fluctuations in prices. The cost to reproduce a property would vary. immensely between 1913 and 1923, owing to drastic changes in average prices. When prices are rising, public utilities like to have reproduction cost used as a basis of value because it gives them a figure well above original investment. But when prices are falling, public utilities dislike to have reproduction cost used as a basis of value because it gives a figure which may be well below original cost. The weight to be given reproduction cost will depend largely upon the inflation or deflation of prices. Inventory of all items of plant and equipment, and appraisal of original and reproduction cost presents many technical difficulties. When an estimate is at last reached, the figure is not reasonable value, but merely one indispensable factor in determining reasonable value.

Whether original cost or reproduction cost be given more weight, the element of depreciation must enter into the calculation of value. Original cost of a new plant means something quite different from original cost of an old plant. The task of the accountant is to charge off each year a certain amount which represents deterioration of the ageing property. Original cost is subject to a deduction for depreciation. But on the other hand, the concern is entitled to a rate large enough to enable it to set aside reserves to meet depreciation charges. Deductions and reserves must both be allowed for the depreciation adjustment. If reproduction cost is under consideration, it makes a difference whether the estimate is applied to reproduction new or to reproduction less an arbitrarily assumed depreciation proportional to the life of the present plant. Accounting methods differ in allowing for depreciation, but whatever the method, depreciation as a factor enters into the calculation of reasonable value.

In further calculation of final fair value many component elements are important. Due weight must be given to market value of securities, capital stock outstanding, overhead charges and working capital, intangible assets and good will, and estimated "present value" of plant and equipment.

In spite of lack of uniformity in court decisions, there is substantial agreement that the foregoing factors must be given consideration in determination of fair value. The weighting of these factors proceeds quite differently from the weighting of the factors which determine the value of industrial corporations under a régime of competition. Fair value for rate making purposes is a new and independent product. The finding of fair value rests upon a technique and a body of principles which are distinct. The source of these determinants is largely legal decisions. The outcome is a special and unique product, value for a particular purpose. Value for rate making purposes differs from exchange value and from investment value for corporate properties. It is a unique and separate kind of value. It should be recognized as an independent fact, although a part of the general and all-embracing theory of value.

Value for Purposes of Price Fixing. During the World War, the Government found it necessary to fix the prices of a great many commodities which during peace times have their prices determined by competition. The price fixers evolved a special technique of valuation adapted to their peculiar purpose. In accord with this technique they established prices at the level of what they called bulkline costs. They assumed that about one-tenth of the product in any given branch of industry would come from concerns whose costs were altogether excessive. This tenth of concerns could not expect to be protected by having prices fixed at high enough levels to enable them to earn a profit. This tenth would take a loss during any given year. Prices as fixed by the Government would not be high enough to cover the costs of these most unfortunate producers. This tenth of the product would be produced below the bulkline of costs. What then is the bulkline?

The bulkline is that level of cost within which about nine-tenths of the product could be produced. Prices were fixed to protect the bulkline concerns. The bulk of concerns could make a profit at prices adjusted to bulkline costs. The upper nine-tenths of concerns would cover their costs and stay in the business. The lower one-tenth would either get out of business entirely, or hang on in the hope of later on recouping their losses and climbing above the bulklinė. The bulkline concept assumes that under normal conditions about one-tenth of all producers will be operating at a loss. This group is in a state of flux, some concerns being killed off, some being temporarily injured but being brought back into the fold of profit at a later year.

The bulkline concept carries to a further refinement the concept of marginal costs. It defines in greater detail exactly what goes on at the margin. It describes the marginal producers under two heads: first, those at the bulkline where costs are low enough to make possible a mild profit; second, those below the bulkline where costs are so high as to prohibit any profit. For price fixing purposes, it was found desirable to protect only that nine-tenths of the product which was produced at profit-yielding costs.

The price fixers in this country largely derived their data on costs of production from the Federal Trade Commission. F. W. Taussig, from experience as Chairman of the Price Fixing Commission of the War Industries Board, directing price fixing in such commodities as iron, steel, copper, lumber, wool, hides, cotton fabrics, sulphuric acid, brick, cement, etc., stated the principle of price fixing as follows: "It was cost of production at the hands of the marginal or bulkline person that usually formed the basis of the prices fixed."4 Producers with very low costs would reap large harvests, but they were caught by the excess profits tax.

Although price fixing was a war measure and therefore abnormal, nevertheless it marked out the general economic principles of a funda

4 See Quarterly Journal of Economics, February, 1918, p. 240; also Kemper Simpson, idem., Volume 35, p. 287.

mental economic policy. Some people urge the importance of price fixing during peace times as a perfectly normal measure. Although public support of such a proposal would doubtless be lacking, nevertheless war time experimentation illustrated what could be done if price fixing were desired.

Valuation for Purposes of Taxation.-The appraisal of property for taxation purposes rests upon special modes of procedure. Assessed valuation usually is estimated as a certain percentage of the actual market or fair value of the property. The percentage taken varies widely between states. In Iowa, assessed valuation is only 12.7 per cent of true market valuation, whereas in New York, it is 84.8 per cent. Personal property is subject to more violent discrepancies than real property. Indeed, the valuation of personalty has become so unreliable in the hands of assessors that most tax authorities favor the abolition of the personal property tax altogether. Some forms of property are often taxed at full market value, or on the amount invested, of which securities of corporations are an illustration. Intangible property may be assessed at a taxable value, and may produce revenue just as effectively as tangible property produces revenue. The courts recognize good will and going exchange value as proper subjects of taxation. The Supreme Court of the United States has declared: "In the complex civilization of today, a large portion of the wealth of a community consists in intangible property. It matters not in what intangible property consists, whether privileges, corporate franchises, contracts, or obligations. It is enough that it is property which, though intangible, exists, which has value, produces income and passes current in the markets of the world. . . . If a state comprehends all property in its scheme of taxation, then the good will of an organized and established industry must be recognized as a thing of value."5

The attitude of business toward tax value is utterly different from the attitude toward market value or rate making value. On the market, business exaggerates the value of its property as much as possible. Before a public service commission, utilities plead for the highest value obtainable. But before the tax assessor all is different. Business then laments the run-down condition of its property, grieves over its worthlessness, and seeks as low a valuation as possible. Tax values are depressed values, rate making values are inflated values, in so far as it lies within the power of business to influence the situation.

In spite of all that business can do, the power to determine taxable value rests chiefly in the hands of the Government. Constitutional clauses, statutory laws, and judicial interpretation have created a set of principles governing assessed value. The origin of assessed value is mainly legal. The judge and the law are the final arbiters of value for this special purpose. The technique of the tax assessor is auxiliary to the legal principles of valuation. Under these circumstances, valuation for taxation purposes has taken on certain distinguishing characteristics 5166 U.S. 219; 166 U.S. 221.

and has assumed a body of principles peculiar to its own needs and ends. Valuation for Miscellaneous Purposes.-The concept of value has been applied to a variety of other special purposes. To indicate the significance of these applications, the following illustrations may be cited:

1. Valuation for accounting purposes involves numerous methods of measuring merchandise, plant, investment, depreciation, good will, and other business factors.

2. Valuation for purposes of bank credit involves estimation of the worth of collateral as backing for loans, and an estimation of the value of character as a basis of credit. The margin required for various kinds of secured loans varies from about 50 per cent required on real estate to 90 per cent or better allowed on the best bonds.

3. Valuation for census purposes involves many considerations of a special sort. Census estimates of national wealth require special statistical methods.

4. Valuation for insurance purposes involves an estimate of the cost of shouldering insurable risks by the mathematical technique of the actuarial expert.

5 Valuation by the courts for condemnation purposes involves estimates of the worth of property based largely upon the appraised or market values of adjoining properties of similar kind and quality.

These examples of valuation enforce the point that value is purposive. What content is to be read into value will depend upon the purpose to be served in each given case. The extension of value theory to purposes other than mere marketing of commodities has become an important phase of modern economic developments."

Competition and Price Practices.-Competition is assumed to secure the survival of the most efficient concerns through the free action of individual self-interest. Low-cost competitors are anxious to increase their business. They can do so by lowering prices. But when they lower prices, they extinguish their high-cost competitors. Such competitors cannot afford to produce and sell at the lowered prices. The most efficient will drive out the least efficient, the low-cost will drive out the high-cost concern. The survival of the most effective concerns will be of maximum benefit to the public. The annihilation of the least effective concerns will rid the public of the unfit. Thus, the free competitive action of individual self-interest will redound to the good of all concerned, both on the side of business and on the side of society.

The theory of perfect competition is hardly ever realized in actual business. The cleansing effect of the struggle for survival between the fit and the unfit is obstructed by many obstacles. The triumph of the

• See Henry Floy, Value for Rate Making, pp. 45 ff. "Value for rate making will result in a different amount than value for sale or for taxation. Abstractly the value of the same items must be the same, but the purpose supplies the adjective which modifies the final result."

most efficient over the least efficient is often thwarted by sagacious price strategy.

The obstacles to the perfect working of competition in price may be classified under three headings: unfair competition, price discrimination, and elimination of competition. In general, unfair competitive practices are those practices which enable the less efficient concerns to make profits and to drive the more efficient concerns out of business. Unfair competition tends to permit the survival of the unfit, their unfitness being judged by the fact of their relatively high costs of production and of their relative inefficiency in doing business. The reference to unfair competition as distinguished from fair competition suggests that competition is not altogether and intrinsically good. Competition may be either good or bad, fair or unfair. Competition as such is neither an ideal goal nor a trustworthy goal. Discrimination between desirable and undesirable forms of competition is necessary. Price discrimination favors some buyers and injures others. Its effect is chiefly not upon the competitors of the seller but upon the customers. Elimination of competition is widely practised. Combination, control, monopoly, are implied in this obstacle. The driving out of competition altogether may enable the inefficient but all-dominating concern to survive. Whether unfair competition, price discrimination, or elimination of competition be the method used, the effect is the same in that constructive competition is extinguished.

The concrete practices of approved competition are somewhat difficult of definition. Neither economists, business men, nor the courts are clear and uniform in their definitions of what is fair and what is unfair or of what is competition and what is monopoly. However, substantial agreement exists on many points, and the problem is recognized clearly even though the solution is not as yet always distinct. To understand the nature of the situation, it is necessary to study the price practices which have been incorporated in business strategy.

The one-price policy has become almost the unanimous practice of retail merchants in the United States. According to this policy, the retailer decides upon the prices to be charged for his wares, and all customers pay the standard prices. Shrewd customers and dull customers, rich customers and poor customers alike pay the standard price for each good. Higgling with the merchant has been entirely eliminated. But this achievement has not been reached in other fields of trade. Wholesale trade and manufacture for the most part allow room for a great deal of higgling in the market. Different prices to different customers prevail. Often the seller asks a very high price, in the expectation that he will have to come down in order to come to terms with a buyer. Purchasing agents of large concerns become expert in getting lowest possible quotations from manufacturers and dealers. In so far as competition is concerned, either the one-price policy or higgling is a competitive practice. They are simply two different methods of competition. And in general, the one-price policy affords a more sound