IV. RELATION OF CAPITAL AND 

 INCOME IN FORESTRY 



A. NATURE OF INCOME AND PROFIT IN FORESTRY. 



I. General notion of profit. 



a. If an article for a store is bought at one dollar and sold at a 

 dollar and a quarter there is twenty-five cents profit, or the profit is 



25%. 



b. If a house, bought at $1,000, is sold within two months at 

 $1,200, the profit is $200, or 20%. 



c. An office building in a small town cost $150,000, there is 

 little demand for this and the income after paying taxes, running 

 expenses and upkeep is about $3,000 per year. There is this net in- 

 come but no one considers the building a profitable one. To the 

 contrary it is well known as a "losing proposition." Savings banks 

 and the best commercial papers would pay twice this income. In 

 figuring the loss it is asumed that the capital of $150,000 should 

 have been invested at 4%, the income therfore, $6,000, that the 

 yearly loss is $3,000, or 2% on the money ; and if the building had 

 to be sold this would mean a total loss of $75,000. We have income 

 here but certainly no profit. 



d. A house is bought at $1,000 and current rate of interest 

 is 5%, the true net income from this house is $80 per year. Evident- 

 ly the new owner makes 8% on his money and the house nets him 

 3% more than the current interest rate. In this case there is a 

 profit, even though the owner does not sell, and this profit is 3% and 

 not 8%. In this way the net income from the house divides itself 

 into two parts, a reasonable regular income on the capital invested, 

 i. e., the 5% on the $1,000, and a 3% profit. 



Since on this point authors vary, some putting the net income 

 as synonymous or at least interchangeable with profit, the position 

 taken in these discussions is here stated. 



e. A farm is bought at $5,000, the new owner borrows $2,000 

 additional at 5% as a working capital to buy teams, tools, etc. He 

 produces a net income of $700 or 10% on all the money put into the 

 enterprise. He pays his creditor $100 yearly interest and retains 

 $600. This $600 makes 12% on the farmer's own money so that he 

 has his regular 5% income and 7% profit in this business. But even 



