MICHIGAN ACADEMY OP" SCIENCE. 27 



service rendered or it may not. In this case the value of the water 

 furnished the city exceeded the payment received from the city 

 by 17,950.90, Mhich however is not obtainable from the statement 

 as furnished but was establislied by independent investipition. 

 When a city operates a utility, that utility should be individual- 

 ized. The stockholders of a corporation are not the corporation 

 and the city is not the water department. The city's relation is 

 that of owner and mana£»er. It is not necessary that the city 

 actually pay over the cash to the water department only to receive 

 it back later in the form of profits but it is necessary that the 

 water department be given credit on its books for the value of all 

 services furnished by it. If water furnished to the city is not 

 charged for at its correct value, we make two errors — first, that 

 the expenses of the water department appear a much larger per- 

 centage of the revenue than they really are, and second, that the 

 expenses of running other departments of the city appear much 

 smaller than they are. The grocer who takes home groceries ought 

 not to regard them as an expense or cost of his sales but as a 

 withdrawal of his profits. So here, water taken by the city and 

 not paid for is an additional revenue, the mone}^ for which never 

 actually changes hands. The total revenue under the assumption 

 made consists of water rates, total value of water furnished the 

 city, plumbers' licenses and miscellaneous totaling |132,337.65. 



Are the cash payment equal to the cost of furnishing the Avater? 

 The first item is Bonds Paid, 125,700. This is not a cost of this 

 l)eriod. True you have that much less cash but you have also 

 freed your property from debt so you are no poorer. No 

 one ever grew poor by paying his debts. If the people have paid 

 all their debts of |550,000, the first year the plant was in operation 

 that would not have made the cost of furnishing the water that 

 year $550,000 more than it otherwise would have been for although 

 tliey have parted with that much cash they now own their ])lant. 

 It is simply a purchase or exchange in which you give up cash to 

 obtain a greater equity in the business. The cost of operating is 

 not increased thereby. Interest on bonds is evidently a different 

 kind of item than salaries, fuel, etc. These last are operating 

 charges and the man who is responsible for their size is the operat- 

 ing official, but interest on bonds is a financial charge and the 

 amount of it is dependent not upon the operating officials but upon 

 the decision of the citizens themselves; they have decided to borrow 

 the money to buy the plant instead of contril)uting it themselves. 

 We will leave it out for the moment. Extensions and improve- 



