Frank Albert Fetter.

Source book in economics, selected and ed. for the use of college classes online

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by suitable treatment of the surface, little effort has been made
to retain or increase it, and it is probable that fully 10 per
cent, of this rich resource has been wasted since settlement be-
gan. The water of the strata below 100 feet supplies artesian
and deep wells, large springs, and thermal and mineral waters.
It can be controlled only through the subsurface reservoir.

■Of the 35 trillion cubic feet of cut-off, the chief share is
utilized by natural processes or by agriculture and related in-
dustries. On an average the plant tissue of annual growths
is three-fourths and of perennial growths three-eighths water,
of human and stock food over 80 per cent, is water, and in
animal tissue the ratio is about the same ; and since water is the
medium for organic circulation, the plants and animals of
the country yearly require an amount many times exceeding
their aggregate volume. Even in the more humid sections of
the country the productivity of the soil and the possible human
population would be materially increased by a greater rain-
fall, leaving a larger margin for organic and other chemical
uses. Except through agriculture and forestry little general
effort is made to control the annual cut-off, although some
farmers in arid regions claim to double or triple the crop from
given soil by supplying water just when needed and withhold-
ing it when not required.

Water is like other resources in that its quantity is limited.
It differs from such mineral resources as coal and iron, which
once used are gone forever, in that the supply is perpetual;
and it differs from such resources as soils and forests, which
are capable of renewal or improvement, in that it can not be
augmented in quantity, though like' all other resources it can
be better utilized. . . .


The first requisite for waterway inipi-ovement is the control
of the waters in such manner as to reduce floods and reguhite
the retrimen of the navigable rivers. The second requisite
is development oi' terminals and connections in such manner
as to regulate commerce.

In considering the uses and benefits to be derived from the
waters, the paramount use should be water supply; next
should follow navigation in humid regions and irrigation in
arid regions. The development of power on the navigable
and source streams should be coordinated with the primary
and secondary uses of the waters. Other things equal, the
development of power should be encouraged, not only to
reduce the drain on other resources, but because properly
designed reservoirs and power plants retard the run-off and so
aid in the control of the streams for navigation and other

Broad plans should be adopted for a system of waterway
improvement extending to all uses of the waters and bcnetits
to be derived from their control, including the clarification of
the water and abatement of floods for the benefit of navigation ;
the extension of irrigation; the development and application of
power ; tlie prevention of soil wash ; the purification of streams
for Avater supply; and the drainage and utilization of the
waters of swamp and overflow lands.

'J'o promote and perfect these plans scientific investiga-
tions, surveys, and measurements should be continued and ex-
tended, especially the more accurate determination of rainfall
and evaporation, the investigation and measurement of
ground water, the gaging of streams and determination of
sediment, and topographic surveys of catchment areas and
sites available for control of the waters for navigation and re-
lated purposes.

National efficiency. [Here -were given a few of the data
set forth more fully in the Report on National Vitality, a sum-
mary of which is presented elsewhere in this book.]

General conclusions. The permanent welfare of the naticm


demands that its natural resources be conserved by proper
use. To this end the States and the nation can do much by
legislation and example. By far the greater part of these re-
sources is in private hands. Private ownership of natural re-
sources is a public trust; they should be administered in the
interests of the people as a whole. The States and nation
should lead rather than follow in the conservative and efficient
use of property under their immediate control. But their
first duty is to gather and distribute a knowledge of our nat-
ural resources and of the means necessary to insure their use
and conservation, to impress the body of the people with the
great importance of the duty, and to promote the cooperation
of all. No agency, State, federal, corporate, or private, can do
the work alone.

Finally, the conservation of our resources is an immediate
and vital concern. Our welfare depends on "conservation.
The pressing need is for a general plan under which citizens,
States, and nation may unite in an effort to achieve this great
end. The lack of cooperation between the States themselves,
between the States and the nation, and between the agencies of
the National Government, is a potent cause of the neglect of
conservation among the people. An organization through
which all agencies — State, national, municipal, associate, and
individual — may unite in a common effort to conserve the
foundations of our prosperity is indispensable to the welfare
and progress of the nation. To that end the immediate crea-
tion of a national agency is essential. Many States and as-
sociations of citizens have taken action by the appointment of
permanent conservation commissions. It remains for the na-
tion to do likewise, in order that the States and the nation, as-
sociations and individuals, may join in the accomplishment of
this great purpose.


[In the Tariff Board's report on Cotton Manufactures the difficulties
in arriving at a rate of depreciation of the plant are explained, and
an average rate of depreciation is indicated. (House Document 643,
62d Congress, 2d session; pub. March 26, 1912, p. 376.)]

Depreciation. The schedule was so drawn up as to get
not only the lump sum charged by different concerns under
that head, but also the basis on which the charge was figured.
For this reason the original value of the buildings and of the
machinery and equipment were called for. In most instances,
however, this proved an impossible task. Several companies
have been in existence for decades, some of them dating back
anywhere from one-half to three-quarters of a century, and
their records failed to disclose the necessary information. In
other cases companies have gone through one or more reorgani-
zations, changing ownership, in which case they were fre-
quently acquired as a going concern without any detailed rec-
ord being preserved of the original physical value of the
plant. It was therefore found more practicable to take as a
basis the present appraisal value of the different plants.
These values were in most cases ascertained from appraisals of
mutual insurance companies, records of which were kept at the
mills. In the few cases where no appraisals had been made
the value was ascertained from original construction accounts
and similar resources.

The rate charged for depreciation differs from plant to
plant. Some have one rate for buildings and another for
machinery and equipment. Others carry the system still fur-
ther and have different rates of depreciation for various parts
of the plant, charging one rate for spinning machinery, an-
other rate for weaving, and another for the boilers and power



plant, etc. Others, again, have one fiat rate, including; both
buildings and machinery, although they recognize that the two
are subject to different degrees of depreciation. In the case
of one or two important companies it was found that the
single rate of depreciation was carried still further, including
not only machinery and buildings, but even the value of the
real estate. Still others, as has been pointed out earlier in the
discussion of the question of repairs and maintenance, carried
no allowance for depreciation, but charged all additions to the
plant by way of new machinery, extensions of buildings, etc.,
to the repair account, thus paying for it out of current earn-

It therefore becomes clearly apparent that some uniform rate
for depreciation as well as repairs would have to be adopted.
A modern mill equipped with looms of the latest construc-
tion, which have been in operation only a few years, will mani-
festly have an entirely different repair account from that of a
mill with looms anywhere from twenty to fifty years old. Not
only will the efficiency, and therefore the resultant labor cost
per unit of product, be different in the two mills, but the actual
expenses incurred for repairs will be vastly greater in one case
as compared with the other. Repairs may vary greatly from
year to year. A new plant may go on for a number of years
incurring only a slight expense for repairs which makes up for
the preceding years. An older mill, after running for several
years, may spend a considerable amount of money on over-
hauling the mill, charging the expense to repairs for that year,
and, as a result of this, run for several years after that at a
small expense. It would be purely a matter of accident for the
investigation of the board to cover either the one or the other
year, yet neither the heavy expense for repairs during the one
year nor the very light expense during the intervening years
would be a fair figure to be charged to the repair account.

To arrive at an accurate estimate of the repair account would
have required taking the repairs for several years and then
averaging the amount. This could not be done without a care-


fill audit of every item of expense to separate the expenses
properly chargeable to repairs from those incurred for plant
additions and betterments. With the limited time at the dis-
])osal of the board such a procedure was out of the question.
The only way out of the difficulty was, therefore, to arrive at a
normal rate for depreciation and repairs, based upon the ex-
perience of leading engineers engaged in the erection of textile
plants and the installation of textile machinery. After a con-
sultation with such engineers and a leading appraisal com-
pany in the United States, which has appraised a large number
of textile plants both in the cotton and woolen industries at
different stages in the lives of the plants, it was found that a
fair normal rate to be allowed for cotton-manufacturing plants
for depreciation and repairs would be 2iA per cent, on build-
ings and 5 per cent, on machinery and equipment, and this rate
was uniformly charged for all plants. In apportioning the
total allowance between repairs and depreciation, the repair
expense actually incurred during the year under investigation
was deducted from the amount equal to 5 per cent, on the
value of the machinery and 2i/2 per cent, on buildings, and the
difference thus obtained was allowed for depreciation. It
should be noted that in any case the element of depreciation
is a very small factor in the cost of production per unit of


[From the Principles of City Land Values, by R. M. Hurd, cited
above on the subject of rents, are taken the following cogent expres-
sions of broad experience on the subject of capitalization.]

Capitalization rate [page 129]. With .an established
economic rent, the sole remaining factor to transform this
into intrinsic value ^ is the rate of capitalization. As capitali-
zation rates vary with securities, Government bonds selling
below a 2 per cent, basis, railroad bonds and stocks on a 31/2
to 5 per cent, basis, and industrials on a 7 to 10 per
cent, basis, so the rates of capitalization of urban rents vary
from 4 per cent, for the highest class of property in the largest
cities, to 5 and 6 per cent, for second-class property in the
same cities, or for first-class property in smaller cities, 7, 8 and
10 per cent, for tenements in the largest cities, and 12 to 15
per cent, for temporary utilization or disreputable purposes
in the smaller cities. The great power of capitalization rates
on values is due to the fact that for every change of 1 per
cent, in the rate of capitalization, values may change from
twelve to twenty -five times the difference in interest. For
example, a property with a net income of $10,000 would sell on
an 8 per cent, basis at $125,000, on a 6 per cent, basis at
$166,000, and on a 4 per cent, basis at $250,000. The lower
the capitalization rate the greater the effect of any changes
of values: For example, a fall from 8 to 7 per cent,
adds but 14 per cent, to the value of the property, while a fall
from 5 to 4 per cent, adds 25 per cent, to the value
of the property. Moreover, as low interest rates apply to the

1 ["Intrinsic value," a tenn with a good many troublous implications,
may be here understood as valuation, or capitalization. — Ed.]



larcrest properties all further fractional lowering of rates re-
sults iu an enormous mass of values. The marked difference
between capitali/atiou rates of high-class and low-class prop-
erty in the same city indicates the large number of people
who desire to own high-class property, and the few who desire
to own low-class property. The reason for such preference is
that with high-class property, rents are more stable and easily
collected, the property is more quickly and certainly convert-
ible, it can be mortgaged at a lower rate of interest and for a
larger percentage of value, the buildings depreciate much less
rapidly and the prospects of increase in value are better.

Land a slow asset. That land, even of the highest type and
in the largest cities, is a slow asset, is due to a number of
causes, among them being the fact that land is not easily
passed from hand to hand as are stocks and bonds, land in-
volves personal or directly deputed management, where stocks
and bonds do not, there is no Exchange with daily quotations
giving the values of land, as with stocks and bonds; and
finally the value of land is influenced by many complex chang-
ing factors, whose effects are differently estimated by differ-
ent people. Because land is a slow asset, convertibility or
certainty and speed in selling it, produces a high premium for
the best property by lowering its capitalization rate.

Farm acreage to city sites.^ Starting from the condition of
no value in land when a city originates, let us consider the
scale of average values of residence and business land in cities
of various sizes, land used for other purposes being omitted as
being more of an individual problem. At the outer circumfer-
ence of cities land is held as acreage, the prices per acre ad-
vancing from the normal value of farm land near cities, $50
to $150 per acre, up to market-garden land, which may earn
interest on $300 to $1,000 per acre, and, finally, to speculative
tracts held at $500 to $5,000 per acre, whose prices are based on
the estimated earnings of the land when it secures the an-

i[The following paragraphs rcprodiuo (lie thapter cntitk'd, "Scale of
Average Values," pp. 133-144.]


ticipated utilization. Since the proportion of land occupied
by streets averages about 35 per cent., the conversion of acre-
age into lots means a loss in building area of that percentage,
so that with the expenses of platting, opening streets, taxes,
loss of interest, etc., it is generally estimated that property
bought by the acre must sell by the lot for double the acre
price in order to avoid loss in handling.

Mechanics' residence lots. The cheapest lots in any city
are those utilized for workmen's houses, varying in smaller
cities from $150 to $300. The larger the city the larger the
number of well-paid mechanics and the greater the effective
demand for lots. A mechanic's lot on the outskirts of a
small city differs from one on the outskirts of New York not
only in price but in size, those in small towns having 50 to 60
feet frontage, and those in New York 15 to 20 feet frontage
with usually two-family houses on them. Thus an average
price of $150 for 50 x 100 foot lots in large cities would be
equivalent to $7,700 per net acre after platting, or $5,000 per
acre as acreage. In the outskirts of the smaller cities platted
land runs as low as $2 to $4 per front foot, and there are
built up mechanics ' sections with street car accommodation less
than a mile from the center of cities of 30,000 population,
where land sells at but $5 per front foot, equivalent to 5 cents
per square foot.

Better residence lots. From this figure, land for detached
residences grades upwards more in proportion to the class of
people utilizing it than the size of the city, to land worth $20
to $30 per front foot for the residences of small shopkeepers
and clerks, and $40 to $75 for the more fashionable residences
in cities of 75,000 population and under. Such residence prop-
erty would have good street car service, graded streets, side-
walks, sewer, gas, water, electric light, etc., the cost of which
may vary from $5 to $15 per front foot. The best residence
land in cities of 100,000 to 200,000 population runs from $75
to $150 per front foot, in cities of 200,000 population to 400,-
000 population from $300 to $500 per front foot, and in New


York from $2,000 to $5,000 per front foot on the side streets
ami $G,000 to $9,000 per front foot on Fifth Avenue.

Business lots. The poorest k)cations utilized for shops in
the small cities are ordinarily worth from $50 to $75 per front
foot from which point values rise to an average of $600 to
$800 per front foot for the best business property in cities of
50,000 population, about $2,000 per front foot in cities of 200,-
000 population, $10,000 in cities of 2,000,000 population, and
$15,000 to $18,000 in New York. Above these levels, land in
the financial district of New York a\erages from $15,000 to
$25,000 per front foot, this liuancial district having no counter-
part in any other American city and being due to the su-
premacy of New Y^'ork as a financial center. The highest
values in London are similarly in the financial district, while
in Chicago and most of the smaller cities, shopping land, owing
to the large amount of retail business and small amount of
banking, is worth about twice as much as financial land. The
average figures given represent corner lots having not less
than 2500 square feet, $350 per square foot (equal to $35,000
per front foot) having been paid thirty years ago for two
small corners at AVall and Broad Streets, and recently for a
small corner at Broadway and Thirty-fourth Street. An ap-
proximate scale of normal values based on the consideration
that each thousand of population adds from $10 to $12 to the
front-foot value of the best business locations and from $1 to
$2 to the front-foot value of the best residence locations would
be as follows, it being understood that the application of any
such scale is limited in practice by differences in wealth,
character of industries and inhabitants, topography, transpor-
tation, platting, climate, etc.

Ratio of business and residence value. The proportion
between land values due to different utilities varies widely in
different cities, evidencing the response of special sections to
special forces. Thus the best business and the best residence
land in tlie same city shows in New York, with $35,000 per
front foot for business and $9,000 per front foot for residence




Best business

Best residences

[Ratio of


per front foot.

per front foot.



$300 to $400

$25 to $40



600 to 1,000

40 to 75



1,200 to 2,000

75 to 150



1,500 to 2,500

100 to 200



1,800 to 3,000

100 to 300



2,500 to 4,500

200 to 500



4,000 to 7,000

500 to 1,000



7,000 to 10,000

700 to 1,500



0.000 to 16,000

1.000 to 2,000



18,000 to 35,000

4,000 to 9,000



land, a proportion of about 4 to 1 ; in Buffalo with $4,500 for
business land and $500 for residence land a proportion of 9 to
1 ; in Minneapolis with $2,500 for business and $100 for resi-
dence land a proportion of 25 to 1; and in Seattle with
$2000 for business and $100 for residence, a proportion of 20
to 1. When we turn to Southern cities, Richmond with $1,600
for business and $300 for residence shows a proportion of 5 to
1 ; and Atlanta wdth $2,000 for the best business and $200 for
the best residence, a proportion of 10 to 1. As explaining this
difference between Western and Southern cities, business is
active and progressive in Western cities, producing high busi-
ness values, while residences are scattered by the trolley and
are not held together by the old-established residence sections,
whereas in Southern cities the scale of business operations is
less, partly owing to the diminished purchasing power of the
negroes, resulting in low business values, while residence values
are raised by the greater importance attached to social con-
siderations and the greater age of the cities. The abnormally
high values of residence property in New York testifies to its
limited quantity and to the keen demand for it on the part of
the many millionaires who make New York their home.

Wholesale business. Heavy wholesale property responds
but feebly to increased population, varying from $100 to $400
in value in cities of 300,000 people or under. Where values
run above these figures the property would include some retail
feature. The proportion of value between the best retail land



and [\\o bi'st wliolesalc is, therefore, one which increases with
the size of the eity, ranging from 4 to 1 in the smaller cities,
up to 10 to 1 in the largest. As examples of the value of the
best retail, best wholesale and best residence land in various
cities, the following list of front foot values is submitted.


New York 3,437,202

Financial land.. . .

Chicago 1,608,575

Financial land.. . .

Philadelphia 1,293,697

Washington 278,718

Louisville 204,731

^Minneapolis 202,718

Indianapolis 169,164

Kansas Cit J- 163,752

St. Paul 163,065

Denver 133,859

Toledo 131,822

Memphis 102,320

Portland, Ore.




Des INIoines. . . .
Salt Lake City.

Duluth '. .




















































Nature of city-growth [page 145]. 2 The total value of a
city 's site is broadly based on population and wealth, the physi-
cal city being the reflex of the total social activities of its in-
habitants. Whatever the type of city, growth consists of
movement away from the point of origin and is of two kinds ;
central, or in all directions, and axial, or along the water-
courses, railroads and turnpikes which form the framework of
cities. Modern rapid transit stimulates axial growth, pro-
ducing star-shaped cities, whose modification in shape comes
chiefly from topographical faults. . . .

i[rpnsus figures for 1900.]

-|The following paragraphs cnnlnin the larger part of the last chapter,
the summary of the book, but omit the diagrams and charts.]


[Page 148.] While the outward glacial movement of a city
continues, the daily currents of travel within alter its internal
structure. The fluidity of daily traffic shifts utilities, creates
plastic conditions in cities and keeps values in a state of un-
stable equilibrium.

Elements in a forecast of land-value. To look at the prob-
lem from the individual standpoint, in attempting to state the
value of any single property, the inquiry would seek first, upon
what forces does the city itself depend, how permanent are

Online LibraryFrank Albert FetterSource book in economics, selected and ed. for the use of college classes → online text (page 10 of 30)