineers' estimates of cost2 and1 if this is true1 which no one will attempt to deny1 how much more so is it probable that estimators will disagree when they attempt to place a value on works already completed1 and in service1 perhaps1 for many years1 in which various changes in value have occurred1 and in which questions of fact are mixed with legal questions involving legal rights1 as well as financial questions4 ,the tendency in all such valuations appears to be a mixing up of things in general--like the witches' stew4 ,everything goes into the pot and is boiled together until all becomes soup1 at least until the official commission1 like the witches1 considers it done and ready to be served up in the form of a report4 ,it is then observed that the substance served out is of a complex nature2 that the valuation of engineering structures has become mixed with other and uncertain values2 that the whole value1 as stated1 is1 after all1 little better than the commission's opinion of the value2 and that another commission would reach a different conclusion4 ,the author states that the valuation of corporation property3 ,should be the honest judgment of the men composing the commission1 as to the actual cost of reproduction1 present physical value1 or 'fair value1' and should be ascertained by a systematic and scientific method which takes into account all the facts concerning the property1 its physical value1 its strategic location1 its operating revenues and expenses1 and its franchises1 rights1 competition1 opposition1 and all other tangible or intangible elements1 which would affect values4 ,the method of valuation should be such as to minimize or entirely eliminate all differences due to errors of personal judgment4 ,this1 it seems1 complicates actual present values with conditions which might1 or might not1 continue4 ,outside of the physical valuation of the plant1 which offers the easiest problem presented1 how can one fairly put a value on operating expenses and revenues1 which might be affected favorably or advisedly by good or bad management1 and by numerous other complex and almost incomprehensible circumstances4 ,the tendency of all such commissions seems to be to confuse together and mix up some things which are logically separate4 ,thus1 the value of the plant and franchise1 good will1 and present investment or income value1 etc41 are too often taken together4 ,the value of the plant is dependent on the cost of reproduction1 and also the depreciation of the structures1 as engineering structures1 and should be based on present prices for which the work could be replaced1 minus the depreciation1 which is a question of engineering judgment and experience4 ,the other items of value are largely dependent on the situation of the plant and its prospects as an income-producing property1 and this again is a matter of opinion1 in which the opinions of financiers and investors are sometimes of more moment than those of engineers4 ,the opinion of lawyers as to the value of the franchises and the cost of the legal complications possible or probable must also enter into any seriously worthy opinion as to value4 ,the few salient lights in the picture of valuation1 presented by the author1 serve especially to reveal the darkness which involves the whole subject of valuation1 estimating1 and the use of cost data for such purposes1 and to suggest that1 with all the wonderful progress on the theoretical side of the profession1 engineers have as yet advanced but little in this division of the practical side--cost data1 valuation1 and estimating4 ,engineers cannot compare the results of different estimators and appraisers without sorrow and even shame for their ignorance1 or their incapacity to agree in the application of scientific principles and the results of practical experience to this branch of their work4 ,at present we would seem to be a long way from a method of valuation1 such as to minimize or entirely eliminate all differences due to errors of personal judgment4 ,the method described as having been used by ,professor ,adams seems to be at least an advance toward a logical and rational method of getting at the value of corporation property1 but it must be acknowledged that we are as yet a long way from a perfect method of appraisal1 even of the physical values1 to say nothing of the non-physical4 ,he held that as nothing visible or tangible gave support to the latter value1 it must be determined on the basis of information secured from the income accounts of the company4 ,this method of measure1 it would seem1 is not unlike the celebrated dictum on the length of the ,chancellor's foot1 some ,chancellors have a long foot1 and some an indifferent foot1 and some a short foot2 therefore1 a great ,english ,chancellor says1 the length of a ,chancellor's foot should not be taken as a measure of rights in equity4 ,thus1 if the income of the company is to be taken by the appraising engineers1 or the gross income1 it may have to be given a different interpretation from the net income1 and if the surplus earnings depend on transient causes or on excessive rates for service it will lead to a totally erroneous conclusion4 ,the same may be said if the rates for service are too low1 or if the company is badly managed1 or is carrying a great deal of dead wood1 either in the form of property or of servants4 ,therefore1 it seems evident that he who attempts to follow this method of appraisal must possess almost superhuman judgment of present conditions1 and prescience to forecast the future1 as well as a grade of wisdom and knowledge of existing conditions of trade and industry which may be also characterized as superhuman4 ,in order to apply ,professor ,adams' method justly1 we must know whether the company is wisely managed1 whether its income is a fair income1 whether its physical property is all useful and needful1 whether its service is what it ought to be as to efficiency and economy1 etc4 ,we must assume an ideal condition of commerce and industry1 and of property value and management1 and then appraise the company's property by comparing it1 consciously or unconsciously1 with this ideal4 ,possibly this is the best method devised so far1 but surely it leaves a great deal to be desired2 and it is difficult to see how different engineers1 on different sides of the question1 representing different interests1 can find any common ground of agreement in ,professor ,adams' method4 ,under such circumstances1 engineers are likely to differ in their results as much as the length of the different ,chancellors' feet4 ,,leonard ,,metcalf1 ,m4 ,,am4 ,,soc4 ,c4 ,e4 7by letter74--,mr4 ,riggs has done engineers1 and more particularly those interested in valuation works1 a genuine service in presenting to the ,society this admirable paper4 ,no shrewd observer can fail to recognize the increasingly insistent demand of the public for greater publicity in the accounting1 and a larger measure of governmental control in the operation1 of public service corporations4 ,in its best form1 such control will be welcomed by the corporations1 as giving greater stability to investment in such property2 in its worst1 it may prove a serious limitation to prompt development of the best standards of service4 ,in the water-works field1 the anti-corporation movement has resulted in taking over by the public many such plants4 ,it does not seem likely1 however1 that we are ready to go farther in the railroad field of operation than to demand reasonable regulation of such corporations4 ,while the writer has had no experience in railway management or valuation1 he has devoted much time and thought to the valuation of1 and determination of fair-rate schedules for1 water-works properties2 therefore1 what he may have to say in comment on this paper may be assumed to have direct application to water-works valuation1 and to railroad valuation only as the similarity in the public service rendered by these corporations may imply4 ,in the main1 the writer subscribes heartily to the views expressed by the author and the temperate way in which he has expounded them4 ,space forbids discussion in detail of all the matters alluded to and so well covered by ,mr4 ,riggs4 ,on one important subject1 however--the inclusion of the going value1 or going concern value1 of public service corporation property1 in the intangible property values1 rather than in physical plant value1 and the consideration of it as an intangible value rather than as a real and substantial item of cost to the public service corporation--the writer differs from the author4 ,it is clear1 from what ,mr4 ,riggs has said1 that this is debatable ground1 and1 from the care and fairness with which he has expressed his views on this subject1 one might almost be led to infer that he invites attack on it4 ,it is in no carping spirit of criticism1 however1 that the following views are expressed4 ,as the writer has recently submitted to the ,publication ,committee of this ,society a paper on the ,going ,value of ,water-,works1 written by him in collaboration with ,john ,w4 ,alvord1 ,m4 ,am4 ,soc ,c4 ,e41 in which a detailed discussion of this subject will be found1 only enough will be said to outline clearly his point of view4 ,the author says3 ,the physical property is that which enables the corporation to do business4 ,without physical property it could not produce the commodity which it sells4 ,the amount of money actually invested in acquiring that physical property represents the measure of capital on which it is morally entitled to earn interest and profit2 and1 in the stage of promoting and financing the enterprise1 all hope of earnings is based on the amount of money required to construct the property4 ,he also says3 ,it would seem reasonable to say that this difference between the physical value and the value based on earnings represents the 'good will1' 'established business1' or 'going value1' and all other non-physical elements of value4 ,in referring to going value1 he says3 99 99 99 ,yet1 to fix a value on it by the method described by him ,mr4 ,alvord involves going into the realm of conjecture and speculation to a degree that could never be sustained4 99 99 99 ,it can be readily seen that the physical present value is not always--indeed1 is not often--the 'fair value4' ,the 'fair value' may be more1 or less1 than the present value of the physical property4 99 99 99 ,is it not1 then1 proper to conclude that the non-physical or intangible value1 composed of all these various elements of value1 can only be determined absolutely by a study of the earnings and operating expenses8 99 99 99 ,he also says3 ,the contention that all the different elements of non-physical value merge into one intangible value1 not capable of separation1 will doubtless be objected to by many engineers and corporation managers4 99 99 99 ,the writer does not concede that 'going concern' is a proper element to consider in the physical value1 as it does not represent any part of the cost chargeable to capital1 and the physical valuation should be confined to the determination of capital invested4 ,quotations might be multiplied4 ,those cited1 however1 will suffice to recall the author's view1 and to make clear the point with which issue is taken4 ,is ,mr4 ,riggs right in his contention that going value is in fact an intangible value2 that going value is not an element of real cost to the company1 involving investment of capital2 that going value1 therefore1 should not be included in physical plant value2 and that the company is not morally entitled to earn interest and profit on it8 ,the writer contends that going value is as real an element of cost1 in the property of any public service corporation1 as is the cost of any portion of its physical plant4 ,it pertains1 however1 to the business1 rather than to the physical plant1 of the corporation4 ,whatever the difficulties of its computation may be1 whatever the methods used--whether that adopted by the ,wisconsin ,public ,service ,commission 7which is essentially one of determining the original cost of the going value and not its reproduction cost71 or whether that perhaps first outlined by ,mr4 ,benezette ,williams and ,george ,h4 ,benzenberg1 ,past-,president1 ,am4 ,soc4 ,c4 ,e41 in the ,middle ,west1 and by ,william ,wheeler1 ,m4 ,am4 ,soc4 ,c4 ,e41 in the ,east1#db a method which seeks to determine the reproduction cost of the going value1 rather than its original cost--the going concern value has come to be recognized1 by water-works appraisers at least1 as a substantial element in the cost of the plant1 and hence as differing essentially from the franchise element or so-called unearned increments of value4 ,is not going value in a between class--a middle ground between tangible and intangible values--tangible in that it has involved real cost and expenditure of money2 intangible in that it is not as readily calculated as are other reproduction cost items1 is dependent fundamentally on the earnings of the company1 and that there is no tangible equivalent to show for the expenditure1 except the existing income of the corporation8 ,surely its character is quite different from that of the franchise1 as ordinarily found1 the value of which1 while real1 from the rate-payers' point of view1 seems to be made out of whole cloth2 in short1 seems to be of fictitious value4 ,certainly1 the conjectural and speculative character of the computations--as referred to by ,mr4 ,riggs--involved in the determination of going value is no excuse for failure to recognize going value as a real element of cost1 rather than as an intangible value4 ,as a matter of fact1 the variation in the views on going value1 by engineers who have given this subject particular study1 while greater than the variation in their estimates of the reproduction cost of the physical plant1 is still far less than the variation in their views on franchise value4 ,as bearing on the proper basis for rate-making1 the author's statement1 that the 99 99 99 physical property represents the measure of capital on which it the public service corporation is morally entitled to earn interest and profit 99 99 99 cannot be admitted1 equitably or legally2 and it is not to be assumed that ,mr4 ,riggs desired to imply that this sentence summed up his final views4 ,are we not1 however1 approaching a basis of rate-making1 predicated on the earning1 by public service corporations1 of operation and maintenance expenses1 depreciation allowance1 and return 7i4 e41 interest and profit7 on reproduction cost of the property1 less accrued depreciation1 plus going value1 plus a nominal allowance for the franchise and other intangible values of the corporation8 ,is it not possible that the recent depression in the business world has been due1 in considerable measure1 to the shrinkage in the values ascribed to franchise and other intangible value in public service corporation property8 ,if we are approaching such a limitation1 it is the more important that the public should be educated to the fact--not theory1 for it is a fact--that going value1 or going concern value1 is a real element of cost1 covering an outlay in effort and money on the part of the corporation1 and as such is as much entitled to earn a return 7interest and profit7 as is the other capital invested in plant4 ,it is not on any items of real and necessary cost to the corporation that the public objects to paying tribute1 but on the unearned increments and the virtual monopoly privileges enjoyed by the corporation and created1 in large measure at least1 by the public itself and by normal conditions of growth and development for which the public1 rather than the corporation1 was perhaps responsible--though in many cases it may be urged truly that the corporation itself1 rather than the public1 has been responsible for the development4 ,such a basis of rating1 while still dependent on sound judgment and judicial treatment1 is nevertheless not beset with the speculative element involved in the capitalization theory1 which1 ,mr4 ,riggs himself admits1 fails as a basis of rate-making except when predicated on fair rates4 ,if the writer's contention1 that going value is a real element of cost in the property of any public service corporation1 is sound1 ,mr4 ,riggs' statement that1 ,it appears to be doubtful whether the ,court can be construed as approving such an element of value in rate cases1 and his interpretation of ,judge ,tayler's ruling in the ,cleveland ,street ,railway matter1#dc must be challenged4 ,certainly1 as applied to water-works valuation1 ,mr4 ,riggs' statement is not justified4 ,the ,maine cases clearly include going value as an element of value on which rates should be predicated2 by inference1 so does the ,kansas ,city case4 ,in the ,knoxville case it was in fact allowed by the ,master4 ,in equity it cannot be doubted that going value should be included in the base on which the returns are predicated1 if1 as contended1 it involves real cost to the company2 for the company must be permitted to earn a fair return on this cost1 or to liquidate it in some way1 as otherwise the corporation would suffer substantial property loss--from #aj to #bj1 more or less1 of the reproduction cost of its property4 ,this would be contrary to public policy1 for1 with such an outlook1 capital would not enter this field of enterprise1 except at increased rates of return1 commensurate with this added hazard4 ,to assume such increased rates of return is to provide another means of liquidating such a loss4 ,as to good will1 it has seemed to the writer more proper to use this term in private competitive corporation enterprises1 as applied to the element of value corresponding to the going value of the quasi-municipal or public service corporation enterprises1 which latter are in effect controlled monopolies4 ,if the term is used in its more colloquial sense1 such as the effect on earnings of having1 in the office of the corporation1 men who meet the public pleasantly1 who are good mixers1 and who are active in getting business1 the value is substantially included in the consideration of the income1 in the manner involved by going value determination and franchise valuation4 ,the depreciation question has been discussed so fully elsewhere that the writer only calls attention to the fact that1 while physical and functional depreciation only are to be considered in a review of the present physical condition of any plant1 in considering a fair-rate schedule1 provision should also be made for contingent depreciation1 covering such items as cost incident to change in street grades or construction of subways2 placing structures under ground1 which were previously above ground2 serious loss due to injury by electrolysis1 the distribution of which over a period of years rather than inclusion in the operating cost for one year1 is to be preferred1 alike from the public and from the corporate point of view1 from the fact that it spreads the burden to be borne by the rates1 and prevents violent fluctuation in prices or valuation of the public service corporation's property4 ,the public pays dearly for all hazards4 ,it is wise1 therefore1 to pursue the conservative course in providing adequate funds to meet extraordinary conditions1 and to give stability to the investment of the corporation4 ,moreover1 such funds can be carried in a separate account which can readily be watched2 any excess can be credited to future reduction in depreciation account requirements1 while a prolonged deficit cannot perhaps be recovered by the corporation1 in the light of the ,knoxville decision4 ,the comment that no hard-and-fast rule can cover determination of proper depreciation allowances1 is amply justified4 ,in its final analysis1 it is a matter of good judgment1 experience1 and judicial temper4 ,the author's statement that the organization1 legal1 engineering1 administration1 and general expense accounts1 should not be considered as affected by depreciation1 as long as the property is a going concern1 is not quite clear4 ,obviously1 this is true with regard to all the early organization expenses1 as these expenses are incurred once for all1 and constitute a continuing asset similar to other elements of plant cost4 ,if1 however1 the author refers therein also to the engineering and contingent item added to many of the reproduction cost items making up the physical property1 exception must be made2 for when an old structure1 the life of which is gone1 is replaced with a new structure1 new engineering costs are incurred1 and the engineering element of cost incident to the installation of the original structure no longer inheres in the plant4 ,it1 too1 has passed away with the life of the structure1 and1 therefore1 its cost should be liquidated1 or provided for in the depreciation account1 as well as the cost of the structure to which it was incident4 ,in the same way the interest-during-construction item is not a continuing asset1 but should be liquidated with the complete depreciation of the portion of the structure to which it relates4 ,the replacement of the structure will involve new interest-during-construction charges1 commensurate with the time required for construction4 ,the value of the initial interest-during-construction costs will have disappeared with the original structure and1 therefore1 should be taken care of by the depreciation account4 ,the method of making allowances for interest during construction1 suggested by the author1#dd accords closely with that used by ,mr4 ,alvord and the writer in a recent valuation of a large water-works property1 in which the interest-during-construction charges were limited1 and the contributions to depreciation account were begun1 at the date on which any workable unit of the property was assumed to be available for service and to begin to earn a return on its investment cost1 even though the structure1 as a whole1 was not assumed to be completed for a considerable period of years thereafter4 ,thus1 for instance1 it might be assumed that as soon as the supplying works in a water-works project were in operation1 the investment in them and in the distribution pipe system laid up to that time1 would cease to be credited further with interest-during-construction allowances1 and would be compelled to earn interest through the water rates or income from water supplied to consumers--the fact that the interest charge could not be wholly met1 immediately at this time1 being taken care of in the resulting increment in going value4 ,such a theory1 of course1 does involve a determination of the probable order and rapidity of construction of the component parts of the property1 and this is usually made1 in water-works valuation1 in the estimate of the reproduction cost of the property4 ,for the sake of completeness1 in reference to the legal decisions of importance in valuation proceedings1 attention is called to the ,pennsylvania case1 ,brymer vs4 ,butler ,water ,company 7#agi ,pa41 #bca71 referred to in the closing discussion on the writer's paper on ,water-,works ,valuation4#de ,in this case ,justice ,williams1 speaking for the ,supreme ,court of ,pennsylvania1 says3 ,by what rule is the ,court to determine what is reasonable and what is oppressive8 ,ordinarily1 that is a reasonable charge or system of charges which yields a fair return upon the investment4 ,fixed charges and costs of maintenance and operation must first be provided for4 ,then the interests of the owners of the property are to be considered4 ,they are entitled to a rate of return1 if their property will earn it1 not less than the legal rate of interest2 and a system of charges that yields no more income than is fairly required to maintain the plant1 pay fixed charges and operating expenses1 provide a suitable sinking fund for the payment of debts1 and pay a fair profit to the owners of the property cannot be said to be unreasonable4 ,the ,pennsylvania ,court1 therefore1 in the words of ,william ,s4 ,wallace1 ,esq41 recognizes the single standard3 ,the ,single ,standard1 according to the ,brymer case1 while acknowledging the full right of the public to regulate such public corporations1 also recognizes as a prime factor its private character and the rights which accrue to it in that capacity1 444 and holds to what seems to me the only rational and practicable basis1 that a fair return1 after deducting the charges above enumerated1 is a reasonable rate2 whereas1 the ,double ,standard basis of fixing a reasonable rate seems to accentuate the public side of the corporation and rather ignores the private element4 ,as to the propriety of the inclusion of a substantial recognition of franchise value as a basis for rating1 the layman may well confess to perplexity1 in the light of the conflicting nature of the two important recent ,united ,states ,supreme ,court opinions referred to--the ,knoxville case1 and the ,consolidated ,gas ,company case--for1 while substantial allowance was made for franchise value1 in the ,consolidated ,gas ,company case decision1 in large measure apparently on account of its earlier recognition by the legislature1 in the ,knoxville case1 in spite of legislative recognition of such value1 and similar approval of the issue of securities predicated on such recognition1 the ,united ,states ,supreme ,court failed to make similar allowance for franchise value4 ,the author's treatment of the unit price question and the contingency item is intelligent and creditable4 ,engineers are prone to make valuations based on hindsight instead of foresight1 on the assumption that no substantial difficulties in construction were encountered1 when1 in fact1 substantial difficulties should perhaps have been anticipated1 and may actually have been encountered in the original construction1 record of them having been obliterated1 however1 with the lapse of time4 ,the author's definition of the value of a property1 as the estimated worth at a given time1 measured in money1 taking into account all the elements which add to its usefulness or desirability as a business or profit-earning proposition1 suggests the advisability of recognizing the other side of the ledger by modifying his statement so as to read3 99 99 99 all the elements which add to1 'limit1 or detract from' its usefulness or desirability as a business or profit-earning proposition4 ,while recognizing the author's view1 that there is no separate and independent method of determining franchise value1 which is not based on the determination of the value of the property as a whole1 by capitalization methods1 it must be recognized that going value may be determined independently1 and may have a positive value1 even though the property as a commercial whole is worth less than the sum of the physical value and the going value4 ,the ,court1 appraisers1 and the author1 alike recognize that there is no one method of valuation of universal application4 ,first cost1 reproduction cost1 reproduction cost less depreciation1 commercial value determined by capitalization1 worth of the service to the consumer1 and market price of the property1 if such exists1 all have their weight1 in varying degree in different cases4 ,whatever may be said of1 for1 or against1 these several methods of valuation1 relates rather to their significance1 and the weight which should attach to the results obtained by them1 as evidence of value and of the effect of the modifying local conditions1 than to the soundness of the methods themselves4 ,in this connection it may be of interest to refer to a recent valuation of a water-works property1 in the appraisal of which the writer chanced to participate1 in which there was finally placed before the board of appraisal a summing up of3 #a4 ,the original cost2 #b4 ,reproduction cost less accrued depreciation1 plus going value2 #c4 ,the worth of the service to the consumers1 based on a stated assumption of reasonable increment in value in excess of actual cost1 upon which a return 7or interest and profit7 should be earned2 #d4 ,the commercial or capitalized value1 on certain assumptions based on present conditions1 and also on possible future conditions which might be involved in a renewal of the ,city contract1 which was to expire within two years4 ,that these determinations of value1 from different points of view1 had an influence in moulding the opinion of the individual appraisers1 there can be little doubt2 yet it is probably equally true that in no case was like weight attached to the several items or bases of valuation4 ,nevertheless1 in the final valuation1 the consensus of opinion as to the value of the property1 as a whole1 was remarkably close1 the extreme variations in opinion being approximately #h1 more1 or less1 than the final appraised valuation4 ,attention should also be called to the necessity1 in any valuation by capitalization of income1 such as that outlined by ,mr4 ,riggs and used by ,professor ,adams in the ,u4 ,s4 ,government ,valuation of ,railroads1#df of determining whether the plant or property is in what might be termed an over-built1 normally developed1 or under-built condition2 in short1 whether the investing public has correctly gauged its momentary physical condition with reference to its bearing on the rates1 and whether the earnings are in fact inadequate1 commensurate with the service rendered1 or excessive4 ,in the long run1 due weight will be given to these facts2 in a brief period1 they may be incorrectly gauged4 ,in water-works properties1 unfortunately1 there is rarely1 if ever1 a market price of the securities which can be said to be credible or significant in valuation4 ,therefore1 in the valuation of water-works properties1 it is the more important that the appraisers should weigh carefully the present character of the service furnished and the momentary adequacy or inadequacy of the rates as predicated on such service1 on the needs of the community1 and the existing standards of the day1 if full justice is to be done4 ,in conclusion1 the writer reiterates his statement1 that he has taken issue with the author in no carping spirit of criticism1 but with a recognition of the difficulty and complexity of the work of appraisal1 and the conviction that engineers are under a moral obligation to do an educational work in pointedly calling attention to the fact that the going1 or going concern1 value1 of a public service corporation's property is not an intangible value representing an unearned increment1 but a very real and substantial item of cost in the property as a whole4 ,while the difficulty may be met by placing going value1 as suggested by the writer1 in a middle class between physical plant and intangible values1 the placing of it in the same class with franchise and other intangible elements of value1 as suggested by the author1 may1 in the judgment of the writer1 do a serious injury to corporations1 in failing to give expression1 in such a manner as shall be clearly within the grasp of the popular mind1 to the fundamental idea of the cost of developing going value4 ,while the writer has no personal interest in the matter1 on one side or the other1 having served both municipality and corporation in water-works valuations1 he feels1 nevertheless1 that engineers can do a genuine service1 alike to the public and to the public service corporation1 in laying stress on the fundamental elements of cost and value1 and particularly those on which rates should be predicated1 in public service corporation property valuation and rating4 ,,charles ,,hansel1 ,m4 ,,am4 ,,soc4 ,c4 ,e4--,so much has been said on the subject of valuation of public utilities that1 although the speaker has thought on the subject for ten years1 and has done considerable valuation of railroad properties1 he finds that he is considerably confused1 for the reason that the discussions seem to cover the whole field of engineering1 accounting1 taxation1 and economics2 therefore he suggests that1 in order to get down to a basis of usefulness1 a special committee should be appointed to take this question under consideration4 ,the speaker had the honor of being associated with the ,michigan ,commission1 as a member of the ,board of ,review4 ,professor ,m4 ,e4 ,cooley was selected by the ,state of ,michigan to take charge of the work of organization1 and ,mr4 ,riggs was the engineer who organized the office and field forces4 ,both these gentlemen were eminently successful in that very difficult work4 ,mr4 ,cooley did this ,board the honor of saying that there were so many problems coming up in actually carrying out the work 7aside from the theories of taxation1 rate-making1 accounting1 and several other things1 which could be found more readily in the ,auditor's office than in the ,engineer's71 that he had asked for the appointment of this ,board of ,review1 to sit as a ,court1 and to pass on the many complex questions arising from day to day2 and he had the satisfaction of coming to the ,board every day and saying3 ,well1 now here is a condition1 and how will ,i handle it8 ,of course1 actually1 he knew more about it than the ,board1 but he was kind enough to say that he would ask for the ,board's opinion4 ,that ,board adjudicated all these various questions to the best of its ability1 and the speaker has the satisfaction of knowing that the valuation has stood in the ,federal ,courts4 ,the subjects are so fugitive and so illusive that very much depends on the point of view4 ,the speaker is now engaged in the actual task of trying to place a valuation on some #cjj1jjj1jjj worth of property in ,new ,jersey1 involving the most important terminals in the ,united ,states4 ,the valuation of public service utilities is the most profound question which has ever been before the ,society1 and it includes a great deal which is outside of strictly engineering questions2 in fact1 the discussions do not throw much light on the methods which should be followed in making valuations4 ,the terminology of a subject is very important2 in fact1 the speaker has found it so important that in his discussions with the ,attorney-,general of ,new ,jersey1 in reference to the ,railroad ,tax ,law1 which he has been asked to re-draft1 that draft will be accompanied by a glossary1 so that the meaning of certain terms used in that particular ,act will be clear4 ,in this ,new ,jersey work some eighty-seven engineers and assistants are employed1 and for their guidance the speaker has prepared thirty-five pages of very carefully considered instructions4 ,these instructions are accompanied by blue prints showing exactly how all field notes must be recorded1 with diagrams of trusses1 culverts1 and the like1 and all the elements of railroad construction4 ,the ,tax ,law of ,new ,jersey states that1 first1 the true value of the real estate shall be ascertained2 second1 the true value of the tangible personal property2 and the first law of #ahhd stated3 and third1 the value of the franchise2 but somebody discovered that there was something besides the value of the real estate1 the tangible personal property1 and the franchise4 ,they did not know what it was1 but there was something else2 therefore1 in the #ahhh law they changed the third division of value to read3 the remaining property1 including the franchise4 ,as an example of one of the difficulties of determining classification1 attention is directed to the term1 ,real ,estate1 which is broadly1 but seldom accurately1 understood4 ,the ,interstate ,commerce ,commission is the highest tribunal in the land1 in the matter of railroad accounting1 but it affords no help in many important elements of value2 for instance1 under the ,interstate ,commerce ,commission1 real estate includes only such real estate 7land7 as is not required for railroad purposes4 ,all land actually used for railroad purposes is classified under ,right of ,way and ,station ,grounds4 ,when the engineers on the ,new ,jersey valuation were sent into the field1 it was necessary to specify exactly what elements must be described as real estate1 and what as tangible personal property4 ,the division line had to be defined accurately for the reason that all personal property is assessed permanently to the ,state1 while1 in the case of real estate1 the ,state receives the taxes on a strip not exceeding #ajj ft4 in width1 and the tax on all property used for railroad purposes outside this strip reverts to the taxing district wherein it is found4 ,the vexatious question as to whether machinery is to be considered as real estate or personal property was settled by the ,new ,jersey ,law1 which says that tangible personal property shall include all machinery2 but it left unsettled the question3 what is machinery8 ,after careful consideration1 real estate was divided into #gd classes1 and all other tangible elements were classified as personal property4 ,some of the items of real estate are3 ash-handling machinery and the like1 chimneys1 cisterns1 conveyors1 dams1 locks1 lock machinery1 electric wiring1 piping1 heating1 interlocking1 signaling1 pavements1 reservoirs1 shop fittings1 tanks1 telegraph lines1 track1 track scales1 transfer tables1 water-works1 etc41 etc4 ,generally speaking1 all items of a fixed character were included in the #gd divisions of real estate4 ,the difficulties of determining all the elements of real estate are mentioned simply to call attention to what at first glance seems quite simple1 but on close examination is found to have great complexities4 ,the question of useful life depreciation1 direct and indirect1 due to decrepitude or obsolescence1 or both1 is one of the illusive questions2 and then comes the value of the franchise4 ,the valuation of railroad property in ,new ,jersey is further complicated by the requirements of the ,state ,tax ,law1 which specifies that the value of the remaining property1 including the franchise1 shall be determined after the true value of the real estate and tangible personal property have been determined4 ,the speaker will not attempt a discussion of franchise values1 as it is a subject which requires the most profound study4 ,the author states that he is appalled at the speaker's misconception of the method of determining non-physical value used by ,professor ,adams in ,michigan4 ,the speaker is perfectly familiar with that method1 and1 although having the greatest respect for ,professor ,adams' opinions1 is compelled to draw attention to two important elements of that formula which are open to objection4 ,professor ,adams establishes his annuity on the depreciated value1 rather than on the cost1 or the reproduction cost1 which1 in the speaker's opinion1 does not determine the proper annuity or reasonable fixed charges to be deducted from net income before net surplus is established4 ,bonds are generally sold at a considerable discount1 and represent the full cost plus this discount1 consequently1 the interest on bonds or fixed charges will be greater than an annuity established on cost1 reproduction cost1 or present value4 ,would it not more nearly establish fixed charges or annuity1 to take the cost plus discount and commissions as the basis on which to apply the annuity rate8 ,while ,professor ,adams' formula establishes a larger net surplus for capitalization than the method suggested by the speaker1 he in effect destroys this net surplus by charging against it all betterments chargeable to income4 ,it is quite clear that this gives the railroad company a chance to absorb all net income into betterments1 and thus wipe out all net income1 in which case there would be no net surplus to capitalize1 consequently1 no non-physical or franchise value1 and the total value established under this plan would be less than if the property had not been improved by the betterments--reductio ad absurdum4 ,in reference to the question of whether or not the method of valuation should be the same1 regardless of the purpose to which the value is to be applied1 the speaker cannot agree with the author1 and believes that it is quite consistent to establish different values for different purposes4 ,the completion of a large public utility1 planned on such a scale as to provide for the requirements of many years to come1 utilizing but part of its capacity1 and earning less than its operating expenses and fixed charges1 with its rates of toll fixed by law1 must be considered in a different way than a well-established public utility1 with business forcing it to its utmost capacity1 and with tolls not fixed by law4 ,there are many important elements bearing on this consideration of value1 and the purpose of the valuation should be known before attempting to establish the value4 ,in ,new ,jersey the work is complicated further by the necessity of establishing the value of #abb separate railroad corporations1 and the assignment of all property outside the #ajj-;ft4 strip to each of the #dej taxing districts through which the #abb corporations1 with their many branches and spurs1 are operating4 ,in order to determine the quantities and materials in the permanent way and structures1 nine engineer corps were organized1 each corp consisting of six men4 ,with this force the center line of the main running track was measured1 and the exact distance in each taxing district recorded4 ,cross-sections of the roadbed were made as often as changes in the natural surface required1 and accurate measurements and notes were made of all structures2 and1 although in many cases the engineers were able to secure the plans of the more important steel structures1 the field parties were required to obtain sufficient data to compute the tonnage in case it was impossible to get these plans4 ,the field parties were also instructed to note the character of the land and improvements adjoining railroad property1 and record such other information as was necessary for a comprehensive understanding of the conditions attendant on the construction of a railroad in that locality4 ,the time allotted for the completion of the work is one year1 and although this is a comparatively short period in which to introduce a premium system in field work1 it was decided to inaugurate such a system as would be as nearly satisfactory as possible under the conditions4 ,a record of each field force for each day in each month was made on profile paper1 using the horizontal lines to represent the number of tracks1 and the vertical lines to represent distance4 ,two horizontal lines were allowed for single track1 four for double track1 and so on4 ,one mile was allowed for each vertical division of the paper1 and1 in awarding the premium1 there was taken into consideration1 not only the extent of territory covered by each field party1 but much consideration was given to the field notes1 and a cash prize was awarded each month4 ,the results of the organization and encouragement to the field parties are shown by the very great increase in the amount of work per man of the field parties1 which was nearly #cjj during the time the parties were in the field4 ,a great many questions hinging on interstate commerce1 and involving ,fundamental1 ,state1 ,federal1 and ,international ,law1 are embraced in the broad view of the valuation of railroad properties4 ,the movement of rolling stock through various ,states1 and between the ,united ,states1 ,canada1 and ,mexico1 and the determination of the situs and domicile of floating equipment1 are subjects which1 not only require considerable knowledge of railroad operation1 but involve many questions not clearly determined by the ,courts4 ,the subject is of such great importance that steps should be taken to formulate methods of procedure1 and1 at the ,annual ,meeting of the ,society1 the speaker will offer a resolution requesting the appointment of a ,special ,committee to determine the proper methods to be used in the valuation of public utilities4 ,j4 ,,martin ,,schreiber1 ,m4 ,,am4 ,,soc4 ,c4 ,e4--,engineers and those generally interested in the valuation of public service properties are fortunate in having the valuable information embodied in this paper4 ,although there are some points on which the speaker differs with the author1 the following remarks are only offered in order to bring out1 from experience1 some further phases of the subject1 rather than as an attempt to criticize4 ,a great deal is heard about the exact cost of reproduction1 also arguments in reference to the proper allowance for contingencies1 probably only involving a small percentage4 ,the speaker questions the propriety of advocating the exact cost figures4 ,the carefully checked cost figures of reliable contractors1 with first-class engineering organizations1 submitting proposals on the same construction1 are often found to vary from #e to #ae from the total cost4 ,different organizations will sometimes be the cause of figures varying #e or more1 depending on the efficiency and experience of the corps4 ,a clever purchasing agent will reduce an apparently precise estimate on equipment or supplies as much as #aj2 on the other hand1 the condition of the market may be such that the actual price paid exceeds the estimate by the same percentage4 ,engineers who are responsible for estimating on1 and the execution of1 construction projects generally add more than #aj for contingencies1 as it is practically impossible to anticipate them1 and a precise estimate is almost certain to fall short4 ,it is unfortunate that it is almost impossible to sustain contingency figures on the witness stand2 for that reason1 probably1 it would be more satisfactory to the lay mind1 and to the various courts1 boards1 etc41 which are required to pass on valuations1 and do not thoroughly understand the technicalities of the situation1 if engineers would drop the contingency item and modify the quantities or the unit prices4 ,if it is possible to estimate the exact cost of reproduction1 certainly considerable variation may be expected from independent sources in computing depreciation and present values4 ,yet there are reputable engineers who would have one believe 7assuming that they know the cost of reproduction7 that by a simple field inspection they are able to compute the exact present value4 ,some time ago1 the speaker heard an expert testify in the interest of a certain city1 for tax purposes1 with reference to the value of a piece of street-railway track4 ,he first stated the valuation for reproduction1 and then the definite present value4 ,the latter was greatly in excess of the actual value4 ,the expert1 who was an engineer of considerable standing1 on cross-examination1 did not know the height of rail from top of head to bottom of groove1 either at the joint or any other part in its length2 he did not know the exact depth of flange of the car wheels which operated over that track1 the headway1 or the exact weight of the cars used4 ,he had assumed the condition of the ties1 and that the track was ballasted4 ,finally1 he was compelled to admit that his determination of the depreciation1 by simply a field inspection1 was a very rough approximation4 ,now1 it is not in every case in the past that a corporation attorney1 even with engineering assistance1 has been able to point out unfair testimony4 ,many times the speaker has heard incompetent testimony admitted1 on the general principle that the witness was an engineer of note1 even though his record had been made in other specialities4 ,too much stress cannot be put on this phase of the subject1 and the speaker is glad that the author has mentioned the fact that the personnel of those doing appraisal work should be of the highest order4 ,in the past it is probable that the failure to discriminate properly in accepting incompetent testimony 7not to mention prejudiced testimony7 was automatic1 and this is the most important reason for much of the hostility of officials of public service properties toward all forms of investigation1 as the author mentions4 ,company officials know that they are often compelled to employ and train specialists to furnish1 within fairly accurate limits1 the very information which is being sought1 and naturally they are skeptical about the data presented by those who1 though not intimate with the property1 purport to give exact cost figures4 ,any one who is able to point out a consistent method whereby these exact figures may be obtained surely will obtain credit for a valuable contribution toward the solution of the complex subject of valuation4 ,referring to the valuation of the property of the ,detroit ,united ,railroads1 mentioned in the paper1 the ,director of ,appraisals for the city estimated that the cost of the complete appraisal of the property1 which includes about #bbj miles of single track1 would be from #c1jjj to #d1jjj4 ,approximately1 #be1jjj has already been spent1 not including the expense sustained by the company1 which furnished a large proportion of the information4 ,probably correct present value estimates which include depreciation may not be even fairly approximated without intimate knowledge of the particular property1 and this should embody operation1 policy of management1 past performance1 study of historical cost 7as far as the records will permit71 estimated cost of construction1 and actual cost of maintenance4 ,the life of a piece of track or equipment1 disregarding obsolescence and extraordinaries1 generally depends on the type and details of construction1 the service it has done1 and the service that will be required of it4 ,renewals should be made when the cost of repairs reaches a certain figure1 other conditions being favorable4 ,it is a fact that able engineers1 intimately acquainted with the case at issue1 and employed on the same property1 often have conflicting ideas in reference to the life of track or equipment1 one recommending immediate renewal and another advocating longer operation4 ,the speaker does not intend to argue against the possibility of placing fairly accurate values on reproduction or present value1 but wishes to bring out the fact that it is not as simple as the lay mind is often led to believe4 ,further than that1 he is of the opinion that the following is essential for economical and satisfactory valuations for all concerned3 7#a7 ,there should be co-operation of the appraisers with the public service property officials1 including operators1 engineers1 and their records4 7#b7 ,present values should be determined by3 7a7 ,cost of reproduction1 7b7 ,mortality tables1 7c7 ,data of performance1 7d7 ,field examination4 7#c7 ,the organization for the appraisal work should be of sufficient scope1 and should be allowed the time and funds which the project reasonably requires4 7#d7 ,the appraisers should be carefully selected1 the personnel including men who have had wide experience in the particular class of operation2 and specialists should be obtained if necessary4 ,mr4 ,riggs states that the valuation should be the same1 regardless of the principles at issue4 ,it seems questionable to consider the fair value which involves the non-physical value in costs or tax regulations4 ,certainly1 in the case of street railways in cities1 where a percentage is levied on the gross receipts1 the non-physical valuation1 only representing present value1 is necessary4 ,again1 a physical present value for taxation should not include the value of paving in the street in the strip occupied by street-railway tracks4 ,that the street-railway company often pays an arbitrary assessment tax and keeps the paving in repair1 though it is in no way responsible for the wear1 should be sufficient to offset any obligation for other taxes4 ,in some ,states this is fixed by the ,courts4 ,the physical valuation1 however1 intended to be used in connection with rates1 cost1 or capital regulation1 should include the cost of paving the railway strip4 ,referring further to the question of including the paving in the physical valuation of street railways1 in the case of a decision of ,r4 ,w4 ,tayler1 ,arbitrator1 in the proceedings between the ,cleveland ,electric ,railway ,company and the ,city of ,cleveland1 on a basis of a renewal of franchises1 ,judge ,tayler said3 ,paving represents actual money expended4 ,it belongs to capital account1 and in its depreciated form is worth all the allowance that ,i have given it4 ,also for rate-making and the capital regulation some consideration is certainly due to obsolescence and change of art1 while in taxation they should not be included4 ,in conclusion1 the speaker is optimistic enough to believe that the problem of physical valuations will be solved satisfactorily for all concerned4 ,co-operation of officials of the public service properties1 reliable testimony1 with a better understanding by the ,courts1 will certainly tend to clarify the situation4 ,non-physical values are very difficult to determine1 and their intelligent treatment will require some well-defined procedure4 ,mr4 ,riggs' valuable paper will go a great way toward producing a correct idea of the general proportion1 and will1 no doubt1 assist in the formulation of proper methods for valuation4 ,,clinton ,s4 ,,burns1 ,m4 ,,am4 ,,soc4 ,c4 ,e4 7by letter74--,the author is to be congratulated on the detailed care shown in the presentation of this subject4 ,perhaps few engineers who have not been called on to cope with the subject of valuation of properties1 realize or appreciate the real complexity of the many varied problems encountered in work of this class4 ,to those who are engaged directly in appraisement work1 this paper will be a welcome contribution to the literature on the subject4 ,the author's statement that if a commission of engineers is directed to report the true cost of reproduction1 depreciation1 or present value of a certain property1 the final figures should not differ1 whether the report is to be used as a basis for reorganization1 sale1 rate purposes1 or taxation1 is open to argument4 ,it seems proper that1 if a property is appraised in order to fix a selling price to a ,government or municipality exercising its right to purchase1 the final figures should be based on current prices of labor and material1 because this does no injustice to either party4 ,it is evident that if the seller secures payment for his property based on current prices1 he may1 if he desires1 reinvest the proceeds of the sale in similar enterprises at current prices1 so that thereby he secures the same benefits1 whether prices are high or low4 ,it is equally evident that if the purchaser 7the municipality7 chooses to purchase the property1 the right to purchase must be exercised at the particular time permitted by the franchise4 ,if prices chance to be abnormally high at that time1 the municipality is exactly on a par with what it would be if compelled to build its own plant at that particular time2 while1 if prices be abnormally low1 the same relative situation still exists4 ,there seems1 therefore1 to be no possible injustice to either party in using current prices1 when the object is a sale or transfer of the property4 ,however1 in determining a proper value as a basis of rates1 another factor must be considered4 ,it is inexpedient and against public policy to make frequent changes in the rate charged for such commodities as water1 gas1 or electric current4 ,theoretically1 the rate could be fixed each year1 based on an annual valuation of the property1 thus permitting a high rate one year and perhaps an abnormally low rate another year2 but1 practically1 this is impossible1 for1 aside from the inconvenience of such a cumbersome system1 no community is well enough informed as individuals to comprehend any reason whatever for ever raising rates4 ,raising rates is invariably accompanied by a wave of indignation4 ,however1 it is apparent that a series of rates based on an annual current price valuation of the property would average exactly the same1 during a term of years1 as though the property were valued once for all on the basis of the average prices of labor and material for the same term of years1 and the rate based on the one valuation thus determined4 ,if the object of the valuation is to afford data for taxation1 the same argument applies as in a case of fixing rates4 ,it thus seems proper that the object of the appraisement should be taken into consideration before it is determined whether to use average prices1 or current prices1 of material and labor2 and1 if this is correct logic1 the final figures must differ according to the object in view2 but1 having determined the proper unit prices to be used throughout any appraisement as being the most equitable for the object in view1 then1 as the author well says1 the appraiser must not allow personal prejudices or fancied conditions to influence his course4 ,above all1 an appraiser must not be afraid of his client4 ,he must not allow his personal judgment to be swerved by the latter's desires4 ,it perhaps seldom if ever occurs that an appraiser1 representing a municipality1 or ,state1 is subjected to this unconscious influence1 inasmuch as his employer is merely a temporary public official1 and consequently he has no client to fear4 ,he goes into the work with a full knowledge that his employer knows little or nothing of the subject1 and his only desire is to reach results which will be unquestionably fair to both parties4 ,on the other hand1 the appraiser who is chosen by the owner of a plant takes hold of the work with a feeling that he is expected to report a value as favorable as possible to his client1 and this feeling is reflected in the report1 regardless of how sincerely or conscientiously he tries to avoid it4 ,one of the most intricate and yet interesting problems in appraisement work is the computation of the going value1 or business value which should be allowed in addition to the physical value4 ,in considering a competitive enterprise1 such as a railway serving a community in competition with another independent railway1 this problem must be treated in a different way than in a non-competitive business1 such as a water-works1 gas-works1 electric plant1 street railway1 or similar enterprise operating under the protection of an exclusive franchise1 or under natural conditions equivalent to an exclusive privilege4 ,in considering competitive enterprises1 it is manifest that a railway operating under conditions more advantageous than its competitor possesses an intangible value equal to the measure of that advantage4 ,it is not clear1 however1 whether it is more proper to say that the railway possessing the advantage has a positive going value1 or whether the less fortunate one has a negative going value4 ,using the rule formulated by the author1 being that of ,professor ,adams1 with some modifications1 it is evident that many properties would show negative going values2 but1 as pointed out by the author1 the ,courts hold that public service corporations are entitled to earn3 7a7 ,operating expenses2 7b7 ,expenses of maintenance and running repair2 7c7 ,taxes2 7d7 ,a sinking fund to cover depreciation and obsolescence2 7e7 ,a reasonable profit on the fair value of the property4 ,it is improbable that a reasonable profit on the fair value of the property could be construed to mean less than the interest or revenue from a like amount of ,government bonds or other non-taxable securities4 ,this ruling of the ,courts fixes the rates at such a figure as to preclude the possibility of a deficit2 from which it must follow that a negative going value cannot be created by a compulsory reduction in rates1 for such action would be confiscation of property to the extent of the negative intangible value thus created2 that is to say1 if the ,courts are right in the above ruling1 then all intangible or going values are positive1 and must be determined by using the most unfavorably situated railway as the basis of computation in determining the question of reasonableness of rates2 and the rates in turn must be reasonable and proper before they can be applied to determine the intangible value4 ,this raises an interesting and far-reaching query4 ,assume that a negative going value is the result of real competition between two roads such that the fair value of the less fortunate competitor is #bj less than its physical value4 ,if rates are based on this valuation1 are they really fair rates8 ,for1 suppose the rates had always been maintained at a point where the less fortunate road could just support its physical valuation4 ,clearly1 no rate could then be enforced which would compel it to operate for less than a reasonable profit on the fair value of its property1 and the fair value under this assumption is #be greater than before1 due to no effort of its own1 but simply to the fact that its competitor has not cut rates1 and has thereby preserved the original fair value of the less fortunate road1 and at the same time increased its own positive going value by an equal amount4 ,in view of this analysis it is doubtful if it is ever proper to consider the existence of negative intangible values1 although it is true that the commercial value does fluctuate1 and may be less than the physical value1 due to rates which are too low1 perhaps1 or due to other temporary causes4 ,the method quoted from ,mr4 ,alvord for determining going value applies to non-competitive enterprises only1 as was stated by ,mr4 ,alvord in his paper before the ,american ,water-,works ,association4 ,this method is open to the criticism that the forecast of the business of the older works1 and of the new hypothetical works as well1 is reduced to a monetary value1 based on the present rates1 regardless of whether or not such rates are reasonable4 ,rates are subject to legislative control in many ,states1 and there is absolutely no assurance that any other ,state may not adopt legislation at any time permitting regulatory ordinances to be enforced4 ,therefore1 any forecast of the value of future business must be based on reasonable rates1 for otherwise it is merely an unwarranted estimate based on a fond hope4 ,taking into consideration the fact that rates must be reasonable1 either by virtue of present laws or laws which may become effective at any time1 perhaps in the immediate future1 going value may well be defined as the present worth of the amount by which the anticipated profits of a going plant1 operating at reasonable rates1 exceed the present worth of the anticipated profits of a similar hypothetical starting plant1 operating at those same rates4 ,with this conception of going value1 it is impossible for a non-competitive property to have a negative going value1 and every operating plant has a positive going value1 even though operating at a loss4 ,the whole problem hinges on the question of what is the reasonable rate or proper return1 and this should be determined in the aggregate as the starting point4 ,the ,courts have persistently dodged the issue1 and properly so1 whenever that question has arisen1 leaving it for consideration in each particular case1 depending on the stability of the business1 the hazard involved1 and various other local factors4 ,it may safely be conceded that this fair profit is something in excess of the return from ,government bonds1 and for the purpose of this discussion it matters not what figure is assumed as the fair profit--whether #e1 #f1 or #aj1 or what-not--the theory is the same in any case4 ,this is perhaps best explained by a practical illustration3 ,take1 for example1 a water-works system1 the physical present value of which has been determined by the method of reproduction to be #a1jjj1jjj1 and denote the going value by the unknown quantity1 x2 suppose1 further1 that #f is considered a reasonable return on the fair value--not yet determined1 the fair value being #a1jjj1jjj plus the going value1 x4 ,therefore1 the rates must be such as to produce in the aggregate an amount equal to the operating expenses1 maintenance1 taxes1 sinking fund1 and depreciation1 and still have a profit of #f on the fair value of the property4 ,the anticipated profits of the going plant1 therefore1 are exactly #f of 7#a1jjj1jjj x7 #fj1jjj #fx_/#ajj per annum4 ,the anticipated profits of the hypothetical starting plant will be negative at the start1 and gradually increase1 finally reaching a maximum of #fj1jjj #fx_/#ajj per annum4 ,it must be remembered that1 in estimating the operating expense and income of the starting plant1 as well as the going plant1 the figures must be confined rigidly to the plant as it is found at the date of valuation1 and in no case should any account be taken of income or operating expenses due to probable future extensions of the distribution system4 ,many appraisers overlook this point1 and predicate the anticipated profits of the going plant on the past growth of the income account1 forgetting that a considerable portion of this growth is due to extensions into new territory1 and not to any material increase in revenue from the territory already served4 ,to include income from new territory in the forecast of income is just as fatal an error as to include the anticipated expenditure of new capital in the present physical valuation4 ,either of these procedures is really an estimate or appraisement of some other plant1 rather than the one actually under consideration4 ,to complete the numerical illustration1 suppose it is determined that the time required to construct the hypothetical starting plant is #c years2 that a portion of the plant is put into operation at the end of the second year1 taking over fire-hydrant rental equivalent to #bj1jjj2 that the revenue from private sources aggregates #bj1jjj during the last year of construction2 that the expenses of operation1 maintenance1 taxes1 and depreciation amount to #cj1jjj during this year4 ,after the time of completion of the plant has elapsed1 it has the total credit for fire-hydrant rental1 and it is assumed that the revenue from private sources and the cost of operation1 maintenance1 taxes1 and depreciation increase as shown in ,table #ad1 which illustrates the method of computing the going value1 and gives the resulting value for the case just stated4 ,therefore1 #aga1jje #j4beigx x2 hence1 x #bca1jjj4 ,this result is based on the assumption that the starting plant earned no interest during the construction period4 ,if an allowance for lost interest during construction has been made and added to the capital account already being included in the physical appraisement of #a1jjj1jjj1 then this must be charged back against the going value found above4 ,this is clearly evident1 because the calculations to determine going value date from the beginning of the construction period1 and the lost interest during construction1 therefore1 is provided for in the result4 ,most appraisers allow an item for lost interest amounting to the legal rate of interest running for half the construction period1 which1 in the illustration under discussion1 would be #ij1jjj2 deducting this sum1 if previously included1 gives #ada1jjj as the going value4 ,there seems to be no good reason for allowing lost interest during construction as an item in the physical valuation of a property1 any more than for allowing all of the lost interest1 up to the time when the property begins to yield a return equal to the rate of interest4 ,it is one of the problems in finance1 and is much better treated as an element in the going value1 as shown in the above illustration4 ,one of the most difficult factors on which to agree in computations of this nature is the element of time required for the hypothetical starting plant to acquire the business4 ,were it not for this uncertainty1 going value could be computed with mathematical precision by the method suggested4 ,in determining the physical valuation on the basis of cost of reproduction1 such items as cost of taking up and replacing street paving over the pipe lines1 cost incurred by reason of sewers and drains encountered1 interference due to electric wires and conduits1 interference of traffic1 and other metropolitan conditions which add greatly to the cost of construction1 must be allowed4 ,wherever such metropolitan conditions exist1 there must also be present a corresponding necessity for the use of water under pressure4 ,people use water because of necessity or convenience1 and not on account of any feeling of obligation or loyalty to the water company4 ,,table #ad4--;,,computation ,,of ,,going ,,concern ,,value1 ,,based ,,on ,,reasonable ,,rates4 ,year1 dating ,legitimate ,hydrant1 rental ,domestic revenue from beginning profits of the taken over by of starting of construction4 going plant4 starting plant4 plant4 ,construction#ast#fj1jjj #j4jfx #j period4 #b;d #fj1jjj #j4jfx #j #c;d #fj1jjj #j4jfx #bj1jjj #bj1jjj ,business #dth #fj1jjj #j4jfx #dj1jjj #ee1jjj development #eth #fj1jjj #j4jfx #dj1jjj #hj1jjj period4 #fth #fj1jjj #j4jfx #dj1jjj #ij1jjj #j4jfx ,year1 dating ,interest on the starting plant4 ,operation1 from beginning maintenance1 of construction4 taxes1 and depreciation on starting plant4 ,construction#ast,if the physical validation contains an #j period4 item for lost interest during construction1 the same amount must be credited to the starting plant as interest earned4 #b;d #j #c;d #cj1jjj ,business #dth #ej1jjj development #eth #fe1jjj period4 #fth #gj1jjj ,year1 dating ,total difference in ,present ,present worth of the from beginning anticipated profits worth excess of anticipated of construction4of the two plants4 factor4 profits of the going plant4 ,construction#ast #fj1jjj #j4jfx #ie4b #eg1abj #j4jegax period4 #b;d #fj1jjj #j4jfx #ij4g #ed1dbj #j4jeddx #c;d #ej1jjj #j4jfx #hf4d #dc1bjj #j4jeahx ,business #dth #ae1jjj #j4jfx #hb4c #ab1cde #j4jdidx development #eth #e1jjj #j4jfx #gh4d #c1ibj #j4jdgjx period4 #fth #j #gd4g ,total going value #ag1jje #j4beigx x #bca1jjj ,if highly developed metropolitan conditions are present1 new business will be acquired in the hypothetical starting plant much more rapidly than where such conditions are yet to be developed4 ,for this reason the problem cannot be based on the early growth of the same plant1 and1 there being no exact duplicate of conditions in existence elsewhere1 the estimate of time required for the business development period is purely speculative1 and must be assumed with great care and judgment1 else injustice may be done to one party or the other in the resulting going value4 ,it is interesting to note that1 in the ,michigan appraisal1 the allowance of a percentage for contingencies was bitterly contested by the railroads as improper4 ,probably every appraiser who has been connected with rate cases has seen this same item strenuously insisted on by the corporations4 ,the author's query3 should a corporation which is compelled to abandon appliances while yet serviceable1 in response to public clamor1 be allowed any item of value in the appraisal on account of such appliances1 seems to be best answered in the negative4 ,if the appraisal is for the basis of making rates1 the corporation is fully compensated by the fact that its depreciation account provides for all abandoned machinery1 and the average past depreciation is usually considered a fair criterion of the future4 ,if the appraisal is for purposes of taxation1 it would seem improper to levy tax on abandoned or rejected machinery or equipment4 ,if the appraisal is to determine the present value of a property for sale under condemnation proceedings1 it is likewise difficult to conceive any reason for allowing any present value on account of property abandoned or rejected1 and1 indeed1 if such abandoned material had any value at the time of its removal1 it is more than likely that such value was converted into cash at that time4 ,the statement that no appraiser would be justified in placing a going concern value on a property #c years old1 or #aj years old1 unless the net earnings were such as to indicate that the property had a commercial value in excess of the physical property1 is questionable4 ,commercial value is not exactly synonymous with going concern value1 for1 as usually considered1 the term going concern value represents the difference between a dead structure and a live one4 ,a property might be compelled to operate temporarily at rates insufficient to return the legal rate of interest on the physical value of the property1 and while this condition continued1 its commercial value would be less than its physical value1 and yet this same property is worth more while running than if operation ceased and the business was allowed to die4 ,,halbert ,p4 ,,gilette1 ,m4 ,,am4 ,,soc4 ,c4 ,e4 7by letter74--,in common with others who have written on the subject of appraisals1 the author omits consideration of one of the most important elements of the cost of producing the property of a public service corporation1 namely1 the development expense4 ,development expense is the deficit in fair return on the investment during the early years of operation1 while the business is being developed to a point that will yield a fair return on the investment4 ,unless this development expense is charged to the capital account as fast as it occurs each year1 it should draw compound interest up to the end of the development period4 ,development expense might be regarded as a part of the non-physical value of a plant1 and a few years ago the writer so regarded it4 ,latterly1 however1 he has come to see that it does not differ one iota in principle from interest during construction1 and1 therefore1 is properly a part of the cost of production or of reproduction of the property4 ,during the construction period1 interest on the investment is charged1 and properly so1 as a part of the physical cost4 ,does this interest cease the day after operation begins8 ,not a whit4 ,the owners of the property are entitled to a fair interest--a fair return--on their money1 from the day it is invested4 ,at first they receive it in the form of interest during construction1 which is charged to capital account4 ,after operation begins they must either be allowed to earn more than a fair return during the fat years following the development period1 or the deficit below a fair return incurred during the development period must be treated exactly like interest during construction and added to the capital account4 ,if public service corporation managers have chosen the first of these two methods1 it does not relieve the appraiser of the duty of adopting the second method2 for the object of appraisals for rate-making purposes is to limit capital to a fair return on the investment4 ,in brief1 if there are to be no fat years1 then every lean year must be credited with its deficit as fast as it occurs4 ,this1 the writer concedes1 is a radical departure from such precedent as already exists1 but we must not overlook the fact that we of to-day are establishing the precedents for appraisals in the future4 ,the whole matter of valuations for rate-making purposes is still in a nebulous form1 as far as the public1 and indeed1 as far as the ,courts1 are concerned4 ,in the end it will devolve upon engineers to establish logical methods of appraisal4 ,to do so1 they must be able to look on the problem both as engineers and as jurists4 ,up to the present1 however1 this broadness of vision has not characterized most engineering appraisers1 nor is it to be wondered at when the ,courts themselves are in a maze4 ,a great deal has been heard lately about going concern value4 ,ultimately1 the ,courts will hold that1 as far as rate-making is concerned1 there is no such thing as going concern value in the present meaning of the term4 ,going concern value1 in the final analysis1 consists of two elements3 ,first1 development expense 7as previously defined71 and1 second1 capitalized surplus earnings4 ,surplus earnings are ascertained by deducting from net earnings both taxes and a low rate of interest on the investment1 equivalent to interest on bonds4 ,many factors may affect surplus earnings2 but1 that going concern value consists largely of capitalized surplus earnings1 cannot be denied4 ,what are surplus earnings8 ,the public replies that they are mainly the result of extortionate charges4 ,this is doubtless correct in many cases2 hence1 any investigation of costs which has for its object rate-making must inevitably lead to repudiation of that part of going concern value which is based on surplus earnings1 if the surplus is at all large4 ,in a word1 we reason in a circle if we capitalize surplus earnings1 calling the result going concern value1 and then undertake to use going concern value as one of the factors in judging the fairness of rates4 ,to express the problem mathematically1 we cannot solve for a variable when the variable is allowed to exist on both sides of the equation4 ,yet that is precisely what some rate-making bodies are trying to do1 and it is precisely what the ,courts have often attempted to do4 ,to escape this confusion there is but one possible step1 and that is to eliminate going concern value entirely4 ,we must first determine the element of cost1 which the writer terms development expense1 and we must regard this item as a part of the cost of reproduction4 ,we must next cease to consider small rates of interest as being a fair return on this cost of reproduction4 ,when first-class mortgages draw #e1 it is folly to talk of #f as being a fair return on capital invested in a business enterprise1 especially when this #f is figured on the actual cost of reproduction of the property4 ,it may be that #g is an ample fair return in some cases1 but in others #aj will be found none too much1 considering the small size of the business and the risks involved4 ,the writer will not at this time discuss methods of determining how a fair return should be estimated1 but1 in general1 the process should be as follows3 ,from the gross earnings deduct the operating expenses and taxes to obtain the net earnings4 ,from the net earnings deduct a small rate of interest 7equivalent to interest on bonds7 on the cost of reproduction4 ,the remainder is profit1 and should be expressed as a percentage of the gross earnings4 ,this percentage of profit can then be compared with similar percentages made by merchants1 manufacturers1 farmers1 and other capitalists1 and then it can be determined logically by comparison whether or not the profit made by a public service corporation is fair4 ,we must adopt this method of attacking the problem or we shall inevitably drive capital away from railway and other fields of public enterprise4 ,the writer estimates roughly that a profit of #aj on gross earnings1 as above deduced1 is about the same as a direct return of #g on the cost of reproducing the average steam railway4 ,in a recent appraisal of a street-railway system1 the writer determined the actual development expense of the property1 deducing it from the accounting records4 ,it was an astonishingly high sum1 even assuming only #g on the cost of reproduction as being a fair return4 ,during his appraisal of all the railways in the ,state of ,washington1 for the ,railroad ,commission1 the writer made a similar study of development expense1 but this was not included in his estimate of the cost of reproduction1 as it was then regarded as being a part of the going concern value and he was not commissioned to ascertain the going concern value of the railways4 ,not a single railway1 as far as he knows1 has ever presented to a ,state ,railway ,commission1 or to the ,interstate ,commerce ,commission1 an estimate of its development expense along the lines indicated4 ,instead1 the railway companies have talked in general terms of long construction periods--often claiming #bj years or more--and of great expense incurred in building up the business1 and of franchise value1 and of a score or more of non-provable costs4 ,the consequence is that they have frequently lost entirely the one great item that they are clearly entitled to1 namely development expense1 which is an item which can be absolutely proved from their accounting records1 and1 therefore1 rests not on the hot air testimony of experts1 but on facts that are incontrovertible4 ,in like manner1 other public service corporations have often signally failed to prove the full worth of their properties1 because their claims for going concern value have been ignored entirely4 ,when a franchise expires1 the going concern value is usually looked on by the public as worthless1 nor is this view to be wondered at4 ,mr4 ,riggs proposes adding to the physical value a minus going concern value1 and he is logical in doing so1 if it is conceded that values for rate-making rest on profits2 but this the writer does not concede for an instant4 ,values for rate-making cannot rest on the very thing that it is aimed to regulate1 to wit1 the rates charged4 ,until engineers and public service commissions and ,courts free themselves from this confusion of cause and effect1 there can be no rational theory of rate-making4 ,values for rate-making must rest primarily either on the actual costs of the production of a property or on estimated costs of reproduction1 including therein both interest charges during construction and the sequel thereto--development expense4 ,of almost as great moment as the item of development expense is the question of depreciation4 ,the author1 in common with most engineers1 holds that depreciation should be deducted4 ,this is a consequence of regarding a public service plant as if it were a machine bought in a second-hand store4 ,a public service plant is a device which is intended to perform a given service forever4 ,it is true that its parts are subject to wear1 and must be renewed from time to time2 but the plant as a whole is everlasting1 or practically so4 ,managers of public service corporations1 perceiving this fundamental truth1 have rarely established sinking funds for the redemption of any considerable part of the plant4 ,in a great railway system the renewal of a freight car is not a proportionately larger item of expense than is the renewal of a tooth in a steam shovel bucket owned by a contractor4 ,this fact1 coupled with the permanence of the railway plant as a whole1 has led railway owners to make no provision for a return of the money lost in depreciation4 ,railway ties in a large railway system inevitably reach a condition such that their average age is exactly half the life of the average tie4 ,shall a sinking fund be provided for ties8 ,if not1 where does logic place a line of demarcation8 ,when does an element of the railway plant attain a condition of sufficient importance to warrant writing off some of its value from the capital account8 ,the facts are that railway managers have not written off anything worthy of mention for depreciation1 and1 in the writer's opinion1 they have been perfectly logical4 ,consequently1 the operating expenses have been much less than they would have been during the early years1 had a sum been placed annually in a sinking fund4 ,therefore1 the development expense1 as deduced from the accounting records1 is less than it would be if a sinking fund were provided2 and the amount of this difference is precisely the amount of the depreciation4 ,in other words1 if depreciation is to be deducted from the cost of reproduction1 it must be added to the development expense ascertained from the accounting records2 so that1 in the final analysis1 depreciation should be ignored entirely in any appraisal of a public service corporation where the object is either rate-making or purchase of the corporation by the public4 ,one qualification to this statement is needed1 however1 and that is that the depreciation shall not have gone far enough to result in an average age of plant less than half the life of the plant--that being the ultimate normal operating condition4 ,engineers have a duty to perform1 in making an appraisal of the sort under consideration1 which is judicial in its character and should not savor in the least of the pawnshop4 ,the engineer engaged by a public service commission should not for an instant make it his object to beat down the price1 no matter by what far-fetched theory he may effect the result4 ,nor are engineers inclined to do this1 except when they regard themselves merely as agents of the public by whom they are employed4 ,unfortunately1 many appraisers have as yet failed to realize that there is a vital distinction between the dealings that should exist in public affairs and those that actually exist in private matters involving the purchase and sale of property4 ,in the latter case1 the buyer usually takes every possible advantage of the helplessness of the seller4 ,is the seller ignorant8 ,see that he remains so4 ,is the seller hard-pushed for money8 ,grind down the price accordingly4 ,does the seller offer goods which are a bit shop-worn8 ,dwell on that fact1 to the exclusion of all else4 ,such are the tradesman's arts1 and such1 the writer fears1 have been the arts of some appraisers of public service property4 ,the writer believes that1 under one form of agreement or another1 nearly every kind of public service can be more economically and better performed by a public service corporation than by the public itself through employees directly hired4 ,but if ,america is not to pass speedily into ,government ownership and operation of all public utilities1 there must be a pronounced change of attitude on the part of the public toward capital now invested in public service corporations4 ,even as engineers1 we are apt to be unconsciously influenced in our attitude toward public service corporations1 not only because of the present public attitude1 but because we are often put to great inconvenience by the ill-considered resistance of the corporations whose property we are called on to appraise for the public4 ,our duty plainly consists1 first1 in regarding a public service corporation as a public agent1 and1 second1 in allotting such values that this public agent will receive a full and fair return for every dollar judiciously and honestly spent in building and developing its property4 ,in carrying out this plan1 the writer finds it wise to study the entire financial history of a corporation1 going carefully through both the construction accounts and the operating accounts from the beginning4 ,the desirability of analyzing the actual costs of construction1 betterment1 and operation of public service corporations1 preparatory to estimating the cost of reproduction1 cannot be too strongly urged upon appraisers4 ,unfortunately1 many corporations refuse access to their records1 or claim that the records are too incomplete to be of value4 ,however1 when they realize that from those very records can be deduced one of the largest items of cost of reproduction1 namely1 the item of development expense1 they are certain to show as much willingness as they now show aversion to disclosing their records4 ,the writer has recently completed an appraisal of a street railway system1 the managers of which placed at his disposal the entire accounting and engineering records4 ,from these the development expense was deduced1 and forms an item which can be demonstrated in ,court1 if need be1 instead of being the subject of unsupported expert testimony4 ,as far as the writer knows1 this is the first time that a street railway corporation has voluntarily opened all its books for use in an appraisal which may be made public4 ,may it not be one of the harbingers of a far-sighted action on the part of public service corporations1 which will result eventually in eliminating entirely the hostile attitude of the public toward its accredited agents8 ,reverting again1 and finally1 to the question of development expense1 it will be seen1 after study1 that the method of deducing it from the accounting records provides for every possible item4 ,the cost of advertising1 the cost of colonization1 and canvassing by agents engaged in building up the business tributary to the corporation1 the cost of developing an efficient business organization and an efficient plant--every possible item of developing the business finds accurate record in the development expense deduced from the accounting records as outlined4 ,this may not be apparent at first glance1 but a little consideration proves it to be so4 ,if1 for example1 #bj1jjj has been spent annually for ten years in advertising to secure business1 the operating expenses have been increased exactly #bj1jjj for each of the ten years4 ,consequently1 the annual deficit below a fair return on the investment has been made #bj1jjj greater each year than it would have been had no expense for advertising been incurred4 ,in other words1 the deficit below a fair return1 which is the development expense1 shows automatically the amount spent for every such item as advertising4 ,the writer regards this automatic register of development expenses as being one of the most important features of his method for determining such expense4 ,it removes the entire problem from the realm of guess-work and expert testimony1 and makes it a problem in engineering economics4 ,it involves no question as to whether or not the existing rates charged for freight1 or for any other service1 are fair4 ,,arthur ,l4 ,,adams1 ,m4 ,,am4 ,,soc4 ,c4 ,e4 7by letter74--,this paper1 in spirit1 diction1 and contents1 is a masterly presentation of the best thought and argument1 by engineer specialists and the higher ,courts1 concerning this difficult subject--a presentation which only one intimately associated with the question for years1 as has been the author1 could hope to make4 ,it is of special interest1 too1 because it deals fundamentally with the ,michigan railroad valuation1 now ten years old1 and deservedly considered somewhat ancient in the evolution of what may be termed the logic of valuation methods4 ,the frank acknowledgment of the now apparent deficiencies or errors of that work1 notably in the defective method and resulting under-valuation of real estate1 as well as the upholding of that which still appears to the author to be sound in principle1 are excellent manifestations of the constructive and judicial spirit so necessary to the making of any substantial contribution to the art4 ,unanimity of opinion in matters of detail1 even among those specializing in this line of practice1 cannot be expected1 especially in a general discussion4 ,details must receive their emphasis from local coloring and local conditions4 ,making allowance for these local conditions in ,michigan and other contiguous ,states--notably conditions of population and flat topography--and remembering that the basis of the paper is a railroad valuation for purposes of taxation1 and not a water-works appraisal for annual rate-fixing in a semi-arid region of rapid development1 or some other widely differing utility1 it seems to the writer that the author has been singularly fortunate in giving expression to views with which specialists will for the most part agree4 ,the limitations of the logical application of the methods suggested1 however1 are not sufficiently defined4 ,early in the paper an effort is made to avoid the necessity for this1 and to simplify the treatment by limiting the scope of the paper1 in the following language3 ,this paper is confined to a discussion of the methods which should be used in arriving at a correct figure of cost of reproduction and depreciation--it does not take up questions involving the propriety of those figures when reached4 ,the propriety or legality of using such figures as a basis for an assessed valuation1 as a basis for rate-making1 444 will be conceded no place in this paper4 ,such a restriction1 however1 seems to the writer to leave the subject much confused4 ,it is impossible to judge of the propriety or soundness of a method of valuation while ignoring its purpose and failing to point out the limitations of its logical application4 ,to confine discussion to a consideration only of cost of duplication and depreciation of physical properties is presumably an attempt to avoid the difficulties incident to the application of such results to specific purposes1 and is in line with the frequent argument of some attorneys in litigated valuations1 that the engineer must not encroach on the province of the ,court by having1 much less expressing1 any idea relative to the application of his figures to the final solution4 ,with this doctrine the writer has no sympathy4 ,the engineer is essentially an economist1 and no one is more fully qualified to aid1 either directly or as an adviser to the ,court1 in the final determination of value for specific purposes1 provided he is trained in the construction1 operation1 and valuation of such properties as are under consideration4 ,to accept any less responsibility than this is to become party to inferior measures leading to popular misconception1 and is justified only as a practicable first step toward the final realization and acceptance of the larger duty4 ,all suggested methods of valuation should be subjected to close logical analysis1 with a view to their purpose4 ,the unsuitability of the method used in the ,michigan appraisal to many classes of appraisals is apparent1 and can be readily indicated4 ,much space is given to justifying the appraisal of all so-called non-physical elements by the capitalization of the residue of net earnings after allowing interest on the investment in the physical properties4 ,this the author refers to as ,professor ,adams' method4 ,the addition of the physical to the non-physical values1 as thus determined1 is supposed to give the value of the property as a whole4 ,it is evident that it gives1 by indirection1 the same total valuation as would be obtained by the direct capitalization of net earnings without any determination of physical values1 per se1 and1 as a method1 is therefore not what it purports to be4 ,since value1 by this method1 is in reality dependent on earnings1 it follows that where rates are fixed by governmental authority1 with the property value as the base1 as is done annually in ,california in cases of privately owned water and lighting plants1 the method suggested is without logical application1 and the property values of such corporations must be determined and justified on other or modified grounds4 ,hence the necessity for dealing with such elements as so-called going concern1 franchise1 and other possible assets1 each independently1 as is usually done in water-works appraisals1 instead of collectively1 as in the ,michigan appraisal4 ,it should be made clear1 therefore1 that the method used in this railroad appraisal1 for the determination of non-physical values1 simply reduces the whole to one of capitalization of net earnings1 and presupposes no governmental regulation of rates with the value of the property as the base2 and1 unmodified1 has a comparatively narrow range of application4 ,the author seems to see difficulty ahead in dealing with rate-making by this method1 for he says1 near the close of his paper3 ,there are many intricate problems in connection with a valuation for rate-making or taxation which really belong to these undertakings1 not to valuation1 but1 in stating some of these difficulties1 he does not point out the impropriety of determining value by capitalizing that 7earnings7 which it may be the object of the valuation to determine and fix4 ,regulation of rates by governmental authority1 which means their limitation to that which is reasonable and just1 will probably in the future be the purpose in the making of most valuations of the property of public service corporations1 and no methods or rules for the making of appraisals can be considered as being at all complete or fairly comprehensive which do not meet the logic of such an end4 ,if capitalization of net earnings is to determine railroad values for rate-fixing1 whatever the process1 it must presuppose a fair and equitable rate1 thus following the rate1 instead of the rate following the property value4 ,this is but a shifting of the difficulty2 for1 what constitutes a fair and just rate1 irrespective of the value of the property used1 is at least as difficult of determination as is the property value1 irrespective of its earnings4 ,valuations1 to be useful1 must have their purposes carefully predetermined1 that the right application of principles may be made4 ,perhaps nowhere more than in ,california has thought been directed along this line1 for the organic law of the ,state for thirty years has required the annual fixing of rates for water and light companies by public official bodies1 and many important cases involving rates and valuations of large properties1 chiefly in later years1 have been tried4 ,unfortunately1 the most important and best tried of these have not yet reached the ,united ,states ,supreme ,court4 ,the result1 thus far1 is too long a story to be told now1 but it may be said that capitalization of earnings in any form is not regarded as a logical basis of value under such conditions4 ,franchises1 as they exist here1 are not regarded as having value1 unless from unusual circumstances4 ,going concern value is recognized1 but its money measure is sought through other channels than present net earnings4 ,the author's emphasis on the necessity for eliminating the personal equation1 as far as possible1 is commendable1 but a large exercise of discretionary judgment is inseparable from the process of appraisal4 ,the fullest investigation of all pertinent facts should be made4 ,too much must not be expected from rules and formulas4 ,they are education only4 ,governing principles must be understood1 and subsequent procedure the writer cannot better express than in the words substantially as used on a former occasion3#dg ,having considered the various factors likely to influence the value of any property under consideration1 and having summarized the results1 it will remain to determine the varying degrees of importance and weight to attach to each1 and to decide1 in view of all the attendant circumstances1 what the amount is on which the company is entitled to receive a suitable return4 ,this final solution can never be reduced to a mathematical formula applicable to all cases4 ,the inquiry will have established approximate limitations1 both as to maximum and minimum1 but there will then usually be found remaining quite a wide intervening field for the exercise of discretionary judgment4 ,that the final result will depend to some extent on the personal equation1 does not of necessity detract from its worth4 ,it only shows the greatness of the problem1 which requires for its solution the exercise of faculties higher than the application of mere formulas and mere routine1 faculties which are rooted in laborious thought1 in ripe experience1 in moral worth4 ,a word concerning the use of experts on work of this class3 ,most valuations grow out of or grow into cases at law4 ,under the prevailing order1 the litigants secure the services of the necessary expert appraisers1 who1 in the course of examination1 are subjected to processes usually much better calculated to magnify than to harmonize differences1 and to cloud rather than to clarify issues1 to the detriment of the record1 the confusion of the ,court1 and the attempted discredit of the witnesses and their profession4 ,self-defense is calculated to lead witnesses into undue reliance on rules and mathematical formulas1 as direct means of obtaining the desired result1 instead of aids for the final exercise of a right judgment as to the real value of the property for the purpose intended1 simply because it is easier in dealing with attorneys to justify mere mathematical processes than to support opinion resting on considerations of a general character1 not always readily measurable in figures4 ,this tendency leads also to under-valuations4 ,a change in the process of ,court procedure relative to such expert evidence is needed1 and the influence of the ,profession1 both individually and collectively1 might be used to secure the appointment of such witnesses at the instance of the ,court1 instead of the litigants1 to the great advantage1 both of society and of those more immediately concerned4 ,c4 ,d4 ,,purdon1 ,m4 ,,am4 ,,soc4 ,c4 ,e4 7by letter74--,a comparison of some of the more important items in the ,minnesota valuation may be of interest4 ,in the ,cost of ,construction of ,roadbed and ,track1 the principal items are3 ,land #be4df ,clearing and grading #ba4di ,rails #ab4gb ,bridges #g4ja ,ties #f4gb ,these five items amount to #gc4dj of the total cost1 and ,adaptation and ,solidification of ,roadbed to #d4ec1 the other twenty-three items amounting to #bb4jg per cent4 ,the estimated value of ,adaptation and ,solidification of ,roadbed ranges from #edc to #a1edb4hj per mile1 averaging #a1bca4ib1 which includes #d for engineering4 ,if engineering is omitted1 the average for all roads is #a1abd4ie1 and for ,carrying ,roads#dh #a1abh4af4 ,the multiplier for cost of right of way was ascertained from the market value of land in the vicinity1 as shown by late transfers1 and the prices paid for right of way at about the same time2 this cost ranged from #aie to #hia of the market value4 ,taking all roads1 the cost of land for terminals was #ga4je of the total cost of land for all purposes1 but only #c4gh of the quantity4 ,a4 ,,mordecai1 ,m4 ,,am4 ,,soc4 ,c4 ,e4 7by letter74--,mr4 ,riggs has done a valuable service in preparing this very able and painstaking paper1 as the subject of the proper value of ,public ,service ,corporation property is one but lately demanding attention4 ,when the country was undeveloped1 and the railroad companies struggling for existence1 and often ahead of the needs of the people1 no criticism was made2 but1 during the last few years1 securities have increased so largely1 the increased issue often being manipulated so as to accrue to the benefit of a few individuals in place of the great mass of original security holders1 rates have been made and defended on the plea that the increase was necessary to pay a fair interest on the capital invested1 and increases in assessments for taxes were fought and criticized to such an extent by the companies that the public seems to think it absolutely necessary to have some investigating and regulating power4 ,it argues that the history of the past shows that we cannot depend on the officials themselves1 not from any desire to be dishonest or unfair1 but merely that they cannot reach the proper point of view4 ,after years of struggling1 they cannot see the justice of being obliged to show their books or have their incomes disturbed1 while they see a neighboring factory1 owned by a like chartered company protected by patents and copyrights1 greatly enlarged1 and the company paying a very handsome return on an ever-increasing capital1 without investigation of any kind4 ,no one supposes that any body of legislators or a committee selected from one should understand the situation better than the managers themselves1 but the public1 forced to look somewhere1 demands that its representatives try to regulate these matters and see that no abuses occur1 fully aware that the machinery is not perfect4 ,it asks3 ,as to ,capital3 that the company can show proper value for the securities issued1 and1 if an increase is made1 the sum obtained should be used for the betterment of the property2 ,as to ,rates3 the ,courts have said that what the company is entitled to ask is a fair return on the value of that which it uses for the public convenience2 ,as to ,taxes3 what is the true value of the property of the company1 treating it with absolute equality1 as compared with that of other taxpayers8 ,it is to determine what these values are that the ,engineer among others has been called on4 ,the literature on the subject is increasing1 and there are some decisions of the ,courts which help1 but there are yet perplexing and intricate questions to be determined2 not to be answered by captious criticism and indignant retort1 but by an honest effort to arrive at some common ground of fairness to both ,state and ,corporation2 for1 after all1 the ,corporation is a part of the ,state1 a great distributor of money1 a large taxpayer1 its stockholders men of worth and capacity1 and there should be no desire to penalize it or interfere with its legitimate prosperity4 ,the ,corporation is surely dependent on the ,state and the good will of the people for its welfare4 ,mistakes have been made1 no doubt1 just because this common ground has not been reached1 and the writer thinks that it is largely within the province of the ,engineer to establish it4 ,in arriving at either of these values1 the chief tangible asset is the value of the physical property4 ,this can be determined with a great degree of accuracy1 and though by no means alone representing any of the values1 it seems to be indispensable as a basis and starting point4 ,the balance sheets of the ,corporation commence with a statement of the cost of road1 plant1 etc41 and must be checked to permit correct deductions from the results of operation shown in them2 and1 for purposes of taxation1 they would seem to be particularly reliable4 ,the ,engineer called on to make such a valuation for whatever purpose should1 under like conditions1 value each item the same for all1 but it does not follow that every item1 including the percentages added1 should appear in the total valuation for all purposes4 ,there are legitimate charges in valuations made to determine capital which should not appear in one made for assessment for taxes4 ,unit prices should not change1 but the purpose for which the valuation is made should properly be considered in arriving at the final figure4 ,to or from this valuation1 especially if made to determine proper capital1 there must be added or subtracted certain values for intangible property1 often found by a study of the income account of the ,corporation4 ,this makes the official ask3 ,why make a valuation of the physical property at all if your final result depends on the income8 ,because it is one item which cannot be manipulated2 it does not change materially from year to year2 it is not dependent on rates or income2 it forms a very large item in the assets of the ,corporation2 and it is a sound basis on which to stand4 ,for the purpose of determining the proper amount of securities1 the cost of reproduction at present prices would seem to be the value sought2 whereas1 for taxation purposes1 or to determine a proper selling price1 the present value is what is required1 allowance being made for depreciation4 ,a railroad1 for instance1 might be considered as an instrument for transporting passengers and freight1 and1 though the ties are not new1 the rails worn1 and the locomotives of an old type1 they do their work just as safely and expeditiously1 and1 if no account is to be taken of the cost of maintenance1 the road might be considered to be worth as much as if new4 ,the officials of the ,corporation are generally perfectly willing to give any facts or to furnish access to any records they may have1 but are not willing to state their opinions as to prices1 depreciation1 etc4 ,the ,engineer is making the valuation1 not they2 and they reserve the right to criticize1 at the proper time1 both the results and the conclusions drawn from them4 ,the ,engineer should be absolutely fair and just1 not using improperly the information obtained1 but endeavoring to reach results which appear to be unquestionably correct4 ,he must divest his mind of the innate desire to minimize the consequences of his decision to the ,corporation1 on the one hand1 or to favor the ,state or his employer1 on the other2 it may be difficult1 but on his ability to do this depends the success or failure of his work4 ,considering the subject generally3 in making the valuation of the physical property1 the organization should consist of one man in charge1 and under him a field organization and an office organization4 ,the property1 if large1 should be divided into convenient districts1 with a division engineer and necessary assistants in charge of each4 ,care should be taken that these assistants are competent men1 though they are often hard to obtain for temporary work of this character1 and there is not sufficient time in which to weed out and perfect an organization4 ,they should be men of experience on the particular class of work to which they are assigned1 and should be tactful and courteous4 ,stress should be laid on keeping plain1 neat notes1 not too crowded2 on watchful care of the party working in the field1 to prevent accidents1 and on the necessity of absolute correctness in calculations and figures1 in the multitude of which it is surprising how many mistakes will creep in unless special care is taken to check every step thoroughly4 ,the office engineer should be equally competent1 and accustomed to systematizing and analyzing1 so that the results will be arranged systematically1 not only as considered by themselves1 but as far as possible according to the classification of the ,interstate ,commerce ,commission1 so that1 no matter where made1 they can be easily compared4 ,the work1 if large1 should be standardized4 ,everything to be reported should have a form for the purpose4 ,these should be as concise as possible1 calling attention to the essential information1 but not in too much detail4 ,unit prices should be established after proper consideration4 ,reproduction ,value4--,in ascertaining the reproduction value1 the aim should be to obtain prices for which the material could be purchased and the work let to responsible parties at the date of the valuation4 ,real estate and depreciation are probably the two items in which there will be the largest differences in opinion as to values1 and both should be determined by the personal examination of experts1 following some prearranged system4 ,one founded on the ,somers system might do for the land1 and certain percentages of depreciation per year1 varying for the three conditions of good1 fair and poor1 for the structures and equipment1 but the results in any case should be examined and passed upon by some one person so as to eliminate the individual equation as far as possible4 ,it is when the figures thus reached are before him that the ,engineer finds himself confronted with many perplexing problems4 ,to what items should percentages be added1 and in what amounts8 ,a small change in such items often makes a large difference in the total4 ,there is not much trouble about general expenses1 legal expenses1 engineering1 etc41 as these are undoubtedly proper items to be added1 and the amounts of the percentages are not difficult to determine from sufficient study of the property4 ,opinions on such matters will not vary greatly1 but there is a difference with regard to such items as leasehold interests1 solidification1 contingencies1 interest and taxes during construction1 commissions and discounts on securities1 working capital1 value of the good will1 and considering the property as a going concern1 about which opinions will differ much more widely4 ,leases from the company are like any other book asset4 ,leases to the company should be considered as the land is considered4 ,what is the present value of the leasehold interest for the remainder of the term for which the rental is fixed8 ,present ,value4--,in ascertaining the present value1 it would seem that something should be allowed for solidification1 the amount depending on the manner in which the work was built1 its age1 the likelihood of damage by the elements1 etc4 ,possibly a percentage of appreciation on the value of the earthwork and masonry would be the fairest manner in which to consider it4 ,due care must be taken1 however1 to give proper credit to good work and not put a premium on inferior construction4 ,a percentage should be allowed for contingencies in all cases1 but this is not necessarily the same for every piece of property4 ,the estimate is made on a completed piece of work1 consequently1 if done with proper care1 this item should not be as large as if the estimate were made for work to be constructed2 but there are many things1 not seen by the estimating engineer or disclosed by available records1 which must be covered by this item1 such as buildings bought with the land and afterward destroyed1 damages paid for reasons not now apparent1 difficulties encountered in excavating wet or hard material1 amounts spent in dredging1 in artificial and difficult foundations1 losses during construction on account of strikes1 washouts1 etc4 ,these are perfectly legitimate charges1 and are likely to have occurred1 and proper allowance should be made for them4 ,it would seem that interest and taxes during construction is a legitimate charge1 and therefore1 in the cost of reproduction1 sufficient amounts should be added to cover it4 ,care should be taken to make the time long enough1 as engineers are often too sanguine as to the length of time necessary to complete a certain piece of work4 ,it is true that a part of a railroad1 for instance1 may be completed and opened for operation1 but the net revenue derived would be very different from that of the completed road with its terminals and connections4 ,a new corporation can rarely market its securities at par1 not only on account of the chances taken by the investor1 but also because1 being human1 he likes to think he is buying at a bargain1 getting something a little below its value2 consequently1 inducements vary from a small discount on bonds to a share or two of stock thrown in4 ,to what extent a reasonable discount is a proper charge against construction may be considered an open question4 ,it might seem fair that a certain fixed percentage be allowed in valuations1 to determine capital for commissions and necessary discounts1 varying according to the amount of the securities4 ,this need not cover the whole amount of the discount1 but only that portion which experience would consider essential in marketing unquestioned securities4 ,consideration of the items working capital1 good will1 etc41 may not properly belong to the ,engineer1 but rather to the ,statistician1 except as the former hears of such items being used as an argument against the necessity for a valuation of the physical property of a corporation4 ,it is often asked1 for instance1 how can a value be placed on the property of the ,pennsylvania ,railroad ,company1 with its great commercial position1 its magnificent terminals1 and its splendid organization1 all the result of the expenditure of much time and money8 ,it is certainly a difficult problem1 but the ,pennsylvania ,railroad is one of the greatest properties in ,america1 possibly in the world1 and because the proper valuation of this property is surrounded with difficulties it does not follow that the valuation of the properties of all other public service corporations are equally troublesome4 ,the very difficulty of the task shows the importance of having firm ground for the first step4 ,having that1 it may not be as hard as imagined to take others4 ,thus it is seen that there are many perplexing questions for the ,engineer to consider1 and many details for him to work out1 in doing which ,mr4 ,riggs' paper will materially help4 ,above all1 the ,engineer must aim to be impartial2 he must arrive at such a point of view as to see both sides with equal distinctness1 and judge fairly and justly1 trying to determine some well-defined laws and formulas which will serve as a basis in ascertaining the values desired4 ,w4 ,b4 ,,ruggles1 ,m4 ,,am4 ,,soc4 ,c4 ,e4 7by letter74--,in his discussion ,mr4 ,lavis quotes the case assumed by the ,new ,york ,sun1 of two bridges over the ,ohio ,river--one between ,cincinnati and ,newport and one #bj miles below1 between villages1 etc4 ,in #ahih the writer was employed by the ,board of ,supervisors of ,cincinnati to put a valuation on its ,ohio ,river bridges for purposes of taxation1 and the many points of view1 as to their cost and their actual value to the owners and to the communities1 were at that time1 and have been frequently since1 considered by him4 ,in this particular valuation the duties of the ,engineer were comparatively simple and plain1 for1 as there were sure to be controversies on two points at least1 first1 as to the right of the city to levy any tax on the bridges as such1 and second1 as to whether any control by the city extended to the center of the river1 informally but generally recognized to be the division between the cities for police and similar purposes1 or only to the northerly low-water mark1 the limiting boundary to the ,territory ,northwest of the ,river ,ohio1 as recognized by the ordinance of #aghg1 it appeared to the ,board to be advisable1 in the earlier stages of their efforts1 to avoid1 as far as reasonable1 any controversies concerning details of the valuation1 and the writer was instructed to give the bridge companies the benefit of any doubts4 ,the railroad bridge of the ,cincinnati ,southern ,railway1 the one lowest on the river and having the little village of ,ludlow at its southern end1 and thus most nearly filling the conditions of one of the assumed structures of the ,sun1 is1 with its railroad1 the property of the city1 and the ,supervisors believed that1 under the terms of the lease to the operating company1 it should not be taxed4 ,of the other four bridges1 the ,cincinnati and ,covington ,elevated ,railway and ,transfer ,bridge--commonly known as the ,chesapeake and ,ohio ,railway ,bridge--the ,covington and ,cincinnati ,suspension ,bridge1 the ,central ,railway and ,bridge ,company's ,bridge1 and the ,newport and ,cincinnati ,bridge1 commonly known as the ,pennsylvania ,railway ,bridge 7all noted in the order of occurrence1 passing up the river71 the writer had official or semi-official reports giving such details of at least the principal features of the structures that in a measure they supplied quantities1 weights1 and some prices2 those lacking were either calculated from actual measurements taken on the structures or supplied from plans furnished by the companies1 since1 as the several companies relied on defeating the efforts of the supervision on legal grounds1 they conceded values which otherwise might have been strenuously contested4 ,as long as the writer knew anything of the results1 the ,board of ,supervisors was unsuccessful in its purpose to get the bridges1 as such1 on the tax duplicates2 but that has no particular bearing on the points raised in this discussion4 ,of the five bridges1 three are primarily railroad bridges4 ,the ,cincinnati ,southern ,bridge has one footway only1 on which it formerly collected tolls2 all the others have footways and wagonways1 and the three above the ,chesapeake and ,ohio ,railway ,bridge carry electric railways4 ,the ,newport and ,cincinnati 7,pennsylvania ,railway7 ,bridge has all the features of steam and electric railways1 wagonways and footways4 ,in some particulars these bridges differ greatly1 for instance1 the bed-rock of the river lies at the surface of the most easterly 7,pennsylvania ,railway7 bridge1 and for each successive bridge is found deeper1 as the river is followed westward1 the river-span piers of the ,chesapeake and ,ohio ,railway ,bridge being #ed ft4 below low water and those of the ,cincinnati ,southern ,railway ,bridge being likewise very troublesome4 ,the two bridges with exactly the same uses--double footways1 wagonways1 and electric lines--are the adjacent ,suspension and ,central ,bridges1 one having the ,city of ,covington and the other the ,city of ,newport at its southern terminus1 but these differ most widely as to valuation4 ,the ,suspension ,bridge1 as reported to the writer by the late ,w4 ,hildenbrand1 ,m4 ,am4 ,soc4 ,c4 ,e41 with the consent of his company1 was valued at only a little short of #a1jjj1jjj as reinforced2 that of the ,central ,bridge ,company1 as reduced from the reports of the engineers1 was very nearly one-third1 only1 of that amount1 both without any right of way1 as real estate was in all cases listed separately4 ,at that time1 however1 the traffic over the ,suspension ,bridge1 counted in persons and vehicles passing over its several lines1 was not far from as relatively greater than that of the ,central ,bridge as its valuation was higher1 and it was more indispensably necessary1 as the writer views it1 than either the ,central ,bridge above1 or the ,chesapeake and ,ohio ,bridge below it1 for in the thirty odd years of its use 7it was completed in #ahfg71 the adjoining communities had adjusted their lines of traffic to it1 while that passing over the other two bridges occurred more because of little differences of convenience 7not1 however1 to be considered otherwise than an important provision in traffic of such magnitude74 ,disregarding other differences1 such as the unit prices of #aj or #aa cents per lb4 for iron paid by the ,suspension ,bridge ,company in the time of the ,civil ,war1 compared with #d4dg cents per lb4 for the new cable wire or #c4cb cents per lb4 for the new structural steel1 it appears to the writer that the element of more or less indispensable use by a community1 as well as the greater freedom of movement in the river below by reason of there being no piers in the stream1 are elements of value2 but that they are items to be reduced to figures for the purpose of taxation is not so clear1 any more than that there is equity in any demand that might be made that the ,new ,york ,central and ,new ,york1 ,new ,haven1 and ,hartford ,railroad ,companies should be taxed on the additional #bb1jjj1jjj expended in the electrification of their lines about ,new ,york ,city for the comfort1 convenience1 and edification1 not of the patrons of the roads alone1 but of the public at large1 without--as just concluded by an eminently able board--any marked economies in operation4 ,there is no question in the writer's mind that any one line of railroad is several times more valuable to each individual in inland regions1 such as ,mexico and ,arizona1 than an equal mileage in ,connecticut with its ,sound harbors1 steamship lines1 good wagon roads1 and numerous but non-competing railways1 partly because of the relative usefulness1 for which no practicable substitute could be found1 and partly because these newer ,states have not entered on all these multifarious lines of governmental activities1 such as policing and safeguarding for public health and the like1 and1 much as funds are everywhere desirable1 could possibly defer for a time some of these developments of civic zeal4 ,it does not appear1 therefore1 that the discriminations in valuations disclosed by the author's ,table #a are altogether without a good basis in relative convenience1 although clearly extreme2 but1 as the law of most ,states is understood by the writer1 such discriminations may not usually be made with strict regard for the legality of tax assessments4 ,it is true1 as remarked by ,mr4 ,riggs1 that a bridge is1 of itself1 not usually a desirable feature of a railroad1 but it must be clear that if there were no river between ,cincinnati and her sister cities in ,kentucky1 communication between the two ,states might be entirely free1 and the business opening for toll bridges would not exist2 consequently1 in these particular cases1 the bridges cannot be considered undesirable4 ,one other consideration bearing on values has been at least suggested by the study of the ,cincinnati ,suspension ,bridge4 ,it is1 as indicated1 the oldest river bridge at ,cincinnati1 the second or third oldest over the ,ohio ,river1 and1 though repaired and strengthened1 it has never been supplanted by an entirely new superstructure4 ,the next oldest bridge is the pin-connected ,pennsylvania ,railway ,bridge1 built five years later than the ,suspension ,bridge1 but1 at the time of this valuation1 it had been entirely replaced by quite a different structure--even the masonry was largely rebuilt4 ,in a degree this comparative facility with which provisions for the greater loads can be provided without condemnation of the leading features of the structures has been shown in the ,brooklyn and ,niagara ,bridges1 though not by any means perfectly1 but the point the writer would make is that this element of ease of reinforcement1 or with which provision can be made for greater loads1 is to be considered in the author's ,physical ,property ,elements of ,value1 as doubtless he has concluded4 ,,henry ,,earle ,,riggs1 ,m4 ,,am4 ,,soc4 ,c4 ,e4 7by letter74--,the discussion of this paper has been so full1 and so much of it is devoted to bringing out methods of valuation not fully covered in the paper1 that it does not appear to the writer desirable to do more than to clear up one or two matters which may have been left somewhat ambiguous in the paper1 and to review the main points on which there is apparent disagreement among engineers who have engaged in valuation work4 ,the writer wishes to express1 to those who have added so materially to the value of the paper by their discussion1 his sincere appreciation and his thanks1 and he regrets that1 owing to the length of the paper and the extent of the discussion1 it will be impossible to review all the points raised4 ,it would appear that there are a few matters in regard to which the writer did not succeed in making his views entirely clear2 consequently1 a few words on these items may not be amiss4 ,overhead ,charges ,versus ,unit ,values4--,the point raised by ,mr4 ,higgins1 that the determination of any percentage figures to be applied to cover overhead charges must be carefully considered in connection with the unit prices that have been adopted and applied to the items of the physical inventory1 is well taken4 ,on all valuation work with which the writer has been connected the various local conditions were taken into account1 and1 for each item a figure was used which1 it was believed1 would fairly represent such price as would be named by a contractor for the work under the existing conditions4 ,therefore1 all elements of hazard to contractors1 and contractors' profits1 have been included in the unit price1 leaving to be treated under overhead charges only those elements of cost which the corporation under investigation would be compelled to bear4 ,the determination of a proper set of unit prices for a valuation involves a very careful study of prices and local conditions1 so that it would appear to be impossible to establish any fixed rule which would be generally applicable to all appraisals4 ,if the unit prices adopted be the cost to a contractor1 then the overhead charges must be made large enough to cover the contractor's hazard and profit4 ,every appraisal should be accompanied with a report or statement1 showing clearly what has been done in this matter4 ,items to be ,inventoried4--,in reference to the items to be inventoried1 the construction placed on one sentence by ,mr4 ,newton is entirely foreign to the meaning which the writer intended to convey4 ,mr4 ,newton's statement of his own views is entirely in harmony with those of the writer4 ,discount4--,messrs4 ,henry ,c4 ,adams and ,w4 ,h4 ,williams have both discussed discount1 and both take exception to the conclusions of the writer4 ,this would appear to be a subject on which there is disagreement in all professions4 ,very able and experienced railway managers and accountants will be found on both sides4 ,since the paper was written1 the writer has been engaged on the appraisal of a comparatively new property which was defendant in a condemnation suit4 ,in this case1 #bj-year bonds were issued in #aije1 and sold at an average discount of #ae per cent4 ,the discount has been treated as an interest charge on the books of the company1 and was being written off from year to year4 ,the question arose3 ,should the discount balance 7approximately three-quarters of the discount7 be added to the physical value and paid by the parties acquiring the property2 or should the loss be sustained by the owner8 ,the treatment of the account on the books of the company was in exact accord with the writer's first contention1 but a careful study of the case in hand led to the conclusion that equity demanded inclusion of the unamortized discount in this case4 ,had the condemnation taken place in #aibe1 after all the discount item had been charged against operation1 no part of this amount would appear to be proper in an appraisal4 ,this case is cited as being the only one which has come up in the writer's practice in which he has been inclined to recognize the propriety of including the item4 ,the writer is not yet convinced that his first conclusion was in error4 ,professor ,adams suggests several different claims made as to the discount item4 ,if any one of them be adopted1 has suitable agreement been advanced for treating the item as a capital charge8 ,clearly1 the amount of money involved in the discount item is not paid by the company until the maturity of the bond4 ,it is not invested in the physical property of the company until it is paid4 ,if written off from year to year and charged against operation1 or treated as a deduction from earnings or from surplus1 it would hardly seem proper to include it in capital at the end of the period4 ,the writer is open to conviction1 but he has not yet been convinced of his error on this point4 ,happily1 this is an item1 the amount of which may be exactly determined from the books of any company under investigation2 so that1 whatever the final determination may be as to the propriety of its inclusion in an appraisal1 the amount to be treated is not a matter of estimate4 ,one ,value ,versus ,several ,values4--,the writer has called forth discussion on this point from several members1 and1 in view of some of the discussion1 he believes that a few sentences may tend to clarify his views3 7#a7 ,an appraisal should be in complete detail1 and should show fully1 not only all schedules of physical property and of unit costs and depreciation percentages on which physical values are based1 but should completely detail all schedules based on an examination of the books4 7#b7 ,the final summary should include every element of value which enters into the property1 and which should enter into the fair value or true value of the property1 if valued for any purpose whatsoever4 7#c7 ,an assessed value for taxation purposes should not necessarily include all the items in the engineering valuation2 but an assessment can be made with absolute fairness if all the facts are at hand and in such form that non-taxable items are separable4 7#d7 ,if rate-making or the sale of the property be the ultimate object1 the work of making rates or of negotiating the sale can be carried on to better advantage with a complete appraisal than with an incomplete one4 7#e7 ,the work in the ,states of ,minnesota and ,washington was done with one object in view4 ,it was ultimately used for another purpose4 ,if a low valuation is deliberately made for taxation purposes1 serious embarrassment is likely to arise when rate legislation is contemplated4 ,it will be very difficult for an engineer to sustain his position when he submits one true value or fair value1 with the expectation that it will be used as a figure for assessed valuation1 and another and radically different one as a basis for rate-making4 ,it would appear to be much easier to submit a complete set of schedules1 showing the cost of reproducing the physical property1 depreciation1 present physical value1 together with all other elements affecting the final value1 and then to point out that certain modifications would appear to be proper in an assessment for taxes4 7#f7 ,the actual making of rates or of assessments for taxation is not a duty usually assigned to a body of engineers4 ,mr4 ,dana's discussion is directed to this phase of the subject1 and brings out a number of points which are suggested above very fully4 ,this is a matter on which engineers have radically differed in practice1 and it involves a principle of valuation which should be finally determined as soon as practicable4 ,further discussion in connection with this paper would hardly accomplish any definite end1 therefore it is left1 with emphasis on the fact that there are radical differences of opinion regarding it4 ,going ,concern4--,the discussion of this paper1 taken in connection with the paper by ,mr4 ,alvord before the ,american ,water-,works ,association1 and the recent paper by ,messrs4 ,metcalf and ,alvord1#di brings out clearly three points of view3 7#a7 ,that of ,professor ,henry ,c4 ,adams1 stated by him in various publications1 and advocated by the writer in the paper3 ,that there is no going concern value1 as such1 but that all intangible elements of value merge into one non-physical value1 which may be determined by a study of the income accounts of the particular property under investigation4 7#b7 ,the ,wisconsin ,method1 sometimes called the ,cooley ,method4 ,the general principles of this are described so fully and so clearly in ,mr4 ,gillette's discussion1 under the head of ,development ,expense1 that further explanation is unnecessary4 7#c7 ,the method advocated by ,mr4 ,metcalf in his able discussion of this paper1 and by ,messrs4 ,metcalf and ,alvord in their paper4 ,the writer cannot concede the accuracy of the position of ,mr4 ,burns1 that interest during construction should be eliminated from the physical valuation of the property and included as part of the going value4 ,interest during construction is no less a part of the actual cost of constructing the property than the rails in a railroad or the water pipe in a water-works plant4 ,nor can the writer accept ,mr4 ,metcalf's optimistic view of the probable action of the ,supreme ,court when it will be called on to pass squarely on the going concern value in a rate case4 ,mr4 ,metcalf says3 ,certainly1 as applied to water-works valuation1 ,mr4 ,riggs' statement is not justified4 ,the ,maine cases clearly include going value as an element of value on which rates should be predicated2 by inference1 so does the ,kansas ,city case4 ,in the ,knoxville case it was in fact allowed by the ,master4 ,this is all true4 ,the ,knoxville case1 however1 reached the ,supreme ,court1 and the ,supreme ,court squarely side-stepped going value in the following words3 ,we express no opinion as to the propriety of these two items 'organization promotion1 etc41' and 'going concern'1 in the valuation of the plant for the purpose for which it was valued in this case1 but leave that question to be considered when it necessarily arises4 ,judge ,lurton1 in upholding an intangible value in the ,omaha case1 and quoting among others the ,kansas ,city case and the ,gloucester and ,norwich cases1 which approved and followed the ,kansas ,city case1 significantly adds3 ,no such question was considered on ,knoxville ,water ,co4 #bab ,u4 ,s41 #a or ,wilcox vs4 ,consolidated ,gas ,co4 #bab ,u4 ,s41 #ai2 both cases were rate cases1 and did not concern the ascertainment of value under contracts of sale4 ,the writer quite inclines to the views expressed by ,mr4 ,gillette1 and fails to read any approval of going concern or going value1 as advanced by our water-works brethren1 when the determination of a value on which to base rates is the issue4 ,that there is sound logic in ,mr4 ,gillette's argument for development expense--which differs in the last analysis but little from ,mr4 ,metcalf's presentation of going value--the writer will admit4 ,there are many corporations in existence to-day which have made substantial investments in creating a successful business after the physical plant was completed and in operation4 ,it hardly seems equitable that such an investment should not be taken into account in fixing a value4 ,the real difficulty lies in drawing the line between the really valuable property1 and one which is truly a profitable investment1 and that property which1 by reason of poor business judgment in its creation1 faulty or uneconomical construction or bad management1 is not earning a reasonable profit4 ,the writer has given some study to the theory advanced by ,professor ,cooley in the ,milwaukee ,street ,railway case1 and later adopted by the ,wisconsin ,commission in the ,antigo ,water case1 but is not yet ready to accept it4 ,the hypothetical curve appears to be acceptable and reasonable1 but the actual application of the formula to cases which have come under the writer's attention1 fails to show a profit at the end of a period of years4 ,if the rule be stated3 the greater the deficit in earnings the greater the value1 then this method may be of general application1 but it does not appeal to the writer as sound business to advocate the assigning of any non-physical or going value to a property unless the property has1 for some years1 actually been earning a return on the investment which is large enough to justify fully the claim that it is worth more than it cost1 or more than its present physical value4 ,if1 during the first few years1 there was a deficit1 due to the expense of creating the demand for the commodity produced and building up the business to a profitable condition1 it may be sound to include this element in an appraisal4 ,the actual cost may be determined1 but the cost of reproduction is pure speculation4 ,the actual cost of a ton of rail1 a locomotive1 a boiler1 or the copper for a transmission line bought fifteen years ago may be radically different from the cost of reproduction of the same physical things to-day2 but that cost of reproduction is radically determined as the things are being bought and sold in the open market4 ,not so1 however1 with the development charge1 or cost of creating a business4 ,conditions are not the same1 they may not be at all similar4 ,without arguing the subject further1 the writer submits that this is a matter that requires the greatest of care in its treatment4 ,the adoption of any rule which will assign a going value to a property which has been managed so that it not only has never earned a large return on the investment1 but has not taken care of depreciation--a property which would not appeal to financial men as a sound investment at its physical valuation--will not only be difficult to sustain in the ,courts1 but will tend to discredit the entire subject of valuation4 ,the writer's present feeling is that the term going concern ought to be eliminated from the nomenclature of valuation practice1 and that scant consideration ought to be given to any attempt to include anticipated profits in any manner in a valuation4 ,mr4 ,kuichling has suggested that some further data as to the ,michigan ,appraisal might be of value4 ,unfortunately1 the writer has not in available form information as to different classes of railroads4 ,table #ae1 based on the average of all the roads in ,michigan1 was prepared by ,james ,walker1 ,chief ,engineer of the ,michigan ,board of ,state ,tax ,commissioners1 after the completion of the ,michigan ,appraisal4 ,column #b gives the percentage of each item to the entire cost of reproduction4 ,column #c gives the average percentage of conditions4 ,the remaining four columns give the average cost of reproduction per mile on various mileage bases4 ,it must be borne in mind that ,michigan is geographically unlike any other ,state in the ,union1 that the mileage of high-class main-line railroad is relatively small1 and that there is a large mileage of cheap branch lines and logging roads4 ,as a result1 these general averages are of little value for comparison with similar figures in other ,states1 where trunk-line mileage forms a greater percentage of the entire mileage4 ,in closing1 the writer believes that it is but justice to himself to correct a few misleading statements in ,mr4 ,williams' discussion which might cause serious misunderstanding of the writer's views4 ,mr4 ,williams refers to his discussion of ,professor ,adams' paper before the ,american ,economic ,association in ,december1 #aiji1 he also again refers to the same paper1 and conveys the impression that the writer discussed this particular article in the paper before this ,society4 ,reference to page #aje will show that the writer did not refer to this paper 7which1 in fact1 he did not see until his own paper was in print71 but to one written by ,mr4 ,williams in ,january1 #aiji1 and given the widest publicity1 not only by its distribution in pamphlet form1 but by publication in the columns of ,railway ,age ,gazette4 ,,table #ae4 ,item4 ,per- ,present ,,cost ,,per ,,mile1 ,,on ,,basis ,,of3 centage value4 of each ,cost item to per- entire centage4 cost of repro- duction4 ,main ,main ,main ,main track4 track track1 track1 #g1jhb and bran- bran- miles4 bran- ches1 ches1 ches4 spurs1 spurs1 #b #g1hac and sidings1 miles4 sidings4 and #aj1gah second miles4 track4 #aj1hhc miles4 #a4 ,engineering #b4g #ajj #gfa #fhi #ejc #die #b4 ,right of way #ac4g #ajj #c1iah #c1eea #b1ehi #b1edb #c4 ,real estate #j4d #ajj #abb #aaj #ha #gi #d4 ,grading #aj4g #ii4i #c1jfd #b1ggg #b1jbe #a1iid #e4 ,tunnels #j4f #ie4b #afb #adg #ajg #ajj #f4 ,bridges #d4j #gh4i #a1acc #a1jbg #gdi #gch #g4 ,ties #e4e #ee4b #a1egh #a1dbf #a1jdj #a1jbd #h4 ,rails #ad4a #gf4b #d1jeb #c1fgc #b1fgh #b1fcg #i4 ,track #a4i #gg4g #edc #dib #cei #cec fastenings #aj4 ,frogs1 #j4g #gj4g #bjg #ahh #acg #ace switches #aa4 ,ballast #a4h #ajj #ebe #dgg #cdg #cdb #ab4 ,track laying #c4b #ig4f #ibf #hci #fab #fjb #ac4 ,fencing #a4d #eh4i #cij #ced #beh #bed #ad4 ,crossings #j4c #gj4e #hf #gh #eg #ef #ae4 ,interlockers #j4b #hi4d #ga #fd #dg #df #af4 ,telegraph #j4a #eb #cf #cc #bd #bd #ag4 ,stations #j4b #ge4g #ehj #ebf #chd #cgh #ah4 ,shops #j4a #fh #cje #bgf #bjb #aih #ai4 ,shop #j4e #gi4f #aef #adb #ajd #ajb machinery #bj4 ,water #j4d #ga4i #ajc #ic #fh #fg stations #ba4 ,fuel stations #j4a #ff4d #dc #ch #bi #bh #bb4 ,elevators #j4f #ge4e #ahi #aga #abe #abc #bc4 ,warehouses #j4a #ga4a #cg #ce #bd #bd #bd4 ,docks and #b4g #fi4c #gha #gjh #eaf #ejg wharves #be4 ,miscellaneous #j4f #fi4d #agd #aeh #aae #aac structures #bf4 ,locomotives #d4d #ef4d #a1bgd #a1aed #cdb #hbi #bg4 ,passenger #a4f #ga4b #deb #dji #bii #bid equipment #bh4 ,freight #i4g #fi4d #b1ghg #b1ebe #a1hda #a1hac equipment #bi4 ,miscellaneous #j4c #fj4c #ii #ij #ff #fe equipment #cj4 ,ferries and #j4h #fc4e #bdd #bba #afa #aei steamers #ca4 ,electric #j4jjd #if4f #ac #ab #i #i plants #cb4 ,terminals #cc4 ,legal #j4c #ajj #ie #hf #fc #fb expenses #cd4 ,interest #b4f #ajj #gdg #fgg #did #dhf #ce4 ,organization #a4c #ajj #cgc #cci #bdg #bdc #cf4 ,contingencies #i4a #hb #b1fjb #b1ceh #a1gab #a1fie #cg4 ,total cost #ajj #hb4abh1fbc #be1ide #ah1iad #ah1fbg ,the writer does not care to permit to go unnoticed the imputation that he has attacked railroad officials as a class4 ,if such inference is to be drawn from this paper1 he desires to correct it4 ,the writer was in railway service for some years1 for six years in an official position4 ,for the past fifteen years he has been1 at frequent intervals1 on special service for railroads4 ,he is at present under employment by two of the principal railways of the country4 ,he has many warm friends in the service1 many in official capacities1 and he is fully cognizant of the high ability1 integrity1 and loyalty of railway employees1 and by employees he means to be understood as including all classes1 from the highest officials down4 ,inasmuch as our railroads form our greatest industry1 and inasmuch as the active heads of the large roads have under their control such properties as but few in other fields are called to administer1 it follows that there are hundreds--yes1 thousands--of men in railway service1 competent to fill any office in the land4 ,the writer repeats3 it is a pity that the demands of their work are such that they cannot give more of the benefit of their highly specialized training to the public service1 and that they have so often apparently misunderstood or misconstrued the perfectly honest attempts of public officials to find a remedy for real evils4 ,in closing1 the writer desires to say that he regrets the impossibility of treating the subjects of depreciation and fair return in a satisfactory manner without unduly lengthening this discussion4 ,it may not be out of place to say that1 in the writer's opinion1 a fair return on the average public service corporation property should be considerably in excess of the figures usually named4 ,there is but little incentive to invest in railways1 street railways1 or other public service corporations1 if the limit of return is to be #g1 or #h1 or even #aj1 on the actual investment4 ,this is especially true where the hazard of investment is increased by term franchises under which the companies are operating4 ,the writer has the most absolute confidence in the ability and integrity of our ,supreme ,court1 and is led to believe that1 on a proper showing1 confiscation will not be permitted4 ,he also believes that1 in general1 the great mass of intelligent people wish only absolutely fair dealing with the corporations4 ,on making a full and frank showing of facts and conditions1 the public service corporation which is honestly financed and honestly operated1 need have little fear of ultimate justice4 ,the public service corporation which is administered1 not to render service to the public1 but to permit stock speculators to reap a harvest1 can hardly hope for the same brand of justice1 and it is hardly to be expected that such a corporation will welcome publicity4 ----- ,footnote #ai3 ,electric ,railway ,journal1 ,january #hth1 #aiaj4 p4 #gf4 ,footnote #bj3 ,december #dth1 #aiaj4 ,footnote #ba3 ,railroad ,age ,gazette1 ,july #bdth1 #aijh4 p4 #ehg4 ,footnote #bb3 ,engineering ,news1 ,june #afth1 #aiaj1 p4 #fig4 ,footnote #bc3 ,march #dth1 #aiaj4 ,footnote #bd3 ,railroad ,age ,gazette4 ,july #cast4 #aijh1 p1 #fbg4 ,footnote #be3 ,engineering-,contracting1 ,may #beth1 #aiaj1 p4 #dfh4 ,footnote #bf3 ,railway ,age ,gazette1 ,march #dth1 #aiaj1 p4 #dcg4 ,footnote #bg3 ,electric ,railway ,journal1 ,january #aeth1 #aiaj1 p4 #aaj4 ,footnote #bh3 ,professor of ,political ,economy and ,finance1 ,university of ,michigan4 ,footnote #bi3 ,for convenient reference1 a set of these forms is filed in the ,library of the ,society4 ,footnote #cj3 ,now ,m4 ,am4 ,soc4 ,c4 ,e4 ,footnote #ca3 ,transactions1 ,am4 ,soc4 ,c4 ,e41 ,vol4 ,,lii1 p4 #cbh4 ,footnote #cb3 ,elements of ,railroad ,engineering4 ,footnote #cc3 ,michigan ,central vs4 ,powers ,record1 p4 #ejj4 ,footnote #cd3 ,second ,annual 7#ahhh7 ,report of the ,interstate ,commerce ,commission1 p4 #fd4 ,footnote #ce3 ,letter of ,hon4 ,martin ,a4 ,knapp1 ,chairman of the ,interstate ,commerce ,commission1 to ,hon4 ,stephen ,b4 ,elkins1 ,chairman of the ,senate ,committee on ,interstate ,commerce1 covering a then pending bill providing for railway valuation1 ,march #beth1 #aijh4 ,footnote #cf3 ,pages #ah-ai4 ,footnote #cg3 ,c41 ,c41 ,c4 ,st4 ,l4 ,ry4 vs4 ,backus1 #aed ,u4 ,s41 #dde4 ,footnote #ch3 ,proceedings of the #bb;d ,annual ,meeting of the ,american ,economic ,association4 ,footnote #ci3 ,page #aa4 ,footnote #dj3 ,decision and order of the ,railroad ,commission of ,wisconsin1 issued ,august #c;d1 #aiji1 in the case of ,hill et al4 vs4 ,antigo ,water ,company1 pp4 #hd-he4 ,footnote #da3 ,page #aci4 ,footnote #db3 ,shortly after the ,kansas ,city ,water ,company case and the classic decision of ,mr4 ,justice ,brewer1 and since developed by the suggestions of a number of engineers1 among them ,john ,w4 ,alvord1 ,m4 ,am4 ,soc4 ,c4 ,e41 whose admirable article on ,going ,value of ,water-,works1 presented at the ,milwaukee ,convention of the ,american ,water-,works ,association1 held in #aiji1 is familiar to all students of water-works valuation4 ,footnote #dc3 ,page #aee4 ,footnote #dd3 ,page #add4 ,footnote #de3 ,transactions1 ,am4 ,soc4 ,c4 ,e41 ,vol4 ,,lxiv4 p4 #id4 ,footnote #df3 ,bulletin #ba4 ,department of ,commerce and ,labor1 ,u4 ,s4 ,bureau of the ,census4 ,footnote #dg3 ,the ,principles ,governing the ,valuation for ,rate-,fixing ,purposes of ,water-,works ,under ,private ,ownership4 ,by ,arthur ,l4 ,adams4 ,journal1 ,assoc4 of ,eng4 ,societies4 ,vol4 ,,xxxvi1 ,no4 #b4 ,footnote #dh3 ,the ,minnesota ,commission classified all roads as ,carrying ,roads or ,switching ,roads1 the latter being mostly ,union ,depots4 ,footnote #di3 ,this paper will be published in a subsequent volume of ,transactions1 ,am4 ,soc4 ,c4 ,e4 ,,transcriber',s ,,notes #a4 ,used a comma instead of a space after every third digit from right to left in numbers of more than three digits in keeping with authors preference4 #b4 ,table #i on p4 #bbh has an error in the math4 ,the total of the second column is #a1bei1adi1dcd instead of #a1bei1jdi1dcd4 ,the latter does agree with the difference arrived at in the next line4 #c4 ,added ,grand total--,all assets to last line in ,table #aj on p4 #bcj as this description agrees with the actual totals provided4 #d4 ,silently corrected simple spelling1 grammar1 and typographical errors4 #e4 ,retained anachronistic and non-standard spellings as printed4 #f4 ,enclosed italics font in underscores4 #g4 ,adjacent identical columns duplicated more than twice were not shown in the representations of the forms4 #h4 ,the forms that were too wide were split4 ,the following section7s7 originally continued to the right4