88 VALUATION, DEPRECIATION AND THE RATE-BASE 
It follows from this that a return of 6 per cent per annum, 
without anything for amortization, or for replacement, on an 
investment in a perishable article, when money is worth 6 per 
cent, is inadequate. The excess of earnings over expenditures 
must be at least equal to the current interest rate on safe money 
investments plus an increment depending on the useful life of 
the plant. This increment must be such that, within the life 
of the plant, it will either return to the owner his original invest- 
ment or will be adequate to replace the article in service with a 
new one. 
Had the owner borrowed money for the acquisition of the 
article, and were he paying interest on the borrowed money at 
6 per cent, this fact would be seli-evident. ‘The 6 per cent 
earnings would then be required to meet interest payments, 
and, at the time when the article has reached the end of its 
life and must be replaced with a new one, he would find himself, 
not only in debt for the original article but would have to dupli- 
cate the indebtedness to make the replacement. 
Amortization and the Value of Stock. — The amortization 
increment is ordinarily expected to appear in the earnings as 
that sum which, at compound interest during the life of the 
article, will be adequate to retire the original investment. 
To illustrate these points further, let it be supposed that 
ownership is represented by capital stock of a corporation. If 
a plant owned by the corporation and built with funds contrib- 
uted by the stockholders earns just enough to net 6 per cent 
without any allowance for amortization, the stock which at the 
outset may have been worth zoo per cent will gradually decrease 
in value until, at the end of the plant’s usefulness, it will be 
worth nothing. 
The situation is quite different when the earnings net 6 per 
cent plus an annual amortization increment here supposed to 
be paid into a special fund. In this case, the stockholder re- 
ceives 6 per cent each year, and the amortization grows while 
the plant depreciates in value. The stock, if fully paid up, will 
be at par from the beginning to the end of the plant’s usefulness,