The wages boards in Victoria and Tasmania and until recently at least those in South Australia and Queensland are therefore true examples of collective bargaining, since the agreements are reached as a result of full presentation of the claims of employers in a trade collectively represented and those of the employees in the same trade also collectively represented. The chairman, altho possessing considerable power, is bound to exercise it with discretion if he is at all inclined to bring about a determination which will satisfy in a measure both parties and which will permit the industry to continue without interruption. The boards in New South Wales, on the other hand, do not convey to the visitor the impression of being conferences wherein employers and employees make their own bargains. The taking of evidence, the inquiries made by the board members, the extended arguments presented by representatives of the two sides with a view to influencing the board's decision, all give the appearance of a judicial tribunal. This impression is heightened by the knowledge that in most cases the parties may make an appeal direct to the arbitration court. As a matter of fact, the conciliation councils in New Zealand, while not pretending to the name of wages boards, far more resemble the wages boards in Victoria than do the New South Wales boards. Indeed, in many respects, the conciliation councils are better examples of collective bargaining than even the Victorian boards; for the chairman in such councils has no deciding vote and when an agreement is obtained it must be reached by the two parties alone. One must not be misled by this fact into reaching a conclusion that a chairman might be dispensed with under the wages boards plan. The wages boards' experience under the 1902 amendment to the Victorian law, which took away from the chairman the

right to vote, clearly showed the impracticability of such a plan. The real reason why the conciliation councils in New Zealand are able to reach an agreement in the majority of cases is the fact that both parties realize that if an agreement were not reached the case would automatically go to the arbitration court for final adjustment and, generally speaking, employers and employees prefer to settle their own differences.

M. B. HAMMOND.

OHIO STATE UNIVERSITY.

DEPRECIATION AND RATE CONTROL

A CRITICISM

IN a recent article in this Journal Professor Allyn A. Young takes to task the United States Supreme Court and public service commissions generally for erroneous thinking and improper action in regard to depreciation in connection with valuations made for purposes of rate regulation. Confining his attention to the physical property element in the valuation, he argues that the property taken as evidence of the investment can and should be valued for that purpose as tho it were new, without allowing for age, wear and tear, and obsolescence, in the case of large and varied properties, except for depreciation allocated to a period in which depreciation accruals were legally charged to operating expenses. In this opinion Professor Young ranges himself with Mr. James E. Allison, public service expert, and till recently chief engineer and influential member of the St. Louis Public Service Commission, which alone has adopted the policy for which argument is made. As frankly he sets himself against the accepted opinion of the day.

Much in Professor Young's article is above criticism. To the notion of a "state of normal average depreciation" attention deserves to be called, and the figures cited easily emphasize the importance of the issue here raised. The summary of certain developments in the accounting regulations of the Interstate Commerce Commission is valuable, tho intentionally not comprehensive. The statement and illustrations regarding the

1 Depreciation and Rate Control, vol. xxviii, pp. 630–663, August, 1914.

And in

depreciation of particular assets are helpful. particular I should cordially assent to the first of his three summarized conclusions in the form in which it is stated. Furthermore, he would be bold who would undertake to defend public service commissions, or even the United States Supreme Court, against charges of looseness, inconsistency, and inaccuracy of statement, or to support all their rulings. Members of these bodies cannot be experts in all fields or infallible in any, and and their reasoning and conclusions frequently merit criticism.

Nevertheless, on the fundamental issue which Professor Young raises I am convinced that the current view is correct, and that the attack upon it deserves no support from economists.

The issue may be resolved into three separate questions, all relating to deductions, in valuations for purposes of rate control, for depreciation of physical plants operated by public service companies, during periods when such allowances for depreciation were not prescribed by law.

1. Is such deduction necessary in order correctly to state the present investment in the plant?

2. Is such deduction, retroactive in its effect, just to public service companies?

3. Is such deduction, involving (as it ordinarily does) the carrying of a permanent reserve for accrued depreciation, expedient?

The first of these is purely a scientific question, in the realm of economics and accounting. The second is an ethical question, involving the propriety of a sort of ex post facto legislation, but also, be it noted, the problem of equality of treatment of different companies. The third is purely a question of public policy, not wholly dependent upon the answers to the first two.

To each of these questions, tho he does not consider them in this precise form or order, Professor Young would give a negative answer. Let us consider them in turn.

We may begin by asking whether we can arrive at a closer approximation to the “ present value " or "amount of the investment " by regarding or by disregarding age, wear and tear, and obsolescence?

The editor of the Railway Age Gazette recently remarked: 1 "William Mahl, of the Southern Pacific, expressed the feeling of a great many practical railroad executives when he argued that if a car or locomotive were kept in perfect repair it did not depreciate." This is not an uncommon notion among business men generally, tho it would be accepted by few accountants or economists. Professor Young would not make this particular statement, for he is at pains to describe the nature of depreciation of individual capital goods; nor would he say it of a plant in which one physical unit was of dominant importance; but he comes perilously near to saying it with respect to a property so varied that no single wasting asset or group of assets is of dominant importance" and repairs, renewals, and replacements are normally fairly regular in amount. "There is no necessary correlation between the mere aging or even the physical wear and tear of capital goods and the diminution of the investment. The concrete facts in the case are few. When capital goods are installed their cost is a definite amount of investment; when they are retired from use the investment is diminished by the amount of their cost, minus salvage. If such capital goods are replaced promptly when retired, is not the amount of the investment, in every real sense, kept intact?" (pp. 650-651). In other words, the indi

1 Vol. Ivi, p. 727, March 27, 1914.