A great deal has been heard lately about "going concern value." Ultimately, the Courts will hold that, as far as rate-making is concerned, there is no such thing as "going concern value" in the present meaning of the term. "Going concern value," in the final analysis, consists of two elements: First, development expense (as previously defined), and, second, capitalized surplus earnings. Surplus earnings are ascertained by deducting from net earnings both taxes and a low rate of interest on the investment, equivalent to interest on bonds. Many factors may affect surplus earnings; but, that "going concern value" consists largely of capitalized surplus earnings, cannot be denied. What are surplus earnings? The public replies that they are mainly the result of extortionate charges. This is doubtless correct in many cases; hence, any investigation of costs which has for its object rate-making must inevitably lead to repudiation of that part of "going concern value" which is based on surplus earnings, if the surplus is at all large. In a word, we reason in a circle if we capitalize surplus earnings, calling the result "going concern value," and then undertake to use "going concern value" as one of the factors in judging the fairness of rates. To express the problem mathematically, we cannot solve for a variable when the variable is allowed to exist on both sides of the equation. Yet that is precisely what some rate-making bodies are trying to do, and it is precisely what the Courts have often attempted to do. To escape this confusion there is but one possible step, and that is to eliminate "going concern value" entirely. We must first determine the element of cost, which the writer terms development expense, and we must regard this item as a part of the cost of reproduction. We must next cease to consider small rates of interest as being a "fair return" on this cost of reproduction. When first-class mortgages draw 5%, it is folly to talk of 6% as being a "fair return" on capital invested in a business enterprise, especially when this 6% is figured on the actual cost of reproduction of the property. It may be that 7% is an ample "fair return" in some cases, but in others 10% will be found none too much, considering the small size of the business and the risks involved.