BUSINESS RATE OF INTEREST AND RATE 



MADE BY THE FOREST 



By Filibert Roth^ 



With more extended application of forest valuation in the 

 United States, there comes more and more the desirability, if not 

 necessity, for a decision and agreement concerning the manage- 

 ment rate or demanded business rate of interest ( IVirtschaftszins- 

 fuss of the German authors). This is not a current rate, but one 

 that is chosen by the business manager as suitable to the char- 

 acter of the particular business, a rate with which the business 

 manager is satisfied, and which he demands or at least attempts 

 to secure from the business, with which he calculates his busi- 

 ness results. 



That such an assumed rate of interest is necessary, not only in 

 forestry, but also in farming, railroading or any other business, 

 is evident. Whenever the question is asked : "Does the farm 

 pay?" there follows the second question: "What is the measure 

 of pay?" or at what per cent must it pay to deserve being called 

 a paying farm. That this per cent is set arbitrarily is clear, and 

 yet there are limitations. If a rate of 20 per cent were used in the 

 studies of farm economics now being made by the Department 

 of Agriculture and by some of our Agricultural Experiment Sta- 

 tions, it is evident that all farming would appear in a very "blue" 

 light. Since good farms in Indiana, Iowa and Illinois pay about 

 o per cent on their sale value, the price of even the best farm- 

 lands would seem unreasonable, and the whole business a poor, 

 losing affair. This would have no effect on the corn, but it would 

 have a bad psychological effect on the people, and it also would 

 make all the calculations seem more or less absurd, for after all, 

 everybody knows that farming is a good and necessary business 

 and supports a large part of our people. There is evidence that 

 even today with the usual rates of 5 or 6 per cent on money 

 capital, and the growing demand that every business should pay, 

 there is some of this psychological effect at work, and a part of 

 it finds expression in the migration to the city. 



It is usually argued that this demanded business rate should 

 be at least the "current" rate, and much debating on this point 

 is still going on, both here and abroad. But this current rate, 



^Professor of Forestry, University of Michigan. 



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