158 TEE POPULAR SCIENCE MONTHLY
form, and, as we have seen, the user is a co-investor with the producer in public utility properties. Obviously no part of the return on the user's investment should be included in a " fair return " to the producer. It follows, of course, that lands donated, whether by a person, by a com- mercial body, or by a government, should not appear in the valuation at all.^
An objection might be raised in the case of a utility comprising several smaller properties obtained by purchase. It is probable that the existing corporation paid prices for the land involved that were deter- mined by the current prices of adjacent land at the time of purchase. These included the unearned increment to date. This increment should not be included in the valuation of' the combined properties for rate- making purposes. If the purchasing investors were willing to agree upon a price including any part of the unearned increment to date of purchase, they were in the place of a man who, to secure a valuable prop- erty of forty acres, buys up four ten-acre places. So long as the pur- chaser uses the forty-acre place himself he gets no return on the unearned increment, except that flowing from increased enjoyment, a better out- look, or more freedom of action. He recovers that portion of the pur- chase price invested in unearned increment, with or without interest, when he sells. If he never sells, he never recovers it; and moreover, he loses interest on the investment. If a corporation makes such terms, the users can not fairly be required to pay a return to investors on values contributed by the community. The profits of the investors reside in the continuing increment, if such there be; and they can be taken only at the time of sale. It may be that the whole transaction, involving the purchase, holding and sale, does not show a profit. This may fre- quently occur; but it is no reason why the public — the user — should be compelled to assume the responsibility of guaranteeing such profits. Some transactions are bound to show loss.
One very remarkable contention has been made in connection with the valuation of land. Stated in its simplest terms, it is this : If a utility has secured the land necessary for its activities, this land should be given a value determined by the advantage residing in it above that afforded by the next less desirable land usable for the operations desired. For instance, if a railroad has located in a very desirable pass, the value of the land in the pass should be determined by the saving in expense both in construction and operation over the next possible location in that vicinity. This argument needs no further attention.
Let us now apply this principle of user's investment to the question of depreciation. This is the next important ground of dissention among
1 Similarly, bonds guaranteed by counties, a procedure not at all uncom- mon in the southern states in railroad promotion, have no place in a valuation for rate-making purposes.