demands that its natural resources be conserved by proper use. To this end the States and the nation can do much by legislation and example. By far the greater part of these resources is in private hands. Private ownership of natural resources is a public trust; they should be administered in the interests of the people as a whole. The States and nation should lead rather than follow in the conservative and efficient use of property under their immediate control. But their first duty is to gather and distribute a knowledge of our natural resources and of the means necessary to insure their use and conservation, to impress the body of the people with the great importance of the duty, and to promote the coöperation of all. No agency, State, federal, corporate, or private, can do the work alone.

Finally, the conservation of our resources is an immediate and vital concern. Our welfare depends on conservation. The pressing need is for a general plan under which citizens, States, and nation may unite in an effort to achieve this great end. The lack of coöperation between the States themselves, between the States and the nation, and between the agencies of the National Government, is a potent cause of the neglect of conservation among the people. An organization through which all agencies-State, national, municipal, associate, and individual-may unite in a common effort to conserve the foundations of our prosperity is indispensable to the welfare and progress of the nation. To that end the immediate creation of a national agency is essential. Many States and associations of citizens have taken action by the appointment of permanent conservation commissions. It remains for the nation to do likewise, in order that the States and the nation, associations and individuals, may join in the accomplishment of this great purpose.

DEPRECIATION IN COTTON FACTORIES

[IN the Tariff Board's report on Cotton Manufactures the difficulties in arriving at a rate of depreciation of the plant are explained, and an average rate of depreciation is indicated. (House Document 643, 62d Congress, 2d session; pub. March 26, 1912, p. 376.)]

Depreciation. The schedule was so drawn up as to get not only the lump sum charged by different concerns under that head, but also the basis on which the charge was figured. For this reason the original value of the buildings and of the machinery and equipment were called for. In most instances, however, this proved an impossible task. Several companies have been in existence for decades, some of them dating back anywhere from one-half to three-quarters of a century, and their records failed to disclose the necessary information. In other cases companies have gone through one or more reorganizations, changing ownership, in which case they were frequently acquired as a going concern without any detailed record being preserved of the original physical value of the plant. It was therefore found more practicable to take as a basis the present appraisal value of the different plants. These values were in most cases ascertained from appraisals of mutual insurance companies, records of which were kept at the mills. In the few cases where no appraisals had been made the value was ascertained from original construction accounts and similar resources.

The rate charged for depreciation differs from plant to plant. Some have one rate for buildings and another for machinery and equipment. Others carry the system still further and have different rates of depreciation for various parts of the plant, charging one rate for spinning machinery, another rate for weaving, and another for the boilers and power

plant, etc. Others, again, have one flat rate, including both buildings and machinery, although they recognize that the two are subject to different degrees of depreciation. In the case of one or two important companies it was found that the single rate of depreciation was carried still further, including not only machinery and buildings, but even the value of the real estate. Still others, as has been pointed out earlier in the discussion of the question of repairs and maintenance, carried no allowance for depreciation, but charged all additions to the plant by way of new machinery, extensions of buildings, etc., to the repair account, thus paying for it out of current earnings.

It therefore becomes clearly apparent that some uniform rate for depreciation as well as repairs would have to be adopted. A modern mill equipped with looms of the latest construction, which have been in operation only a few years, will manifestly have an entirely different repair account from that of a mill with looms anywhere from twenty to fifty years old. Not only will the efficiency, and therefore the resultant labor cost per unit of product, be different in the two mills, but the actual expenses incurred for repairs will be vastly greater in one case as compared with the other. Repairs may vary greatly from year to year. A new plant may go on for a number of years incurring only a slight expense for repairs which makes up for the preceding years. An older mill, after running for several years, may spend a considerable amount of money on overhauling the mill, charging the expense to repairs for that year, and, as a result of this, run for several years after that at a small expense. It would be purely a matter of accident for the investigation of the board to cover either the one or the other year, yet neither the heavy expense for repairs during the one year nor the very light expense during the intervening years would be a fair figure to be charged to the repair account.

To arrive at an accurate estimate of the repair account would have required taking the repairs for several years and then averaging the amount. This could not be done without a care

ful audit of every item of expense to separate the expenses properly chargeable to repairs from those incurred for plant additions and betterments. With the limited time at the disposal of the board such a procedure was out of the question. The only way out of the difficulty was, therefore, to arrive at a normal rate for depreciation and repairs, based upon the experience of leading engineers engaged in the erection of textile plants and the installation of textile machinery. After a consultation with such engineers and a leading appraisal company in the United States, which has appraised a large number of textile plants both in the cotton and woolen industries at different stages in the lives of the plants, it was found that a fair normal rate to be allowed for cotton-manufacturing plants for depreciation and repairs would be 212 per cent. on buildings and 5 per cent. on machinery and equipment, and this rate was uniformly charged for all plants. In apportioning the total allowance between repairs and depreciation, the repair expense actually incurred during the year under investigation was deducted from the amount equal to 5 per cent. on the value of the machinery and 22 per cent. on buildings, and the difference thus obtained was allowed for depreciation. It should be noted that in any case the element of depreciation is a very small factor in the cost of production per unit of product.

CAPITALIZATION AND URBAN LAND VALUES

[FROM the Principles of City Land Values, by R. M. Hurd, cited above on the subject of rents, are taken the following cogent expressions of broad experience on the subject of capitalization.]

Capitalization rate [page 129]. With an established economic rent, the sole remaining factor to transform this into intrinsic value is the rate of capitalization. As capitalization rates vary with securities, Government bonds selling below a 2 per cent. basis, railroad bonds and stocks on a 32 to 5 per cent. basis, and industrials on a 7 to 10 per cent. basis, so the rates of capitalization of urban rents vary from 4 per cent. for the highest class of property in the largest cities, to 5 and 6 per cent. for second-class property in the same cities, or for first-class property in smaller cities, 7, 8 and 10 per cent. for tenements in the largest cities, and 12 to 15 per cent. for temporary utilization or disreputable purposes in the smaller cities. The great power of capitalization rates on values is due to the fact that for every change of 1 per cent. in the rate of capitalization, values may change from twelve to twenty-five times the difference in interest. For example, a property with a net income of $10,000 would sell on an 8 per cent. basis at $125,000, on a 6 per cent. basis at $166,000, and on a 4 per cent. basis at $250,000. The lower the capitalization rate the greater the effect of any changes of values: For example, a fall from 8 to 7 per cent. adds but 14 per cent. to the value of the property, while a fall from 5 to 4 per cent. adds 25 per cent. to the value of the property. Moreover, as low interest rates apply to the

1 ["Intrinsic value," a term with a good many troublous implications, may be here understood as valuation, or capitalization.-ED.]