reasonable returns upon their investment as defined by accepted valuation standards. If they were not profitable in the past, they may not be so in the future, but they will still have the opportunity of obtaining fair profits, and will probably be better guarded from competition. Where, then, is the serious injustice? Actual valuation policy, in so far as it has been worked out, is based upon cost of reproduction and not the actual cost of the property, much less the cost to the corporation. If long ago actual cost had been made the basis of valuation, investors would have had no ground for objection; the basing of returns upon actual investment would then be fair enough. Now, however, we base the valuation upon the cost of reproduction, which in view of the high level of present prices, results in most cases in a valuation appreciably greater than actual investment. In the case of old properties, where the apparent injustice which Professor Young urges would be the greater, the excess of reproduction cost over actual investment is also the greater, for the most part probably fully or more than offsetting accrued depreciation.1 Should this point not be considered pretty thoroly before we make an exception to an otherwise desirable method of valuation? Professor Young has curiously passed over a point in current practice, which, it seems to me, disposes of any doubt in the question before us. He makes no reference to so-called going-value, which is allowed in a physical appraisal by most of the state commissions and seems to be required by the courts.2 While going-value has not been definitely and authoritatively defined, it covers for the most part early developmental expenses incurred by a company, operating deficits, and deficiencies in reasonable return upon investment. Thus, the official valuation in any case is the cost of the prop 1 Since 1897, general prices have advanced fully fifty per cent, and land used for utility purposes usually several hundred per cent, while even in the case of a very old and stationary property, the extreme accrued depreciation over actual cost cannot be over fifty per cent. The term actual investment means the money cost of a property at the time of installation of the several parts. See Kings County Lighting Case, 210 N. Y. 479. erty, less accrued depreciation, plus going-value. If a company from the first has obtained a reasonable return upon its investment, that is all that it was entitled to receive and for the future it will be treated fairly enough if it may get a return upon the cost of the property less accrued depreciation. But, if it has not been reasonably profitable, the deficiencies may be capitalized and added as going-value to the physical valuation of cost less accrued depreciation. With goingvalue or past unprofitableness thus provided for, where is the injustice upon which Professor Young so forcefully insists ? As a matter of fact, considering the policy of valuation as it now stands, with cost of reproduction and allowance for going-value, are we not rather more than just to the investors? Would the ordinary sense of justice be especially outraged if accepted valuation did not allow the capitalization of operating deficits and deficiencies in return, or were to include only actual cost less depreciation ? But we include even land or other property granted free to corporations by federal, state, or municipal governments; we often allow items for which no costs were incurred by the investors, and in some cases there appears an inclination even to allow the capitalization of franchises on the basis of earnings, thus promising to shut off all possibilities of rate reduction.1 If going-value is to be allowed in case of deficiency in past returns when the company has fixed prices with regard only to maximum profits, may we not suggest that a corresponding deduction from the physical valuation might be made when excessive returns have been realized ? While there have been some judicial dicta in line with this suggestion, the idea has never been seriously advanced. But, if justice to investors really demands an addition to physical valuation for past deficiencies in return, is it not reasonable to ask whether justice to the public would not require a reduction for excessive actual returns? If investors are entitled to a fair return on their 1 See the Patterson Gas Case, Public Service Gas Co. v. Board of Public Utility Commissions, New Jersey Court of Errors and Appeals, November Term, 1913, decided December 10, 1914. It is stated that a rehearing is to be held on this case. investment and no more, and if deficient returns shall be added to the investment, then why should not excessive returns be deducted from the investment ? I do not wish to support the suggestion just made, but it has nevertheless a place in the consideration whether present valuation practice is unjust to investors. Much may be urged in criticism of existing valuation practice; but in view of the above considerations, Professor Young had an exceedingly difficult task in making out a case of injustice to investors. Has he succeeded? JOHN BAUER. CORNELL UNIVERSITY. Andréadés, A. BOOKS RECEIVED Financial Administration of the Nations in the Ionian (In Islands. 2 vols. 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