SHALI. WE CAPITALIZE OUR FORESTS? 331 



depreciation may be saved for the business. In other words, he seems 

 to think that the forest can be put under permanent forest manage- 

 ment cheaper than the original capital can be maintained by deprecia- 

 tion allowances. This point remains to be proved, at least for our 

 eastern conditions. 



The first method suggested is a thorough-going investment method 

 by which the future forest is fully capitalized, and is the method 

 referred to in the previous article as the "investment method." The 

 second and third methods correspond very closely to the method of 

 allowing for replacements in a manufacturing plant, and from an 

 accounting point of view, are in the truest sense replacements. At 

 the same time they are also investment methods, for the reserves used 

 are reserves of the original capital which have been reinvested. 

 Whether the forests raised under these plans will be fully capitalized 

 or not depends on whether the taxes, cost of protection, and carrying 

 charges are charged to capital accounts or to the cost of production. 

 There is still a fourth method which is being used. 



4. By making allowance for all the forms of depreciation outlined 

 above and also charging the cost of forming and carrying the new 

 forest to the cost of production. This method is "neither fish nor fowl 

 nor good red herrin." It is not a good straight investment for the 

 expense is not charged to capital accounts, and thus, no new capital 

 liabilities are necessary because of the expense. Neither can it be 

 properly called a replacement for no previously invested capital is 

 being replaced. If the business is operating under free competition, 

 it results in the using of funds which should be divided among the 

 stockholders or proprietors, and in an under capitalization of the 

 business. It is an investment, resulting in the capitalization of the 

 forest, in that these funds, had they been divided, might have been 

 legitimately reinvested. It is a replacement only in the sense that any 

 method which replaces the forest resource is a replacement. 



In actual practice this method may be the result of indirect, dishonest 

 methods of financing or the lack of well-defined policies on the part 

 of the company concerned, or a concession to a public sentiment which 

 demands forests but will not make it possible for private capital to 

 grow them safely and legitimately. 



In spite of the fact that this method seems to have little to commend 

 it, a modification of it may be the only method of carrying out the 

 desires of the jjublic in regard to the future forest, and the funda- 



