The writer will not at this time discuss methods of determining how a "fair return" should be estimated, but, in general, the process should be as follows: From the gross earnings deduct the operating expenses and taxes to obtain the net earnings. From the net earnings deduct a small rate of interest (equivalent to interest on bonds) on the cost of reproduction. The remainder is profit, and should be expressed as a percentage of the gross earnings. This percentage of profit can then be compared with similar percentages made by merchants, manufacturers, farmers, and other capitalists, and then it can be determined logically by comparison whether or not the profit made by a public service corporation is "fair." We must adopt this method of attacking the problem or we shall inevitably drive capital away from railway and other fields of public enterprise. The writer estimates roughly that a profit of 10% on gross earnings, as above deduced, is about the same as a direct return of 7% on the cost of reproducing the average steam railway. In a recent appraisal of a street-railway system, the writer determined the actual development expense of the property, deducing it from the accounting records. It was an astonishingly high sum, even assuming only 7% on the cost of reproduction as being a "fair return." During his appraisal of all the railways in the State of Washington, for the Railroad Commission, the writer made a similar study of development expense, but this was not included in his estimate of the cost of reproduction, as it was then regarded as being a part of the "going concern value" and he was not commissioned to ascertain the "going concern value" of the railways. Not a single railway, as far as he knows, has ever presented to a State Railway Commission, or to the Interstate Commerce Commission, an estimate of its development expense along the lines indicated. Instead, the railway companies have talked in general terms of long construction periods—often claiming 20 years or more—and of great expense incurred in building up the business, and of franchise value, and of a score or more of non-provable costs. The consequence is that they have frequently lost entirely the one great item that they are clearly entitled to, namely development expense, which is an item which can be absolutely proved from their accounting records, and, therefore, rests not on the "hot air" testimony of experts, but on facts that are incontrovertible. In like manner, other public service corporations have often signally failed to prove the full worth of their properties, because their claims for "going concern value" have been ignored entirely. When a franchise expires, the "going concern value" is usually looked on by the public as worthless, nor is this view to be wondered at.