"No particular rate of compensation must in all cases be regarded as sufficient for capital invested in business enterprises. Such compensation must depend greatly on circumstances and locality. Among other things the amount of risk in the business is an important factor, 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 them. 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 interference. The less risk, the less right to any unusual return upon the investments."
In view of these dicta, it is needless to argue whether a rate of 6% or 10%, or 15%, or more, be reasonable.
The writer has herein endeavored to narrate the story of the Michigan appraisal in some detail, to review briefly subsequent similar work, to present the main points in the legal decisions bearing on appraisal practice, and to present his own views as to proper and legitimate methods of valuation in the light of judicial opinions. He has attempted to do this in the spirit of absolute fairness, without permitting either early years of training in corporation service, or more recent investigations for State and city, to bias the presentation of truths.
The subject is one which has not attracted the average citizen sufficiently to compel him to give it deep study. Those who are familiar with it all too frequently have views biased by interest, and it is hardly conceivable that any final conclusion will be reached until each and all of the main issues are determined by the Courts. When thus determined, it will be done with wisdom and with justice. It is impossible to study the cases referred to without being impressed with the absolute fairness of this great tribunal. 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 Courts.
The writer acknowledges the valuable suggestions, criticisms, and information furnished him by Professors Henry C. Adams, Mortimer E. Cooley and W. D. Pence; Mr. Henry L. Gray, Engineer of the Railroad Commission, Washington; Mr. D. F. Jurgensen, Engineer, Railroad and Warehouse Commission, Minnesota; Mr. Bion J. Arnold, and others who have made possible the presentation of data regarding State and other appraisals.
Bibliography.—Accompanying this paper will be found a bibliography of the principal articles on the subject of property valuation.
APPENDIX
Bibliography.
Railroad Valuation.— "The Appraisal of Plants for Public Services." Nicholas S. Hill, Jr. The Engineering Record, June 8th, 1901. A review of the principles on which a property is valued when purchased by private parties or by municipalities. "The Value of Railways and Their Capitalization." H. T. Newcomb. Railroad Gazette, August 29th, 1902. Abstract from Yale Review, August, 1902. "The Census Office Railroad Valuation." (Editorial.) Railroad Gazette, September 1st, 1905. A discussion of the work of Professor Henry C. Adams, Statistician of the Interstate Commerce Commission, and his assistants. "Railroad Taxes and Plans for Ascertaining the Fair Valuation of Railroad Property." The Railway Age, September 8th, 1905. Report presented at the meeting of the National Association of Railroad Commissioners, at Deadwood, S. Dak. "Railroad Valuations in State Reports." Professor Harold M. Bowman. Railroad Gazette, September 8th, 1905. Abstract of a report, which explains briefly the systems of valuation provided for by the laws of the several States, with a critical review of the systems and administrative reports. "The Determination of Physical Values." Clinton S. Burns, M. Am. Soc. C. E. The Engineering Record, September 16th, 1905. Presents a mathematical formula for fixing depreciation on articles, based on age, with quite a complete demonstration of the theory presented. "Valuation of Railroad Property," Henry Fink. (Serial.) Railway Age Gazette, July 24th, 1908, et seq. A brief review of several methods. "The Valuation of Railways." (Serial.) Railway Age Gazette, January 22d, 1909, et seq. A thorough discussion of the subject, and one of the best presentations of it from a rational corporation standpoint. "Some Neglected Factors of Fair Valuation." (Editorial.) Railway Age Gazette, March 5th, 1909. "Railway Capital and Values." W. H. Williams. (Serial.) Railway Age Gazette, April 2d, 1909, et seq. An address setting forth at length the views of the railway managers who oppose valuation of property for any purpose. "Valuation of Street Railway Properties." Electric Railway Journal, June 19th, 1909. A general discussion of the subject. "Commercial Valuation of Railway Operating Property in the United States: 1904." Bulletin 21, United States Bureau of the Census. Contains an exhaustive discussion of sundry methods of valuation. The most complete series of papers on valuation yet published. The Chicago Appraisal.— Report to the Common Council on Railroad Valuation. B. J. Arnold, M. Am. Soc. C. E., M. E. Cooley, and A. B. Du Pont. The Michigan Appraisal.— "Expert Valuation of Railway and Other Corporate Property in Michigan." E. E. R. Tratman, Assoc. M. Am. Soc. C. E. Engineering News, December 20th, 1900. A descriptive paper. "What is the Value of a Railroad for the Purpose of Taxation?" Charles Hansel, M. Am. Soc. C. E. Railroad Gazette, April 19th, 1901. Discussion of the work done by Professor M. E. Cooley, and on valuation in general. "Michigan Railroad Appraisal—Valuation of Physical Properties." Professor Mortimer E. Cooley. Bulletin 21, U. S. Bureau of the Census, p. 76. "Michigan Railroad Appraisal—Valuation of Non-Physical Elements of Railway Property." Professor Henry C. Adams. Bulletin 21, U. S. Bureau of the Census, p. 78. The Minnesota Appraisal.— "Valuation of Railway Property." A. S. Cutler. Year Book, University of Minnesota, 1908. An account of the methods used for obtaining and checking the information. Report on the Valuation of Railways in Minnesota, January, 1909. Minnesota State Railroad Commission. "Valuation of Railways in Minnesota." Railway Age Gazette, February 5th, 1909. A descriptive article. The Texas Appraisal.— "Railroad Franchise Values in Texas." W. H. Coverdale, Assoc. M. Am. Soc. C. E. Railroad Gazette, February 12th, 1904. Discussion of methods used in Texas. "Methods Used by the Railroad Commission of Texas Under the Stock and Bond Law, in Valuing Railroad Properties." R. A. Thompson, Assoc. M. Am. Soc. C. E., with discussion by Messrs. E. L. Corthell, F. Lavis, W. H. Coverdale, and W. D. Taylor. Transactions, Am. Soc. C. E., Vol. LII, p. 328, et seq. The Washington Appraisal.— "Report to the Washington Railroad Commission on the Valuation of Railways in Washington." Halbert P. Gillette, M. Am. Soc. C. E. Engineering-Contracting, April 7th, 1909. The Wisconsin Appraisal.— "Wisconsin Railroad Valuation." W. D. Taylor, M. Am. Soc. C. E. Bulletin 21, U. S. Bureau of the Census, p. 82. "The Appraisement of the Physical Value of Wisconsin Railways for the Purpose of Taxation." W. D. Taylor, M. Am. Soc. C. E. Engineering News, March 31st, 1904. Discussion on "Valuation of Railroad Properties." W. D. Taylor, M. Am. Soc. C. E. Transactions, Am. Soc. C. E., Vol. LII, p. 353. "Report to the Tax Commission." W. D. Taylor, M. Am. Soc. C. E. Report of the Wisconsin Tax Commission, 1907, p. 269. "The Work of the Joint Engineering Staff of the Wisconsin Tax and Railroad Commissions." W. D. Pence, M. Am. Soc. C. E. Journal, Western Society of Engineers, Vol. XIV, p. 73. (Abstract.) Engineering News, March 4th, 1909. Water-Works Valuation.— "Water-Works Valuation and Fair Rates, in the Light of the Maine Supreme Court Decisions, in the Waterville and Brunswick Cases." Leonard Metcalf, M. Am. Soc. C. E. Transactions, Am. Soc. C. E., Vol. LXIV, p. 1. (A complete bibliography of the subject of water-works valuation may be found on p. 69 of Mr. Metcalf's paper.)