ETHICAL PRINCIPLE IN PHYSICAL VALUATION 15? 



some checks. "We know that the ordinary commission on stock transac- 

 tions is one eighth of one per cent. Six per cent, is considered a fair 

 return on investments free from unusual risk. Here, then, are upper 

 and lower limits that may be considered reasonable for underwriting and 

 promoting. The excessive commissions occasionally taken in promoting 

 industrials are certainly unwarranted and should no longer be allowed. 

 In valuating past performances of this kind, and allowing for due risks 

 in the original scheme, it is doubtful if a greater promotion charge 

 should be recognized than would be just and fair to-day. The fairness of 

 this will further appear when we consider deficits and their place in valu- 

 ation for rate-making purposes. 



There is little or no dispute oVer the valuation of large single ele- 

 ments of the properties until we come to land. Here we meet the first 

 troublesome detail of the subject. The question of land values has 

 puzzled almost every commission to whom has been assigned the physical 

 valuation of utilities. The chief point in dispute is the place of unearned 

 increment. There is no doubt that the actual cost to the company of the 

 land that had to be taken should be allowed. If the cost is a matter of 

 record, it should be taken. This cost should include the necessary sever- 

 ance, damage, transfer and legal charges connected with taking the land. 

 In most cases the records do not exist, and an approximation is resorted 

 to involving the use of a factor to be applied to the present market price 

 of adjacent land. In any case, however, the principle to be followed pre- 

 scribes that the actual net cost of acquiring the land at the time it was 

 purchased shall be approximated as nearly as may be. To this nothing 

 should be added to represent the increased value since acquisition. This 

 statement is most vigorously combatted by some, but its justice and 

 fairness will, I believe, be made apparent. 



The principal argument to support the inclusion of the unearned in- 

 crement is that the public service corporation should not be denied 

 advantages that flow to all the surrounding land holders. If a valuation 

 were being made for sale, taxation or rental purposes, the inclusion of 

 the increment would be right. But a valuation for rate making should 

 not include it. In the first place, it is only a potential value. A home- 

 steader can not live on his land, develop and use it, and at the same 

 time realize a return on its unearned increment. He has to sell or rent 

 to secure the advantage of it. If a utilities corporation chooses to rent 

 or sell, it doubtless is entitled to take advantage of the unearned incre- 

 ment, if it can find a purchaser on such terms. Further, the unearned 

 increment of the land does not represent an investment of the producer 

 but of the user. The increment arises from the development of the land 

 contributory to the railroad. It is greatest in sections where the develop- 

 ment is greatest. It is in essence a contribution of the community. The 

 community is nothing more nor less than the user in an aggregated 



