Belonging to this so hateful class, and having also ventured to question whether Professor Adams has said the last and most perfect word on the subject of railway valuation, the writer is neither surprised nor disheartened to find that he, also, has caused Mr. Riggs undisguised dissatisfaction. It is a misfortune apparently inseparable from his profession and his conception of his obligations to his employers and to the public.
As has been already noted herein, the question is not whether railway property shall be officially "valued," but rather (first) as to how the "value" which is to be ascertained is properly to be defined, and (second) how the determination of "value," as properly defined, can be made most accurate.
The essential difference between the view advocated before the American Economic Association by Professor Adams and that of the writer was, and is, that the former now desires to exclude all elements of value which are not physical and tangible, while the writer holds that, if it is worth while to ascertain, on a general scale, at the cost of a necessarily large expenditure of taxpayers' money, and as to a particular date, so unstable a fact as railway value, 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 charge. The fundamental difference between these two conceptions of value is admirably indicated by the following quotations, both of which rest on the authority of the Interstate Commerce Commission.
Fair Value.
"The present value of a railroad property is necessarily very largely a matter of opinion only; it depends upon a vast number of contingencies and uncertainties, 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 all; the value of a railroad largely results from the personal characteristics of its officials; the policy pursued by directors for the conservative and economical or progressive and daring, is a great factor in the determination of the current value of the property; a railroad property is not necessarily worth what it would cost to replace it and, on the other hand, it may be worth very much more than that."[[34]]
Replacement Cost.
"The bill in question makes use of the phrase 'fair value.' Unless there is some legislative necessity, which we do not perceive, we question the advisability of using this phrase.
"It would seem to us preferable to substitute a phrase which indicates the fact that Congress desires an inventory valuation of railway property. By inventory valuation is meant that the property of the several railways shall be listed in detail, 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 engineer, and not from the point of view of a court or board of arbitration which, from the nature of the case, cannot judge of what is 'fair value' except in the light of some specific use to be made of the valuation."[[35]]
As has already been noted herein, and amply verified by quotations, Mr. Riggs is fully aware that replacement cost and real value can rarely, if ever, coincide, and therefore plainly agrees, as to that elementary and essential point, with the writer and disagrees with Professor Adams, who would ignore or destroy every non-physical element of value in the property of all public service corporations. Mr. Riggs' recognition of the inadequacy of mere replacement cost is shown also by the excellent and convincing example which he cites[[36]] 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 two, which inferentially has correspondingly higher replacement cost, has much lower earning capacity, both as to gross and net, and is therefore actually worth much less than its less costly competitor. Mr. Riggs explicitly favors full recognition of the non-physical elements in every valuation; and, therefore, may be ranked as an opponent of any such scheme of valuation as that advocated by Professor Adams before the American Economic Association, or in the letter of the Chairman of the Interstate Commerce Commission, hereinbefore quoted.
Mr. Riggs, however, believes that the determination of the cost of replacement is an essential first step toward the ascertainment of real value. He says: