FOREST STATICS BALANCE SHEET PROFITS 109 



S v increases in value with every change in prospective in- 

 come or expenses which alters the net value of this income, 

 and is much larger for soils of good than poor quality. But 

 there is evidently no profit in devoting to forestry lands which 

 will sell for other purposes for a sum larger than S v . 



In countries where forestry is extensively practiced on lands 

 owned by states, or on private estates which have practically 

 never changed hands, there is no way of determining the cost 

 of land. The value of the soil, S v , is calculated for the pur- 

 poses of taxation and as a necessary step in valuing growing 

 timber. This value may be recalculated at any time. It is 

 evident that the soil value may always be placed at a figure 

 which will permit the investment to earn exactly the rate of inter- 

 est agreed upon as the standard for forest investments. And 

 in practice, if during the crop period it becomes evident through 

 price changes or other influences that the investment, with its 

 former soil value, will earn more than p per cent, this value 

 is promptly raised, and the rate of earnings is thus arbitrarily 

 reduced to p per cent once more. The real status of the in- 

 vestment is thus concealed in the capitalized value of the soil. 

 Applied practically to a private operation, this process would 

 consist of entering the land in the capital account as an asset 

 having a value in excess of its cost. If this value were made 

 great enough, the investment never could earn more than p per 

 cent upon said value. But figured on the original cost, a much 

 greater rate of profit may be shown. This practice of capital- 

 izing income as soil value is universal in European forest finance, 

 and the profits of forestry, standardized to p per cent, may be 

 discovered only by comparing the values of land computed for 

 different sites and species, and by a knowledge of past changes in 

 these soil values. 



If S, equals S c , it may be substituted for S c in Formulae A, 

 AI and A 2 . This is done under the conditions just discussed, 

 where S c is not determinable. The effect of this substitution 

 is to make the computed cost of timber in any year of the rota- 

 tion just equal to its expectation value in that year, and to 

 reduce profit, outside of soil value, to zero. 



