1 62 THE POPULAR SCIENCE MONTHLY 



of his obligation to the producer by an equal amount. Thus is our pre- 

 vious conclusion supported. 



In the course of this discussion, the expressions "fair rate" and 

 " fair return " have been repeatedly used. These terms need no explana- 

 tion for the ordinary reader of the subject, but the ethical principle 

 applied throughout this paper has its effect in establishing the character 

 of a " fair return," and to this we may now apply ourselves. 



We have seen that the user is the residual investor, he appears to get 

 the small end, he has no personal voice in the management of his part of 

 the utility properties. These circumstances are directly attendant on the 

 nature of the contributions made by the user. These are in large part 

 community values that have cost the user nothing directly in money, or 

 else they are made in small amounts from time to time, and at least a 

 portion of such small, continuous and numerous contributions go to 

 purchase some immediate return. This position as residual investor 

 means that the " fair rate " to the user is adjusted, with many attending 

 conditions, to provide a "fair return." The community undertakes to 

 guarantee, in some measure, the safety of the producer's investment. 

 This party is protected against depreciation or deficit, and always against 

 the effects of competition. The regulations under which the mutual 

 arrangements exist have a legal status — are a part of the law of the land. 

 Here, then, we have a condition free from large risks. In the develop- 

 ment period, returns may be delayed ; but the producer is assured that he 

 will not lose, that all such withholdings will be made up to him and be- 

 come a basis of continual " fair return." This statement of the case at 

 once disposes of the contention that a "fair return" should be above 

 ordinary interest rates. In fact, the beam is depressed on the side of a 

 lower return than customary in private transactions. Certainly a " fair 

 return " should never be greater than that expected from a permanent or 

 long term investment in a property free from unusual risks. 



Finally, we are ready to discuss profits. Many writers hold that in 

 addition to a reasonable interest on the fund invested, the fair return 

 should include profits. The unusual foresight of promoters, the great 

 ability of managers, the doubts and dangers of loss in early days, are all 

 recited as reasons why profits should be allowed. But, sticking strictly 

 to our last, and recognizing the principle here stated in connection with 

 valuation for rate making, we find that the foresight of the promoters 

 has been paid for in proper underwriting and promoting charges, the 

 doubts and dangers of loss have been removed when the user assumes the 

 responsibility of providing for absolute maintenance, and the ability of 

 the managing ofiicials has been rewarded in the usual manner and met 

 as a part of operating charges. The producer, in his personified aggre- 

 gate, is, to be sure, fewer in number than the user in his personified 

 aggregate. But, nevertheless, the producer is not a personality, and 



