34 JOURNAL OF FORESTRY 



Heretofore, in America, we have depended solely on the first for 

 return on timber investments. The question is, can we expect this 

 element alone to yield a satisfactory return in the future or will it 

 be necessary to get two returns from the forest — one a current return from 

 the growth, the other the increase in value of the property as a whole, which 

 takes place as stumpage values increase in a forest under management 

 just the same as they do in one held only for the purpose of increase in 

 value? 

 Theory of Speculation in Natural Resources 



In the past, vast fortunes have been made in America by buying in 

 natural resources when they were cheap and holding without making 

 any use of them until they had increased in price. Standing timber 

 is only one example of a natural resource used in this way. The question 

 is, can large returns be secured in this manner in the future? The 

 evidence is against this assumption. The problem is, in fact, one of 

 simple mathematics. In order to yield a satisfactory interest return 

 by increases in value these increases must be at a geometric rate more rapid 

 than the compound interest rate under which the investor is willing to work. 

 This is true because there are constant charges for taxes and other 

 expenses which must be met. The annual rate of increase must con- 

 tinually become greater as the value becomes greater. But, in fact, 

 nothing of the sort ordinarily occurs. Increases in value go on at an 

 arithmetic rate which at first makes a satisfactory return on the invest- 

 ment, but later does not. To take timber, as an example, statistical 

 inquiries in the Pacific Northwest show that during the 25 years preced- 

 ing 1916, stumpage values increased at an average rate of about 10 

 cents per M feet per annum. ^ There is no evidence to show that 

 they are increasing faster now. On the contrary, there is reason on 

 the part of owners to fear that they will not increase so rapidly or 

 may for some time remain stationary. But even assuming they con- 

 tinue to increase at the same rate as in the past they will not give a 

 satisfactory interest return in future . 



Table 1 is designed to show approximately what these increases 

 have meant in interest returns in the past and what they will mean in 

 the future if the rate of increase continues. This rate, it should be 

 stated, did not move forward smoothly throughout the period involved 

 but rapidly at some periods and slowly at others but the averages must 

 be much as shown in the table. 



*See Forest Club Annual, University of Wesleyan, 1916. 



