578 MISC. PUBLICATION 218, U. S. DEPT. OF AGRICULTURE 
dened by expected future costs is less than it would be, if not so bur- 
dened, by the present worth of the series of expected costs. As each 
cost is paid, the capital is to that extent relieved of its obligation and 
rises in value accordingly. For example, if a $10 tax is due on June 1, 
a purchaser would be willing to give $10 more for the property, accom- 
panied by a tax receipt, on June 2 than he would on May 31. Thus 
as time goes on, the value tends to rise on account of the progressive 
liquidation of expected obligations. 
This principle may be stated in slightly different form, by noting 
that each annual cost payment 1s a fresh investment of capital. No 
one would purchase any capital instrument carrying the obigation 
to pay costs unless he expected its future income to be sufficient to 
reimburse him for his future annual investments in costs. The present 
worth of the capital is thus reduced by the present worth of the future 
investments that must be made in costs. And, as each cost payment 
is made, the value of the capital rises. Thus as time goes on, the 
value tends to rise on account of the increasing investment represented 
by cost payments. 5 
The analysis thus far has dealt with future events which are 
expected. Future events which are not expected can obviously not be 
capitalized and do not influence present value. They are for the 
present nonexistent. As regards their effect on value these unexpected 
events are of two sorts. First are those which will cause a revision of 
the expected incomes and costs. Examples of such events in the 
field of forestry are the discovery of mineral values, a fire loss, an 
unexpected rise in stumpage prices which will probably affect future 
income, and an unexpected rise in wage rates or in the tax rate which 
will probably affect future wage and tax payments. These events are 
completely unanticipated and therefore can have no influence on the 
capital until they occur. They then produce their effects on value 
once and for all by increasing or decreasing the expected incomes or 
costs, which are then capitalized to give a revised capital value. 
The second class of unexpected future events consists of those which give all at 
once an unexpected income or require all at once an unexpected cost. For 
example, a power company might require and pay for a right of way for a trans- 
mission line, or the breaking of a dam on the property might occasion loss on 
neighboring property for which damages would have to bepaid. Suchaneventcan 
have no effect on the value of the capital either before or after the event. It 
could not have affected the value before it occurred, since it was entirely unfore- 
seen. It cannot affect the value after it occurs, since the value of capital is affected 
only by expected future events. 
The same principle governs when an expected cost or income occurs but of an 
amount different from what was at any time anticipated. For example, a given 
anticipated yield may be sold at higher prices than were thought of until the sale 
was actually made, or a given cost may, when it actually occurs, be greater than 
was ever anticipated. Such a variation from the anticipated amount merely 
affects the net income actually received or the net loss actually incurred. Unless 
a repetition of a similar variation is expected, it can obviously have no effect on 
the value of the capital. 
ADJUSTED PROPERTY TAX 
THEORETICAL FOUNDATION 
As has been previously shown, the theoretical defect of the property 
tax is that, in advance of the receipt of income, it includes in the tax 
base the expected increase in value which comes with the passage of 
time. Other value increments—those that are the result of unex- 
pected events, such as a rise in stumpage prices—present no tax 
