A NATIONAL PLAN FOR AMERICAN FORESTRY 1633 



any other business, and is subject to the same general system of finance 

 and accounting. Disbursements are either current expenditures or 

 capital investment, depending on whether they are a part of carrying 

 on every-day productive business or are a means of increasing the 

 capital assets. For example, the costs of fire protection, of logging 

 and milling, of repairs and maintenance, are current expenditures. 

 The costs of planting vacant land, of a new road, of the purchase of 

 additional land, or of constructing a planing mill represent additions 

 to assets and as such are capital investments. Capital expenses add 

 to the value of the business, so that it will thereafter become more 

 productive and will eventually return the added investment with 

 interest and a profit. Current expenses are recovered out of current 

 income as a part of the cost of the goods sold. This leads to the uni- 

 versal business practice, once a project is organized and on a produc- 

 ing basis, of meeting current costs out of current income and of con- 

 sidering capital expenditures as investments to be met from surplus 

 set aside from profits or from borrowed money. 



FINANCING OF CAPITAL EXPENDITURES 

 FEDERAL GOVERNMENT 



An analysis of the Federal Government's estimated part of the cost 

 of this program divided between average annual current and capital 

 expenditures for four 5-year periods, has been given in table 7. 



There is no doubt of the soundness of the principle of financing 

 current expenses from Treasury income by annual appropriation of 

 funds. This has always been the practice in governmental business 

 as well as in corporation financing. The Government, however, has 

 generally also financed capital expenditures in the same manner, 

 without distinguishing them in any way either in appropriations or in 

 later accounting. This is, of course, good practice so long as the 

 funds to be raised are within the annual Treasury income. But when 

 strict adherence to this concept leads to the abandonment or curtail- 

 ing of desirable going projects, because of a slump in Treasury income ; 

 or when increased expenditures for investment in needed improve- 

 ment or facilities that beyond the immediate capacity of Treasury 

 income must be indefinitely delayed; then it is time to consider the 

 use of borrowed capital. 



The Federal program involves the purchase of 134 million acres of 

 forest land in the next 20 years, the planting of a part of this land, 

 and the construction of roads and trails, fire-lookout towers, telephone 

 lines, houses and other improvements at an average annual capital 

 cost for the first 10 years of around 63 million dollars and for a second 

 10-year period of around 31 million dollars. Both the main financial 

 and intangible returns from this investment will accrue to a following 

 generation of Americans who will harvest the forest crop now being 

 started. The major money income from the investment will thus 

 commence to materialize in from 20 to 40 years after initiation and 

 will reach its maximum in from 50 to 80 years, depending upon the 

 section of the country involved. 



This suggests that money might be borrowed for a term of years 

 corresponding to the average financial rotation of the forests, that is, 

 the period of growth up to the time when it is most profitable to cut 



