court or commission, weighing the conditions affecting each particular case. Whatever relative weight may be given to these sets of figures, each set should be capable of determination along well established, logical and proper lines, lines which have been defined so well that no controversy need arise as to the reliability of the figures presented. 5. Figures to be presented as indicating possible present value. Authority for the presentation of these diverse figures has been given by many rulings of the Courts of the United States. This is defined most clearly in a decision of Mr. Justice Harlan in a case relative to the reasonableness of rates: "If a railroad corporation has bonded its property for an amount that exceeds its fair value, or if its capitalization is largely fictitious, it may not impose upon the public the burden of such increased rates as may be required for the purpose of realizing profits upon such excessive valuation or fictitious capitalization; and the apparent value of the property and franchises used by the corporation, as represented by its stocks, bonds and obligations, is not alone to be considered when determining the rates that may be reasonably charged. . . We hold, however, that the basis of all calculations as to the reasonableness of rates to be charged by a corporation maintaining a highway under legislative sanction must be the fair value of the property being used by it for the convenience of the public. And in order to ascertain that value, the original cost of construction, the amount expended in permanent improvements, the amount and market value of its bonds and stock, the present as compared with the original cost of construction, the probable earning capacity of the property under particular rates prescribed by statute, and the sum required to meet operating expenses, are all matters for consideration, and are to be given such weight as may be just and right in each We do not say that there may not be other matters to be regarded in estimating the value of the property. What the company is entitled to ask is a fair return upon the value of that which it employs for the public convenience. On the case. other hand, what the public is entitled to demand is that no more be exacted from it for the use of a public highway than the services rendered by it are reasonably worth."1 The figures, therefore, which should be presented to the court or commission in order that it may determine the true present value judicially with "sound and well instructed judgment" are, — 1. Figures showing the original cost of the entire property used and useful to the public at the time of appraisal. 2. Figures showing the cost new at the present time of the same property, i.e., the cost new of reproduction or the replacement cost. 3. Figures showing the loss in value of the investment in the property arising from its years of service, i.e., the depreciation. 4. Figures showing the amount and market value of its bonds and stocks. 5. Figures showing the commercial or capitalized value of the business of the undertaking based upon present as well as possible future earnings, i.e., the probable gross earnings less present or possible future operating expenses. 6. The reasonable worth of the service rendered to the public, i.e., to the consumers or users. 6. Original cost. The original cost is the actual amount of money expended by the undertaking for the property then in use for the convenience of the public. The original cost of the plant is not necessarily what was paid for portions first constructed. If the plant has been extended, the original cost includes the cost of such extensions. It may be that the original plant has been replaced in whole or in part. If such replacements have neither increased nor decreased the value of the plant, then the original cost still holds. If the replacement 1 Smyth v. Ames, 169 U. S. 546, (1898). has cost more than was paid for the plant that is replaced, then a virtual extension of the plant has been made and the total original cost must be enhanced. If the plant has been rebuilt for less than it cost originally, then the total original cost must be reduced. 7. Replacement cost. Mr. Justice Harlan ruled that the "present cost" of construction should be determined so that it can be compared with the original cost. Replacement cost is such "present cost," and may be defined as that amount of money which would have to be expended at the present time to bring into existence a property identical with that of the undertaking being appraised. It must be obtained by an inventory of all of the property of the undertaking and by a valuation of such property based upon complete and carefully developed units of cost. 8. Depreciation. - Depreciation is the loss in value which has occurred arising from the period during which the property of the undertaking has been in service. It must be recognized that depreciation applies only to such of the units of the property as suffer a loss in value due to the years of service and, consequently, is applicable principally to the plant units, but many plant units suffer no depreciation and, in consequence, the method of presenting the values of the elements of property must be such that the factors of depreciation can be properly applied. 9. Market value of bonds and stocks. This method of valuation is known as the "stock and bond method" and consists in obtaining the present value of the commercial property of an undertaking by multiplying the par value of outstanding corporate liabilities by their market quotations. "The method of valuing railway properties on the basis of the market quotations of their stocks and bonds is regarded by many as the most defensible of all methods, for the reason that the price of railway securities established on the stock exchanges is the resultant of a combination of the greatest possible number of judgments. Thousands of men are constantly endeavoring to surpass one another in the fullness and accuracy of their knowledge of the value determining factors affecting any given security and to turn their superior knowledge into profits. The inevitable outcome of this process is the establishment of a list of prices which represents the crystallization of the best judgment respecting the value of property; and when these prices are determined" with care "over long periods of time, . . . no objection can reasonably be made against their use on the ground of their speculative character." 1 This method unquestionably affords an excellent basis for comparison with the present values as determined from original cost or replacement cost, but it must be recognized clearly that a commercial value as thus obtained must presuppose the probable continuance of existing rates for the utility sold. 10. Capitalization of earnings.-This method of determining the present commercial value of the property of an undertaking consists in capitalizing the net income of the undertaking after deducting operating expenses, depreciation, and taxes, from the gross revenue. This method presents two difficulties, the elimination from operating expenses of the cost of permanent improvements which may have been charged to this account rather than to the capital account, and the determination of a proper rate of capitalization. Attention should be called also to the fact that in this method, as in that just described, the income of the undertaking is dependent upon the rates charged for the utility sold. 11. Worth of service to the consumer. Fundamentally the worth of a service to a consumer is what it would cost him, when working co-operatively with other users 1 U. S. Census Bulletin 21, p. 19. of the same utility, to provide the same service, taking into consideration that, by obtaining service from an undertaking rather than from a plant built and operated with his and his associates' money, he is relieved from all annoyance, responsibility and risk. It is not a figure intended to show what it might cost individual users to provide a similar service for themselves individually, but when acting as a community. It is not a value capable of determination by comparison with the cost of the same character of utility furnished in other communities. Nor is it necessarily based upon what it would cost to obtain the same result by the use of another utility, as, for example, the relative cost of obtaining the same amount of light from gas when the worth of that light obtained from electricity was involved. 12. Cost and value. — The object of a valuation is to obtain the true present value of a property, or, stated more accurately, to obtain the value at a particular date which would be fair and just to all concerned under all the conditions prevailing in that special and particular case. It is to be noted, however, that the first two of the above sets of figures are costs, original cost and replacement cost, not values, whereas the three last sets of figures are values. The original cost and the replacement cost must be translated into values in some way, in order that they may be comparable with the others and, consequently, be of service to the court or commission whose duty it is to weigh all the figures presented as representative of value, and from them assign that value which is fair under all of the conditions of the case. Value is indicative of a desire on the part of someone who does not possess an object and who cannot acquire it without parting with something that he has in exchange for it. It is the difference in desire, measured |