The Richmond palladium and sun-telegram. [volume] (Richmond, Ind.) 1907-1939, 1919-05-23
MnMnER oF THE ASSOCIATED PRESS
Increased Prices and Wages and Railway
Valuation

Valuation
It is being urged in some quarters-by Sen
ator Cummins, the new chairman of the senate
committee on interstate commerce. among others
that legislation for the future regulation of
the railways under private operation should pro-
vide for general recapitalization of the railways
on the basis of valuation. The Railway Age in
an editorial in its current issue calls attention to
the fact that apparently the valuation of the rail-
ways now being made by he interstate commerce
commission is to be based almost entirely upon
the cost of physically reproducing the railways,
and that because of the great increases of wages
and prices the valuation of the railways on this
basis probably would be $5,0000O0,000 greater
than it would have been five years earlier.
''The division of valuation expects to complete
its inventory of the railroads some time late in
1920" says the Railway Age, land judging by the
preliminary reports on few of the smaller roads
which the division has made public, its final re-
port to the interstate commerce commission will
consist essentially of figures regarding the cost
of reproduction new, less depreciation for each
of the properties. The results presented thus far
have been based on unit prices purperted to be
representative of conditions on June 80, 1914,
and obtained in the main from an average of unit
cOSCS Oh Work QOH0 during Tie live years 1S1O-14
Inclusive. Presumably these 1914 prices were
selected because they afforded the latest informa
ton available at the inception of the valuation.
Just what significance is to be placed in 1920 on
a cost of reproduction based on unit costs appli-
cable in 1914 has not been made clear If valua-
ton is to serve any useful purpose it must be
based on evidence admissible at the time that the
valuation is to be used. Any estimate of the cost
of reproducing property on given date must
be obtained by applying to the inventory guam
titles unit prices that typical at the date the
valuation is used. Unit prices in 1914 will have
no real relationship to the cost of reproduc-
ton in 1920 than the prices of 1904, or 1894 or
any earlier year that might be arbitrarily Sc
lected.
"Had there been no radical change in price
levels in the years subsequent to 1914 this ques-
tion would be of no particular Importance, but
four years of the European war have produced
such an initiation of currency and other changes
that the wages of labor and prices of many com
modities probably average close to 100 per cent
higher than in 1894, and economists hold out
scant hope for any appreciate reduction from the
present levels. In the words of Professor Irving
Fisher Of Yale University, To talk reverently OF
1914 prices is to speak dead language
Notwithstanding LneSe CONSIDERATIONS, There
are current references to valuation of railway
properties in the neighborhood of SIT ,00(
Ia figure obviously based on past costs-where
as the use of present unit costs of labor and ma
terias probably would produce valuation 81
per cent higher than would those of 1914.
valuation based on present unit costs certainl.
would not amount to less than $22000,000,00O
while the book cost of road and equipment of tn
carriers is only about $18,000,000,000 and thei
net capitalization about $4,000, 100000. If tn
public insists on basing rates valuation and OF
basng valuation mainly on the cost of reproduc
ton the railway owners will hardly object
Spokesman of the railways are modestly suggest
ing that the book cost of road and equipment b
used as the basis of regulating future rates an
earnings. The public probably would better &C
cept this basis than go on with its valuation, 70
if the valuation is not used the money spent i
making it will be wasted, while if, as apparentl
is intended, the valuation is to be based chiefl
on cost of reproduction, and if, apparentl