I 36 VALUATION, DEPRECIATION AND THE RATE-BASE 
“ The depreciation in question is not that which has been over- 
come by repairs and replacements, but is the actual existing 
depreciation in the plant as compared with a new one. It 
would seem to be inevitable that in many parts of the plant 
there should be such depreciation, as, for example, in old struc- 
tures and equivalent remaining on hand, and when an estimate 
of value is made on the basis of reproduction new the extent 
of existing depreciation should be shown and deducted. . . . 
And when particular physical items are estimated as worth 
so much new, if in fact they be depreciated, this amount should 
be found and allowed for. If this is not done, the physical 
valuation is manifestly incomplete. And it must be regarded 
incomplete in this case.” 
In the Minnesota Rate Cases the Master, in ascertaining a 
basis for rate fixing, had allowed the cost of reproduction new 
without making any deduction for accrued depreciation. The 
Master did not deny that there was depreciation but found that 
the same was more than offset by the appreciation in value of 
certain items. It was this finding which the Supreme Court 
refused to approve. 
The Supreme Court in its decision as usual makes value the 
starting point. Consequently the court says that depreciation 
must be deducted from the cost of reproduction new. But cost 
of reproduction is not “value.” Not even the value of the 
property new is exactly determined by its original cost. The 
opinion of the court becomes illogical if it be conceded to be 
unnecessary to make value the starting point when rates are to 
be fixed. But the Master, too, seems to have overlooked this 
point and sought to find something, appreciation in this case, to 
offset depreciation. He was quite as much at fault as the 
Supreme Court. And yet the allowance of appreciation in de- 
termining present value as a basis for fixing rates or for the 
issue of bonds is not uncommon. Railroads claim appreciation 
of their road-beds. Though it may be granted that the com- 
pacted road-bed, long in service, is worth more than a recently 
constructed bed, this should have nothing to do with the fixing 
of rates, no more than accrued depreciation should have. The