VALUATION OF ASSETS 43 



occur between the relative values of future and present income. 

 An increase in this rate, or measure, increases the difference in 

 values due to this time element. The greater this difference, the 

 smaller will be all capital values. A permanent doubling of the 

 rates of interest would diminish the value of productive capital 

 to one-half its former worth. This premise is based on the eco- 

 nomic facts discussed in Articles 60 to 64, which refer value 

 directly to future income. High rates of interest indicate risk, 

 unsettled conditions and instability of character, and are thus 

 directly related to influences tending to depress property values. 

 Low rates of interest correspondingly raise the capital value of 

 property, by diminishing the loss or discount necessary in arriv- 

 ing at the present value of the future income. 



67. Uncertainty of Capital Value. The premise that value 

 is based wholly on future net income is sometimes questioned, 

 because of the uncertainty which surrounds every element of 

 future occurrence. The determination of value on this basis, 

 by mathematical deductions, is a guess, to the extent that these 

 future elements are subject to change. Yet every sale of prop- 

 erty is the result of a guessing contest as to these future ele- 

 ments, rather than a calculation of past costs. As two minds are 

 better than one and as the guess is made the basis of an actual 

 exchange of property, a sale as soon as it is effected becomes a 

 new indicator or basis for the next guess. The uncertainty of 

 future values is identical in nature with other risks incurred in 

 business and adds the element of chance which becomes the basis 

 for practically all forms of speculation. The difference between 

 "legitimate" and "speculative" value lies merely in the degree 

 of uncertainty surrounding the future conditions upon which the 

 guess as to present value is based. The value of bonds fluctu- 

 ates but slightly and then only because of changes in the "rate of 

 interest," for the income is fixed and secure and the price or 

 value of the bond is easily calculated mathematically by use of 

 the desired rate of interest in discounting this income. By 

 contrast, the uncertainty and fluctuation in the value of indus- 

 trial stocks is due to a corresponding uncertainty regarding 

 future dividends. 



