Reproduction Cost as a Basis of Valuation
Journal of Political Economy
Since the public has demanded regulation of public utilities, commissions as the agencies of public control have been groping for some sort of standard of valuation. Engineers appointed by the commissions, other engineers, and attorneys representing the utility companies, and self-appointed economists with academic interests, have for a generation wrestled with problems of valuation. With the enactment of the Railroad Valuation Amendment to the Interstate Commerce Act, the problems of valuation
... oblems of valuation were recognized as being national in scope. The importance of these problems was re-emphasized by the Esch-Cummins Bill which requires the Interstate Commerce Commission to fix rates with reference to earnings upon a valuation of the railroads determined by itself. A widely accepted method of valuation is what is known as " reproduction cost." By reproduction cost is meant the expense of reproducing a property at the price current at the time of the "valuation." A number of states have adopted this method.' In Smyth vs. Ames the Supreme Court mentioned this method along with others to be used in ascertaining the value of a public utility.2 The amendment to the Act to Regulate Commerce, passed in I913, called upon the Interstate Commerce Commission to make use of "cost of reproduction new" as one of the methods in finding a valuation of the railroads of the country.3 This method is open to objections well-nigh as serious as those offered to the capitalization of earnings. It is not employed uniformly by the different regulatory bodies. Some are inclined to apply the method very narrowly, as the Texas Railroad Commission, which included nothing but visible physical property.4 Others are more t Arkansas, Kirby's Digest, I904, Sec.