Valuation Act of 1913

[NW Mailing List]

Date: Tue, 14 Jul 2009 23:04:18 -0400
From: NW Mailing List <nw-mailing-list at nwhs.org>
Subject: Re: Peavine Pieces #2


Gordon stated:

"Congress in 1913 passed the Valuation Act requiring the ICC to determine the valuation of each railroad.  Of course, the railroads had to do the coolie work of counting each rail joint, hammer, cuspidor, etc.  As the work dragged on for years, far longer than the Government anticipated, the ICC struggled to make sense of the mountain of statistical data, and the valuation work cost the railroads probably something like a half a billion dollars in today's money."


July 15, 2009

Hello, all:

Following up on Gordon's cost estimate in today's dollars, in my view it was like Lionel's slogan printed on 1950s train set boxes: "A lifetime investment in happiness."  There was a very good reason to dedicate the time and expense of compiling valuation data that was mandated by the Valuation Act of 1913, aside from complying with federal law.

Under economic regulation, railroad companies were given an opportunity to earn an return on assets.  This was not a guarantee, but was a consideration in setting rates.  Overall, freight and passenger rates should be set at levels that earn an adequate return on investment.

It was therefore in the carrier's own best self interest to be sure that every item was counted and claimed at its book value for creating as large an asset base as it reasonablly could.  The bigger the asset pool, the more money the railroad had an opportunity to earn.

There was a second feature that worked in favor of railroads.  Most depreciation of assets were straight-line, and for extraordinarily long periods of time.  For example, a station had an expected life (I think) of 75 years.  Consequently, the asset base shrank very slowley.  In my view, this worked to the advantage of railroads as it tried to prove passenger services and branch-line operations were unprofitable.  Because the asset base was likely more than it would have been for a normal company under generally accepted accounting rules, railroads continued to show very anemic returns on investment.

Good morning,

Frank Scheer
f_scheer at yahoo.com