146 FOREST VALUATION 



continuous annual income without diminishing the value of the 

 capital, has an actual capital or property value which includes 

 the entire value of all standing timber. The annual net cash 

 income from this forest represents interest on this entire forest 

 value, and is termed forest rent. As this income cancels annual 

 expenses, compound interest on the forest as a whole has no 

 chance to accumulate. The point of view which regards the 

 forest, including timber, as capital, and does not deduct com- 

 pound interest on costs but treats the entire forest as a business 

 capable of producing annual net returns, is termed the theory of 

 forest rent. 



The latter conception more nearly approximates the attitude 

 of investors in American forest property. Yet both the con- 

 ditions and the thoughts of investors occupy a position midway 

 between the extremes of soil rent and forest rent. Timber is 

 almost universally acquired in the form of native or virgin 

 stands, already grown, and is purchased as capital. The entire 

 business, rather than the stand, or parcel, is the basis of annual 

 income, if such income is secured. The source of this income 

 is largely the increase in value of the timber, rather by price 

 increment than through growth, and in the realization of this 

 income the capital itself is liquidated ( 132). The operation 

 thus resembles a speculation similar to the holding of unim- 

 proved real estate, rather than a productive business as contem- 

 plated by the idea of forest rent. Under such conditions, the 

 distinction between capital and income cannot be co-ordinated 

 with the physical distinction between wood and soil, or between 

 wood capital and wood increment. It is a mere matter of book- 

 keeping based on cash investments and cash returns. 



157. The Problem of Interest in Forest Taxation. But the 

 problem of interest appears in such investments in the form 

 presented by the distinction between the theories of soil rent 

 and forest rent (35). When the investment as a whole pro- 

 duces no annual income for a period of years, unearned interest 

 on the annual expenses accumulates and this time element affects 

 both final "cost" and capital value of the property. 



The capital value of a forest which will produce a sustained 



