44 FOREST VALUATION 



68. Independence of Capital Value and Past Outlay or Cost. 



It is essential to thoroughly establish the idea of this inde- 

 pendence of capital or expectation value from all elements of 

 past cost. It cannot be said that past costs are without in- 

 fluence on value. In most cases they have been the direct means 

 of creating this value. This leads to the erroneous conclusion 

 that such costs are identical with value or are value. The 

 fallacy of this idea is easily shown. Cost is an individual outlay. 

 Value is the product of social conditions. Costs are undertaken 

 in order to obtain value and, when contrasted, are negative 

 where value is positive. 



To illustrate: Two parcels of land are acquired and cleared 

 at an expense in each instance of $25 per acre. One tract 

 has such poor soil that it will raise nothing of value and cannot 

 be sold for $5 per acre. The other is suitable for truck gar- 

 dening and eventually sells for $500 per acre. Such variations 

 in value, entirely independent of cost, may be caused by differ- 

 ences in location or by the development of new crops or new 

 markets. All such fluctuations are due directly to the prospects 

 for future income. 



The true relation between cost and value is that between a 

 means and an end. The cost is assumed for the purpose of 

 obtaining income and the value is derived from the prospect 

 of this income. If the outlay has been effectual in insuring 

 the future income the rise in value will follow. If the outlay 

 is ineffectual for any cause, chiefly through errors of judgment 

 or through incompetence, there will be no corresponding increase 

 in value. On the other hand, value will increase and decrease 

 from social and economic causes not even remotely associated 

 with the owner's outlay. For these reasons it must be accepted 

 that past cost or outlay, while it may furnish useful information 

 for the calculation of value, does not determine value. 



69. Effect of Capital Value on Sale Value. Sale value 

 depends directly upon the demonstrated ability of property 

 to earn income. Whenever this earning capacity is uncer- 

 tain, especially if it appears probable that it may increase in the 

 future, sale values move in response to the guesses of those 



