The subject of valuation is so appallingly great that, notwithstanding the length this paper has reached, many points have not been covered.

No discussion of the method of valuation by capitalization of net earnings, which is practically that adopted by Professor Adams in his commercial valuation, has been attempted; nor has any attempt been made to describe the stock and bond method. Neither method is adaptable to the requirements of any public appraisal.

The so-called cash investment in property, or the actual cost of construction through the entire history of the property, cannot be sustained by any process of argument as a proper method of valuation, nor can the method of computing the cost of construction of an adequate modern property assumed to replace the existing property. The scope of a valuation must be limited to the property as it exists on the date of the appraisal, and it would be equally fallacious to include non-existent and long-perished facilities, or to assume a hypothetical and never-existing property.

There are many intricate problems in connection with a valuation for rate-making or taxation which really belong to these undertakings, not to valuation. They are usually brought into the discussion of valuation, but have been here excluded. Among these are the separation of interstate from intra-state business, and others, of great interest, it is true, but foreign to the subject of valuation.

The question of the fair return on money invested is not referred to, for the reason that it has no direct bearing on valuation, and for the further reason that it has been quite exhaustively discussed in the papers listed in the Appendix. The writer desires to make clear the fact that he is not advocating low rates per se. The rate must be determined to meet the special requirements of each investigation. The Supreme Court of Maine says (97 Maine):

"The reasonableness of the rate may for a time be affected by the degree of hazard to which the original enterprise was naturally subjected. That is such hazard only as may have been justly contemplated by those who made the original investment, and not unforeseen and emergent risks, and such allowances may be made as is demanded by ample and fair public policy."

While the Supreme Court of the United States, in Willcox vs. Consolidated Gas (212 U. S., 12), fixed a rate of 5½% as reasonable in that instance, they said:

"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.