Mr. Riggs proposes adding to the physical value a minus "going concern value," and he is logical in doing so, if it is conceded that values for rate-making rest on profits; but this the writer does not concede for an instant. Values for rate-making cannot rest on the very thing that it is aimed to regulate, to wit, the rates charged. Until engineers and public service commissions and Courts free themselves from this confusion of cause and effect, there can be no rational theory of rate-making. Values for rate-making must rest primarily either on the actual costs of the production of a property or on estimated costs of reproduction, including therein both interest charges during construction and the sequel thereto—development expense. Of almost as great moment as the item of development expense is the question of depreciation. The author, in common with most engineers, holds that depreciation should be deducted. This is a consequence of regarding a public service plant as if it were a machine bought in a second-hand store. A public service plant is a device which is intended to perform a given service forever. It is true that its parts are subject to wear, and must be renewed from time to time; but the plant as a whole is everlasting, or practically so. Managers of public service corporations, perceiving this fundamental truth, have rarely established sinking funds for the redemption of any considerable part of the plant. In a great railway system the renewal of a freight car is not a proportionately larger item of expense than is the renewal of a tooth in a steam shovel bucket owned by a contractor. This fact, coupled with the permanence of the railway plant as a whole, has led railway owners to make no provision for a return of the money lost in depreciation. Railway ties in a large railway system inevitably reach a condition such that their average age is exactly half the life of the average tie. Shall a sinking fund be provided for ties? If not, where does logic place a line of demarcation? When does an element of the railway plant attain a condition of sufficient importance to warrant "writing off" some of its value from the capital account? The facts are that railway managers have not "written off" anything worthy of mention for depreciation, and, in the writer's opinion, they have been perfectly logical. Consequently, the operating expenses have been much less than they would have been during the early years, had a sum been placed annually in a sinking fund. Therefore, the development expense, as deduced from the accounting records, is less than it would be if a sinking fund were provided; and the amount of this difference is precisely the amount of the depreciation. In other words, if depreciation is to be deducted from the cost of reproduction, it must be added to the development expense ascertained from the accounting records; so that, in the final analysis, depreciation should be ignored