THE PRESENT CONDITIONS IN THE LUMBER INDUSTRY 391 



almost constant loss on operation. Yet these same mills have increased 

 the book charge for their stumpage despite the fact that the milling 

 operation continues to show a net loss. This practice is an economic 

 curiosity. Suppose, for example, that the average price of lumber at 

 the mill is $14 per thousand feet ; that the total labor expended in its 

 manufacture cost, including all salaries, $8 ; the mechanical equip- 

 ment, machinery, steel ropes and saws, say, $2 ; wear and tear on the 

 plant, $1 ; interest on the operating investment, $1 ; making a total cost 

 as thus computed of $12 per thousand feet, and leaving, therefore, only 

 $2 to be paid for the stumpage. Suppose, again, that this price con- 

 tinued at $14 per thousand feet over a long period of time and the costs 

 likewise as enumerated, would it be correct at the end of ten years to 

 say that the stumpage is worth $4 because "the value of timber should 

 double every ten years," and, therefore, charge it to manufacture at 

 that figure ? I believe that that is essentially what many southern pine 

 operators are doing today, and what they have been doing in substance 

 since the time of the general fall in lumber prices in 1907 and 1908. 

 What this method of stumpage valuation and accounting has resulted 

 in is this : 



First. Substantially stealing the capital assets of the stockholders 

 by failing to charge depreciation enough to retire the investment and 

 treating as a net return what are really only liquidating assets. 



Second. Stealing from the operating profit account in order to 

 pad the stumpage profits. Where the owner of the timber and the 

 manufacturer are the same person or corporation, as is usually the case 

 in the South, this fact has generally escaped notice. The stockholder, 

 as a rule, knows but little and cares less whether his return comes from 

 stumpage ownership or from operation. This practice is important, 

 also, since the maintenance of a stumpage capitalization that is not 

 earned is a vigorous invitation to the relative overassessment of timber 

 for purposes of taxation. 



Bonding of Timber 



In the third place, I desire to call your attention to the more patent 

 effects of the bonding of standing timber on a large scale, to which 

 reference has been made. This practice was initiated in the South 

 about the year 1900, and became generally prevalent as an aid to timber 

 speculation in the West about 1905 or 1906. These timber bonds were 

 regularly 10-year or 15-year serial bonds, paying from 6 to 8 



