"It is true that the 'value' of a property is an unstable figure, subject to fluctuations due to natural or artificial causes, and that a material change in value may occur suddenly...."
Professor Adams proposed to keep his replacement cost up to date by annual accretions equal to annual expenditures for extensions and betterments; but this plan is illogical and inconsistent, for it proposes to ignore that very essential difference between original cost (less a proportionate allowance for wear and tear) and present worth, which is the very basis of the argument in favor of any valuation at all. Equally obvious objections, growing out of the instability of the ascertained value of any particular date, apply to any plan which does not provide for a re-appraisement every time the aggregate is to be used.
The objections to the use of any valuation for rate-making which have been cited are valid, and should be convincing, but they are insignificant by the side of the fundamental objection that, as Mr. Riggs says, "as a business proposition, the value of any property depends on its earnings," while those who would thus utilize a valuation are attempting to reverse the fact and make earnings depend on the value. Such a reversal is impossible. Ascertain real value and you have a consequence of earnings, past, present, and prospective, nothing else; use this as a basis for a rate schedule and you get, as a mathematical result, the present rates. The only way to derive any other result from this method would be to use as the basis some figure other than the real value, a method which would only be resorted to through moral turpitude or intellectual incapacity. One might almost assume that Mr. Riggs knows this, for he says:
"Value is given to a property, either by reason of the fact that it is an instrument for earning profit, or that it does earn profit or gives promise of profit."
The substance of Mr. Riggs' argument on capitalization control is that American railways are not often over-capitalized, but such evils do obtain in other industries, and therefore railway issues of capital securities ought to be restricted.[[39]] Unfortunately, he gives no clue to the methods he would have applied, 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 issued. Railways are not over-capitalized. Table 9, a comparison of official valuations and capitalization, originally compiled by Mr. Slason Thompson, is instructive.
TABLE 9.
| State. | Year. | Valuation by commission or tax board. | State proportion of capitalization. |
|---|---|---|---|
| Minnesota | 1907 | $411,735,194 | $334,979,691 |
| South Dakota | 1909 | 106,494,503 | 108,911,000 |
| Wisconsin | 1909 | 284,066,000 | 249,299,060 |
| Texas | 1909 | 413,000,000 | 412,465,743 |
| Washington | 1908 | 186,007,490 | 153,493,940 |
| Total | $1,401,303,187 | $1,259,049,434 |
| Excess of total valuation over total capitalization | $142,253,753 |
In view of frequent suggestions, in the public press and elsewhere, which indicate that there is a widespread opinion that the securities of railways have generally been watered, Table 10 is given. It is an analysis of the consolidated balance sheet as given in the reports of the Interstate Commerce Commission for 1908 and 1890.
Table 11 shows the length, in miles, of main and other tracks in 1908 and 1890.