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The Cost of Growing Timber in the Pacific Northwest,

as Related to the Interest Rates Available

to Various Forest Owners

BY

BURT P. KIRKLAND

Associate Professor of Forestry
University of Washington

Reprinted from the
Forest Club Annual, 1915

Seattle

University of Washington
1915

The Cost of Growing Timber in the Pacific Northwest,

as Related to the Interest Rates Available

to Various Forest Owners

BY

HURT P. KIRKLAND

Associate Professor of Forestry
University of Washington

Reprinted from the
Forest Club Annual, 1915

Seattle

University of Washington
1915

THE COST OF GKOWING TIMBER IN THE PACIFIC NORTH-
WEST, AS RELATED TO THE INTEREST RATES
AVAILABLE TO VARIOUS FOREST OWNERS
BURT P. KIRKLAND, Associate Professor of Forestry

The cost per acre of growing timber anywhere depends on five main
factors, viz. (1) The value of the land, (2) The cost of stocking it with
young trees, (3) The administration of the operation and protection of
the young timber, (4) The taxes, (5) The rate of interest. The cost per
thousand feet depends in addition upon the productivity of the land in-
volved. For the purpose of this discussion, however, the statement may
best be put in another way, namely, that the costs per acre are as follows :
(1) Interest on the value of the land, (2) The cost of stocking it with
young trees, (3) Interest on this amount from time of stocking to
maturity, (4) The annual expenses for administration and protection,
(5) Interest on each annual expense from time of expenditure to time of
maturity of the timber, (6) The annual taxes, (7) Interest on each
annual tax from time of payment to maturity of the timber. The total of
these costs per acre, divided by the average product per acre gives the cost
of producing 1,000 board feet of timber.

The amounts for some of these items vary with natural conditions,
and of others, with the ownership of the land. Thus state or federal
ownership modifies the element of taxes and changes the rate of interest.
Private ownership might facilitate administration in some ways, though
it can hardly be expected to reduce the cost, owing to the smaller areas
administered. The amounts of the various items under various conditions
and forms of ownership are discussed below.

Interest on the Land Value

The cost of cutover lands of supposed agricultural value, or of a
nature such that the seller can convince the inexperienced buyer that they
have agricultural value would probably run from $10.00 to $50.00 per acre
in Washington, where the values are not influenced by proximity to centers
of population or other advantages of a similar nature. Hillsides, appear-
ing even to the unpracticed eye too steep for agriculture, may be pur
chased for $3.00 to $5.00 per acre. The higher values first mentioned
are undoubtedly beyond any present use value of the land for agriculture,
but the optimism of the West can be depended upon to maintain them,
because the buyer of land has sanguine ideas as to the income to be de-
rived. If the land is to be used for forestry we must concede that current
values must be met. Land which is held at over $10.00 per acre should
have agricultural value, and for the present at least, should be considered in
that class and no attempt made to use it for forestry. The writer, therefore,
believes that in Washington fair values for forest soil would be $10.00 per
acre for Quality I, $5.00 for Quality II, and $2.00 for Quality III, re-
ferring to three quality yield tables for Douglas fir prepared by the U. S.
Forest Service.* These tables classify quality of soil for forest purposes
according to its actual productivity. In growing timber it must be re-
membered that the soil is not used up by the growth of the timber. The

"These yield tables, prepared by E. J. Hanzlik of the U. S. Forest Service are
as yet only In manuscript form. (See page 5.)

323444

charge against the growing timber for one rotation, or single crop, is
therefore not the soil value, but only the interest on that value for the
term of years it takes the timber to grow. Since the timber is not an annual
product, the interest cannot be secured annually, but must accumulate until
the timber is cut. Hence compound interest is used. What this will amount
to at rates applicable to forestry will be discussed later, and shown
specifically in the tables forming part of this discussion.

Cost of Stocking Land With Trees

While space is not here available to take up in detail the cost of stock-
ing the land, there is good evidence, that $5.00 per acre is a fair average
figure. Although planting on a bare area will cost nearer $10.00, few areas
need be chosen which do not bear some young growth or contain some seed
trees which will assist artificial regeneration. Areas that have not been
cut over can seldom be stocked any cheaper by natural regeneration than
by planting, since the value of the seed trees that must be left will usually
bring the cost up to the average figure mentioned above unless there are an
unusually large number of worthless trees of the desired species which may
be used as seed trees. A skillful combination of planting with natural
regeneration from stands not yet cut, and artificial regeneration by planting
or seeding should bring the operation within this cost.

Unlike the land cost, the expense of stocking the land with trees has
to be repeated every time the timber is cut. This amount must, therefore,
be charged against the product of each planting.

Interest on Cost of Stocking Land

The interest on the cost of stocking the land might have been included
with the foregoing item, but it is here treated separately in order that all
interest charges under various kinds of ownership may be segregated. As
in the case of interest on the land value, compound interest must be used.
The amount of this item at various rates will be shown specifically in
tables forming part of this discussion.

The Annual Cost of Administration and Protection

Kellogg and Ziegler maintain that the annual cost of administration
and protection can be handled for five cents per acre.* An analysis of the
actual conditions will show that five cents is not sufficient for safety. It
must be remembered that this includes office expense, supervision, fire patrol,
patrol against trespass, and all other overhead expenses. Although forest
fire insurance is not at present one of the expense charges included in this
Item, the practicability of insuring forests by an enlargement of the
scope of the forest fire protective organizations is such that it is bound
to come in the near future. Hence this figure should also be high enough
to include forest fire insurance. In the case of the state or the federal
government, the losses from fire must be charged to this item. Whatever
amount accumulates between planting and cutting a single crop must be
charged to that crop. The writer does not therefore, believe that the low
figure generally assigned to the annual cost of administration and pro-
tection is sufficient, but will assign 20 cents per acre per annum as a
reasonable, though entirely sufficient amount. The total first cost, or
principal sum of this item per acre charged to a single crop of trees
*"Cost of Growing Timber," by R. S. Kellogg and E. A. Ziegler.

will be the annual charge (20c) multiplied by the number of years the
crop takes to grow.

Interest on Administration Costs

Compound interest at the chosen rate on each annual amount from
the time it is expended until the timber is cut must be calculated. This
may be done by compound interest formulae, or taken from such tables
as those in Schenk's "Forest Finance."* The specific amounts under
certain conditions will be considered later.

Annual Taxes

The annual taxes is a difficult item to foresee. At present taxes in
Washington are all considered under the general property tax (a most
unscientific system) averaging perhaps 1 per cent to 2 per cent on the
actual value of the property. Since, owing to the urgent need of schools,
roads, etc., in a pioneer community, and the absence of improved prop-
erty, taxes may now be thought to be high. A rate of 1 per cent on the
actual value of the property may perhaps be considered a fair figure
when the future is to be taken into consideration.

Even if this figure is conceded fair, our difficulties have really just
begun because of the changes in value that will take place with time, due
to the growth of the stand and to changing land values and stumpage
prices, to say nothing of continual changes in assessment methods. The
following figures are, however, intended to represent a fair approximation
of the values to be expected on Quality I Forest Soil, which, as already
stated, is considered to be worth $10.00 per acre.

(1) Up to the 20th year of the stand only the soil value of $10.00
per acre would generally be considered by assessors. During this period
the taxes at 1 per cent would be 10 cents per acre.

(2) From the 21st to the 30th years of the stand perhaps $10.00
per acre might be added to the valuation because of the young stand,
making taxes 20 cents per acre per annum.

(3) From the 31st to the 40th years of the stand, since it is not yet
in the saw timber class, it can best be estimated in cubic feet. It will
now contain (on Quality I Soil) 4,000 cubic feet per acre, or about
40 cords, which as pulpwood would be worth, say 50 cents per cord,
bringing the total value of land and timber up to $30.00 per acre and
the tax to 30 cents per acre per annum during this period.

(4) From the 41st to the 50th years the volume will be about
20,000 ft. B. M. per acre, worth on the average (considering increased
stumpage prices in the future) at least $3.00 per M., or $60.00 for the
whole stand. Hence soil and timber would be worth $70.00 per acre and
the annual tax 70 cents.

(5) From the 51st to the 60th years the stand would contain an
average of about 35,000 ft. B. M., with a stumpage value of say $8.00
per M., hence the total value of stand and soil, $290.00, and the annual
tax $2.90 per acre. y

To recapitulate, the taxes on Quality I Forest Soil by the general
property tax are estimated somewhat as follows:

1st to 20th years, 10 cents per acre per annum.

21st to 30th years, 20 cents per acre per annum.

31st to 40th years, 30 cents per acre per annum.

41st to 50th years, 70 cents per acre per annum.

51st to 60th years, 2.90 cents per acre per annum.

*"Forest Finance," by C. A. Schenk.

Considering the smaller volumes and poorer qualities with the Quality
II soil the taxable values would be worth only about two- thirds as much,
and with Quality III soil one-third as much; hence taxes may be assumed
to be only two-thirds and one-third as much respectively, both as to first
cost and interest accumulated. Taxation will be further discussed on
the basis of the cost tables forming part of this discussion, after those
tables are presented.

Interest on Taxes Under General Property Tax

Compound interest must be computed on the amounts paid in taxes
from the time paid until the timber is mature. The specific amounts de-
pend on the interest rates and the age to which timber is held, and will
be considered hereafter.

Matters Which Influence the Above Elements of Cost

(a) Ownership. The chief classes of forest owners as affecting
these elements are the federal government, the state, municipalities, large
corporations, small corporations, and individuals. The chief items affected
by ownership are:

(b) Taxes. The federal government pays 25 per cent of the gross
yield directly to the states and expends another 10 per cent on roads, but
as the roads are of equal value to the forests only the 25 per cent paid
to the states will be considered as a gross yield tax. Lands owned by
states and municipalities are also in a sense not subject to tax, but in
another sense if we assume that the land would be worked under forest
management either publicly or by private owners we may conclude that
the state and municipality will lose tax revenue by reason of their land
ownership, because of withdrawing lands from taxation, and must there-
fore make up from their forest revenue the deficit in their general fund
as discussed hereafter.

If the federal government and the private owner pay 25 per cent
of the gross yield of the forest for taxes, the state and municipality should
set aside 25 per cent of the gross forest revenue from stumpage for their
general fund. If the municipality is the owner it might be required to pay
the state such a part of the 25 per cent set aside as the state's share of the
taxes amounts to, and which will otherwise be lost by holding the land in
public ownership. If the state were the owner it should pay the munic-
ipality, or local taxing body its proper share of the 25 per cent. Of course
in practice this system of book-keeping might not be carried out in detail,
but in effect it would be, if the practice of forestry proceeded profitably.

(c) Interest. This varies more widely with ownership than taxes.
The fact that individuals, states, and the nation have to pay different
rates is so well known as to need little comment except to name an aver-
age rate for each. The writer considers the following a fair average
rate for each class of owner:

Federal Government 3 per cent.

Sfate (Washington) 4 per cent.

Municipality 4 % per cent.

Large Corporation 4 % to 5 per cent.

Moderate Sized Corporation 6 per cent.

Small Corporation and Individual 7 per cent.

Naturally no owner will, from the standpoint of financial invest-
ment, care to engage in forestry unless he can make as high a per cent
on his capital as he will have to pay for borrowed capital, or at which

he can lend his money. Hence the above rates will be used in calculations.

(d) Length of Time Between Planting and Harvest. This in-
fluences the amount to which the interest charges on the various items
will accumulate. In previous calculations the writer has found the best
available evidence seems to indicate about 60 years as giving the highest
profits from the use of the soil for private forestry, while 80 to 100 years
is more profitable for government forestry. In order to make a comparison
as favorable as possible to private forestry, 60 years is chosen for the
length of rotation. Specific costs are figured on this basis using the
various interest rates already named.

Influence of Yield Per Acre on Costs Per Thousand Board Feet.
Except for the interest on the soil value and the taxes with interest there-
on, the foregoing elements of cost per acre will not vary widely on dif-
ferent qualities of soil. It is, of course, common knowledge that the yield
on different soil qualities will vary greatly. This variation is even greater
than generally supposed. The United States Forest Service has made a
careful study of this subject in Western Washington and Oregon, the
results of which have unfortunately only in part been published. In this
study measurements were taken of stands on a wide variety of soils
which were classified into three qualities on the basis of the yields found.
Quality I or first quality 44 M. per acre, Quality II or medium quality 32
M. feet per acre and Quality III or poorest quality 16% M. feet per acre
for the same period. Obviously, then, if the cost per acre of growing the
timber remains little changed for the different qualities the cost per 1,000
feet B. M. will be much less in the case of large yields, just as would be
the case in an agricultural crop. These results are brought out in tables
about to follow, in which the yields shown by the U. S. Forest Service
study are used as authoritative.

Results of Foregoing Elements Presented in Tabular Form. The
definite results of the foregoing elements have been worked out mathe-
matically for each item and are presented in the following tables in order
to show their relationships, and make comparisons of different interest
rates and tax systems as simple as possible. The itemized and total costs
to owners working under different interest rates are presented in a single
table for each of the soil qualities already mentioned. Costs on Quality
I soil are presented in Table I, on Quality II soil in Table III, and on
Quality III soil in Table V. The intervening tables present summaries
of those mentioned in which the first costs, the interest charges and the
tax costs are segregated and their percentage relations to each other
computed.

On Quality II forest soil the costs per acre are reduced slightly
owing to lesser soil value, and hence to less taxes due to the lower soil
value and the smaller volume of stand of timber. The land is considered
worth $5.00 and the taxes to be two-thirds of what they were on Quality
I. The yield according to yield tables prepared by the U. S. Forest
Service will be 32,000 ft. B. M. per acre at 60 years. The costs will be
as shown for different owners in Table I.

Comparing Table III with Table I, it is seen that where interest
rates are low, costs per acre are not reduced much below Quality I, but
as yield is less the cost per M. is raised, except in the case of 6 per
cent and 7 per cent interest rates. Where interest is high, reduction in land

TABLE I.

Estimated average costs per acre and per M. feet B. M. of growing
Douglas fir on Quality I, or best quality forest soil, under a 60 year rotation,
computed for interest rates securable by various classes of owners.

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Estimated interest rate
for various classes of
owners 3% 4% 4V2% 5% 6% 7%

'Compound interest on

$10.00 soil value, 60

years f 48.91 $95.19 $130.27 $176.79 $319.88 $ 569.48

Cost of stocking land

with young trees .... 5.00 5.00 5.00 5.00 5.00 5.00

Compound interest on

cost of stocking 24.46 47.59 65.14 88.40 159.94 284.74

Sum of annual charges

for administration

and protection (20c

per year for 60

years) 12.00 12.00 12.00 12.00 12.00 12.00

**Interest on all amounts

spent on administra-
tion and protection

from time incurred to

time of cutting 20.61 35.60 45.90 58.71 94.62 150.71

Taxes under general

property tax when

owner subject to

them 43.00 43.00 43.00

Interest on taxes from

time planted to time

of cutting timber ***52.04 77.40 114.42

Yield tax of 25% on final

product f36.99 f65.13 f86.10

Total per acre $147 . 97 $260.51 $344.41 $435.94 $711.84 $1,179.35

Cost per M. when product
is 44 M. per acre. The
probable yield as
shown by U. S. F. S.
yield tables $ 3.37 $ 5.92 $ 7.83 $ 9.91 $ 16.17 $ 26.80

*See interest table in Schenck's Forest Finance, Column IV.

**See interest table in Schenck's Forest Finance, Column V.

**There are at least two methods of computing compound interest on the
taxes. The simplest method for purposes of this discussion is to analyze as
follows, using the 5 per cent column in Table I. Consider that from the 1st
to the 60th year, lOc per annum is paid for taxes. Referring to an interest
table, we find that compounded for 60 years this accumulates to $35.36, includ-
ing principal and interest. Beginning with the 20th year, an additional lOc
per acre is paid for the remiander of the rotation, or 40 years. This amounts
to $12.08 during the 40 years. Beginning with the 30th year, another lOc is
added to taxes for the remainder of the rotation. This accumulates to $6.64 in
the remaining 30 years. Beginning with the 40th year, 40c is added to taxes
for the remainder of the rotation. This accumulates to $13.24 in the 20 years.
Finally in the 50th year $2.20 more is added to the taxes, which in the 10
years remaining accumulates to $27.72. The total taxes and interest thereon
for the rotation amount to $35.36 plus $12.08 plus $6,64 plus $13.24 plus $27.72
equals $95.04, the total accumulated taxes, both principal and interest. Take
therefrom $43.00, the principal sums paid, and there remains $52.04, the accu-
mulated interest on the taxes.

fThis figure represents the cost to the owner of a 25% yield tax when the
various items of cost of production are as shown in the same columns. Since a
25 per cent yield tax takes 25 per cent of the product, it is evident that the
cost of the the tax to the owner would be one-fourth of the total cost of
production, including taxes. All the costs aside from the yield tax would then
amount to three-fourths of the total cost and the yield tax would be one-third
of the other costs. It is thus that the cost of the yield tax is computed in
these tables, that is to say, one-third of the costs aside from taxes is the cost
of the 25 per cent yield tax in each case. In case stumpage sells at more than
the cost of production all the profits on 25 per cent of the yield go to the state

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and profits will be made by the owner only on the 75 per cent remaining to
him. That is, the figures shown in these tables represent the cost of the tax,
but its actual amount will depend on the stumpage values at the time of
cutting. __

value brings about a much lessened interest charge so that costs are re-
duced more than yield. This results in a slightly smaller cost per M.
on this Quality of soil.

On Quality III forest soil the costs per acre are again reduced
slightly, owing to reductions in soil value and in taxes due to a lower soil
value and a smaller stand of timber. The land is considered worth $2.00
and the taxes to be one-third of what they were on Quality I. The yield
will be only 16,500 feet per acre at 60 years, according to Douglas fir
yield tables by E. J. Hanzlik, of the United States Forest Service. The
costs of artificial planting would be increased on Quality III because of the
unfavorable soil conditions and also because trees should really be planted
thicker. On account of the low yield per acre natural regeneration might
be the most profitable.

The costs for different owners are shown in Table V.

TABLE III.

Estimated average costs per acre and per M. ft. B. M. of growing Douglas
fir on Quality II or medium quality forest soil under a 60 year rotation, com-
puted for interest rates securable by various classes of owners.

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Estimated interest rate

paid by owner 3% 4% 4%% 5% 6% 7%

Compound interest on es-
timated soil value
($5.00), 60 years $24.46 $47.60 $65.14 $88.40 $159.94 $284.74

Cost of stocking land with

young trees 5.00 5.00 5.00 5.00 5.00 5.00

Compound interest for 60
years on cost of stock-
ing land 24.46 47.60 65.14 88.40 159.94 284.74

Sum of annual charges for
administration and pro-
tection for 60 years
(20c per acre per an-
num) 12.00 12.00 12.00 12.00 12.00 12.00

Compound interest on all
amounts, spent on ad-
mininstration and pro-
tection from the time
incurred to time of cut-
ting 20.61 35.60 45.90 58.71 94.62 150.71

Taxes under general prop-
erty tax **28.66 **28.66 **28.66

Interest on Taxes **34.70 **51.60 **76.28

Yield tax 25% on final

product *28.84 *49.27 *64.39

Total per acre $115.37 $197.07 $257.57 $315.87 $511.76 $842.13

Total cost per M. on basis
of 32 M. per acre yield
in 60 years $ 3.61 $ 6.16 $ 8.05 $ 9.87 $ 16.00 $ 26. SI

*See foot-note under Table I.

**Since, as stated on page 5, the value of the yield on Quality II soil, though
three-fourths as much in quantity, will on account of the smaller sized timber
not be more than two-thirds as much in value as the yield on Quality I, the
taxes have been assumed to be only two-thirds as great. These figures for
both the taxes and the interest thereon have therefore been derived directly
from corresponding values in Table I by computing two-thirds of each value
there as the correct figure for this table.

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INFLUENCE OF THINNINGS

On Quality I Soil. Where thinnings are possible the costs may be
reduced by utilizing thinnings about the 30th, 40th, and 50th years.
Other studies by the writer, based on number, volume, size, etc., of trees
per acre shown by Forest Service yield tables, would seem to indicate
pretty clearly that on Quality I soil, timber of at least the values in-
dicated in Table VII, may be removed in thinnings where they are util-
izable. There is furthermore very little doubt that all thinnings from
young stands originated now or hereafter may be utilized because even
now demands for pulpwood, ties, and mine timbers are capable of using
all of this type of timber within easy reach of transportation.

Tables VII, VIII, and IX show possible deductions from cost due to
this source of income, but the data along this line are not as reliable as
other cost data because of uncertainty as to the future price of wood.

TABLE V.

Estimated average costs per acre and per M. ft. B. M. of growing Douglas
flr on Quality III, or poorest quality, forest soil under a 60 year rotation,
computed for interest rates securable by various classes of owners.

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5%

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Compound interest on soil
value ($2.00) for 60
years $ 9.78 $ 19.03 $ 26.05 $ 35.36 $ 63.96 $113.90

Cost of stocking with

young trees 5.00 5.00 5.00 5.00 5.00 5.00

Compound interest on cost

of stocking 24.46 47.60 65.14 88.40 159.94 284.74

Sum of annual charges for

administration 12.00 12.00 12.00 12.00 12.00 12.00

Compound interest on all
amounts spent for ad-
ministration and pro-
tection from time in-
curred to time of cut-
ting 20.61 35.60 45.90 58.71 94.62 150.71

Taxes under general prop-
erty tax — when owner
is subject to them **14.33 **14.33 **14.33

Compound interest on

taxes **17.35 **25.80 **38.14

Taxes under 25% yield tax.

Final product *23.95 *39.74 *51.36

Total cost per acre ..$ 95.80 $158.97 $205.45 $231.15 $375.65 $618.82

Total cost per M. on basis
of yield, per acre, in
60 years, 16,500 ft. B. M.$ 5.80 $ 9.64 $12.45 $14.01 $22.77 $37.50

*See footnote (**), Table I.

**As stated on page 8 the value of the yield on Quality III, or poorest
quality forest soil, will not be more than one-third that on Quality I soil,
hence the taxes under general property tax may be assumed to be only one-
third as great. These figures for both taxes and interest thereon have,
therefore, been derived directly from corresponding values in Table I by
computing one-third of each value there given as the correct figure for this
table.

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anp i^^o; jo

anp

jo

anp

jo

co ,-1

e-

® 0

r<M

•<-> 0)

•SE

_ <l) fi ^ ? <U C+J

Srf*0010-®

O-H Cq ft

•MO O

o o .3 o
H <| fa <J

11

On Quality II Soil. The volume of the thinnings to be obtained on
Quality II soils may be expected to bear the same proportionate relation
to the volume of thinnings on Quality I as their respective total stands,
i. e., as 32,000 is to 44,000, or 8 to 11. The thinnings on Quality II soil,
however, will be of smaller sizes, hence less valuable. It seems safe
therefore, to assume that the total value will not be more than one-half
as great. Hence these thinnings will be expected to make only one-half
as much from the total costs as on Quality I soil.

The amount to be deducted from the total costs per acre on Quality
II soils because of the thinnings may then be determined directly by
taking half the values deduced for thinnings and interest on Quality I
soils as shown in Table VII. Table VIII shows these amounts per acre
and the resulting amounts per M. ft. B. M.

On Quality III Soil. The volume of the thinnings to be expected
from the Quality III soils may be determined by proportion just as they
were for the Quality II soils. In this case it would be as l6l/2 is to 44.
As a matter of fact, however, the small sizes grown on Quality III soil
would greatly lessen the value of the yield from thinnings so that it may
be doubted whether this would exceed one-third of the value of Quality I.
Assuming it has one-third the value of the Quality I thinnings, the values
of thinnings per acre with interest thereon for Quality III may be taken
directly as one-third of the corresponding values in Table VII.

TABLE VII.
Possible Deductions From Costs Due to Thinnings — Douglas Fir — Quality I Soil

!

ITEMS— O

2 o $

fill

.2*

^a

3|

& oa 8 5

S

s

Interest

rate

3%

4% 4^

i% 5%

6%

7%

Value of 30th year, thin-
ning— 4 cords pulp-
wood at 50 cents per
cord $ 2.00 $ 2.00 $ 2.00 % 2.00 $ 2.00 $ 2.00

Accumulated interest on
this value, 30th year to
60th year 2.84 4.48 5.48 6.64 9.48 13.22

40th year thinning — 5 cords
pulpwood worth $1 per
cord stumpage 5.00 5.00 5.00 5.00 5.00 5.00

Accumulated interest for 20

years 4.05 5.95 7.05 8.25 11.03 14.35

50th year thinning — 10
cords pulpwood worth
$1.00 per cord 10.00 10.00 10.00 10.00 10.00 10.00

Accumulated interest for 10

years 3.40 4.80 5.53 6.29 7.90 9.67

Total amount saved per
acre when thinnings
are utilized $ 27.29 $ 32.23 $ 35.06 $ 38.18 $ 45.41 $ 54.24

Amount saved per M. ft. B.
M. when final yield is
44 M. per acre * .62 $ .75 % .79 $ .87 $ 1.03 $ 1.23

12

TABLE VIII.
Possible Savings in Cost Due to Thinnings on duality II Soil

~§ I i7

•M o J3 K

S -o 25

"> >> 0) O —

o ft ft £*

ITEMS— O « §

« nr, o c

s
i
i

1

02

3

0)

bo
c

rt

1

p

02

Interest rate

3%

4%

4V %

5%

6%

7%

Total amount saved per
acre when thinnings
are utilized $ 13.64 $ 16.11 $ 17.53 $ 19.09 $ 22.70 $ 27.12

Amount saved per M. ft. B.
M. when final yield is
32 M. per acre $ .42 $ .50 ? .55 $ .59 $ .71 $ .85

TABLE IX.
Possible Savings on Cost Due to Thinnings on Quality III Forest Soil

s $ §

ITEMS— O g

- ft «

c

0

<D

3 g

p-"O

"3

C

bo

^o

3s

i

02

§

5

<B ft

gcj
02

Interest rate

3%

4%

4y2%

5%

6%

7%

Total amount saved per
acre when thinning's
are utilized ........... $ 9.09 $10.74 $ 11.68 $ 12.73 $ 15.14 $ 18.08

Amount saved per M. ft. B.
M. when final yield is

M. per acre ....... $ .55 $ .65 $ .70 $ .77 $ .91 $ 1.09

Certain Modifications of Costs

In General : It is believed that the costs given in the preceding tables
represent as fair averages of the cost of growing timber by means of
good forestry practice as can be given for the conditions on the west side
of the Cascades in the Pacific Northwest. It is, however, obvious that
average figures, no matter how correct, cannot be applied directly to all
individual cases. In so far as the first costs in a specific case are known
to be susceptible of modification, the final costs may be enormously modi-
fied. For example, it is entirely probable that much land which is already
stocked with young growth could at the present time be bought at the
rates specified in the tables, thus saving the cost of stocking entirely and
perhaps several years' interest on other costs. This would greatly increase
the possibilities of profit on the area in question, because in forestry every
dollar saved at the beginning of the rotation may mean from $5.00 to
$50.00 at the end, according to the interest rate. Likewise land already
stocked with timber might be bought below the price specified, in which
case, still more could be saved.

13

Certain owners might save all or portions of other costs, or find them
properly chargeable to other lines of business which they conduct. Thus
a coal mining company might find it necessary to hold a large area of
coal lands, the surface of which is unsuited to agriculture, or other use
except forestry. In this case it would be fair to charge all the land
value to the coal, thus removing the heavy interest cost on land value
from the forestry costs. On Quality I soil this would remove a charge
of $4.02 per M. from the cost of producing timber if the company worked
with 5 per cent money. This would enable a company of this sort to
produce timber as cheaply as the state.

In municipal forestry, a city finding it necessary to own land for
watershed protection might practice forestry without charging interest on
land value to it, and might also charge a large part of the actual admin-
istration cost to the water department because sanitary patrol is neces-
sary anyway. This would reduce the cost of raising timber to a city
below the average cost shown by the federal government, and make the
industry one of great direct financial benefit.

When it is remembered that the logging and manufacture of this tim-
ber means that upwards of $8.00 is paid out in wages for every thousand
feet of timber manufactured, and that the city consumer may as a result
of the local timber supply get the manufactured product cheaper, where
the city already owns its watershed, no other argument for city forestry
is necessary. To put the case in another way, it may be stated that
since the average acre of forest soil will in this region produce about 500
feet of timber per annum, any city which practices forestry will for the
average acre thus kept in forest produce raw material which will some
time insure the payment of $4.00 or more in wages for each year the
land is kept producing forests. One hundred and fifty acres kept in
forest will support at least the equivalent of one laborer and his family
permanently, besides paying a handsome profit to the city. Municipal
forests of this type are common in Europe, where profits as high as
$12.00 per acre per annum are now made. Of course, no such profit is
possible at present in this country, but America is already well on the
road to this condition.

Large Corporations

The large corporation can practice forestry because of its low in-
terest rate and the economies in administration and protection due to the
ownership of large areas. Where it has holdings in several localities its
fire losses will not exceed the average losses of the community, so it will
be cheaper for it to carry its own insurance than to pay premiums to
a forest fire insurance company, even when the time comes that forest fire
insurance is available. Even a heavy fire loss would not cause a corre-
spondingly heavy immediate expenditure, as when a mill is destroyed, but
would be made up gradually in growing a new crop. In spite of these
facts the large corporation is not yet convinced that forest production
would be profitable for it, although a study of the question gives convinc-
ing indications that it would be so, especially in the case of corporations
which desired to make their life, and hence their investments, perpetual.
However, the present political efforts looking toward the destruction of
all large business enterprises may result in disintegrating these corporations
so that their efficiency and command of capital will be so decreased as to

14

put them out of the class which might practice forestry successfully. Un-
til these political questions are settled, therefore, it would probably be
unwise for the large corporation to engage in an enterprise involving a
continuous policy for so long a time as is required in forest production.

Railroad corporations not being so subject to this destructive action
by government, because the problem of handling these natural monopolies
is largely settled, do not labor under this latter disadvantage, though
possessed of the other advantages of large corporations. They have also
at least three additional advantages which would make it profitable to
engage in forest production on lands already owned. The first is that
they are large consumers, and the cheapest possible supply of timber
is of enormous importance to their construction and maintenance depart-
ments. The second follows from this that since they are large consumers
practically all selling costs would be saved to their forestry departments.
The third reason lies in the fact that the railroad depends on adjacent
territory for tonnage. Land adapted only to forestry will yield little
tonnage any other way, but as already stated in the case of the munici-
pality, in this region such land will under forest management yield at
least 500 feet B. M. per annum on the average. This, then, means to
the railroad that every acre kept under management will some time yield
500 feet of lumber, or from 1,500 to 2,000 Ibs. of freight for each year
that the forest crop is maintained. If this lumber should be shipped to
the middle west it means a gross revenue to the railroad of perhaps $5.00
or more per acre per annum, for transportation only.

The Small Owner — The writer believes that the forester can seldom
advise the small owner, either corporate or individual, to practice forestry
except in the case of the farm woodlot owner. The farmer consumes
most of the product of his own forest, thus saving all selling costs, mid-
dleman's profits, and transportation to a distance. What he does not
consume goes to his neighbor. To this strong economic position as to
markets may be added several other advantages. Protection and admin-
istration costs nearly disappear because the farm woodlot is generally in
sight of the residence and fields, and is surrounded by clearings, hence
patrol is unnecessary and fires seldom will occur. Because of the small
cutting areas necessary in the farm woodlot, reproduction will in nearly
every case come naturally, without extra expense, providing grazing is
properly restricted. Finally, though the farmer pays high interest rates
when he borrows, he works principally on his own capital, on which he
makes a very low rate as a rule. Hence in most cases his forest invest-
ment really comes in the low interest rate class.

These advantages place him in the best position of any private owner
and the large product of farm woodlots in this country as compared
with the National Forests indicate that their economic position is much
stronger than the latter. Cuttings can be carried on annually in the
farm woodlot in most cases, thus resulting in an annual income from it,
and also in the most complete utilization, because windfalls and trees
otherwise damaged can be utilized before they decay. Some of these
advantages will not be realizable until the pioneer stage is passed, but
this will undoubtedly pass with great rapidity in this state because of
the many natural advantages it possesses for the settler.

In spite of the great possibilities of the farm woodlot, full produc-

15

tion is not likely to be realized unless some technical advice is available.
Practically all governments have found it expedient to furnish this at
government expense. This is now being done in the Eastern United
States, and should be strongly recommended here. It may seem prema-
ture to take up such work at the present stage of farm development in
Washington, but as a matter of fact, large farm areas are bound to suffer
in the not distant future for want of timber because its obvious abundance
led to the cutting of every tree for lumber. The down timber will dis-
appear within a short ime and leave no timber available on many farms,
or at a convenient distance from them. Moreover, a farm woodlot may
usually be established in a recently logged off area at no expense, while
later, when all young growth has been destroyed, planting would be
necessary.

It is, of course, obvious that if any owner can make forestry pay
one per cent or more over the rate at which he can borrow money, he can
on his own capital make two per cent or more above the interest rate
at which he can borrow. For example, if a corporation can make capital
invested in forestry yield six per cent and can borrow at five per cent,
it can carry on an operation by borrowing 50 per cent of the capital
required at five per cent and carrying the other 50 per cent by funds
leceived originally from sale of stock. Since all the capital yields 6 per
cent, while only 5 per cent interest is paid on half of it, the other half
will receive 7 per cent. If it borrows two-thirds of its capital at 5 per
cent, the remaining one-third receives 8 per cent dividends. In the same
way if a state can make capital it uses in this way yield 6 per cent,
though borrowed on 4 per cent bonds, the portion of its capital coming
from its general fund would yield 10 per cent, i. e., 6 per cent earned
by the general fund proposition itself, and 2 per cent additional from each
of the thirds coming from bonds. By using its general credit the state
could borrow all the funds on 4 per cent bonds and make 2 per cent on
all capital borrowed without advancing a cent from its general fund. Or
it may prefer to let its citizens have the wood products at cost and neither
make nor lose money.

Taxes as an Element in Cost of Producing Timber*

It should be noted first of all that taxes do not, as sometimes stated,
make up the chief cost of the production of timber. They are in fact

*Many foresters in computing cost of growing timber, have treated taxes
under the general property tax as an average sum paid annually throughout
the life of a single crop. This introduces gross inaccuracy into the calcula-
tion of the interest charge on the taxes, making the taxes and interest
thereon appear to be far greater than is the case in practice. This may ac-
count for the widespread idea that taxes are the chief cost in growing timber.
A specific example as to what the effect of this method would be in the
present computation is as follows:

The total first cost of taxation on Quality I soil in 60 years, as shown
in Table I, on the basis of the tax estimates on page 6, is $43.00. By the
method of averaging the general property tax over the entire time of grow-
ing a crop this would amount to an average of 72 cents per acre per annum.
Referring to interest tables we find that with 6 per cent interest $1.00 paid
annually and placed at interest for 60 years amounts to $533.14 by the end
of the period. Seventy-two cents paid annually would, therefore, amount to
.72x$533.14 equals $383.86, total accumulated sum, both principal and interest.
Deduct $43.00, the principal, and we have left $340.86, the accumulated interest.
Compare this with $77.40, the accumulated interest at 6 per cent when it is
computed on the general property tax sums more nearly according to their
actual incidence and the difference is striking. It is so great in fact as to
make taxes together with interest thereon, appear as one of the most important
costs in forestry, when such is not the case.

16

rather a minor charge, though undoubtedly making up a larger proportion
of the cost of production than in some other industries. Mr. J. W. Bris-
lawn, of the State Tax Commission, stated before the tax conference at
the University of Washington, May, 1912, that the farmer pays ap-
proximately 6.43 per cent of his gross earnings for taxes.** Referring
to Tables II, IV, and VI, it may be seen that the first cost of taxes under
the general property tax amounts to from 3 per cent to 10 per cent of the
cost of producing timber, hence not differing widely from taxes in agri-
culture. However, so far as the owner is concerned, the actual cost to
him is more than twice as great because of the interest charges which
accumulate on the tax payments before the timber crop can be harvested.

If the taxes were deferred until the crop is harvested it would be
of advantage to the owner without an entirely corresponding loss to the
state which works under a lower interest rate. A yield tax at the time
of cutting, greater in the aggregate than the present general property
tax, in fact large enough to entirely reimburse the state for the deferred
payment, would be advantageous to the producer of timber.

Should the producer of timber be subjected to a yield tax it would
need to be placed at much less than 25 per cent of the gross yield or it
would cost the owner far more than the present system, interest included.
By referring to the 6 per cent column in Table I, it may be seen that
the amount of the general property tax and interest thereon is $120.40.
If a 25 per cent yield tax were computed, as in the 3 per cent to 4^
per cent columns, it would cost the owner $163.81, a much greater amount
than the present system. The main advantage of the yield tax then, unless
the percentage were reduced, would be that it could be met easier when
the timber was cut. This would be no great advantage except to owners
who managed forests under intermittent yield, a poor system, and one
not apt to be maintained by any owner. A properly managed tract will
give a yield annually from some part of the tract. Hence this system
is not considered by the writer to be of much value, unless the percentage
cf the yield taken were reduced much below that now paid by the
federal government. Therefore, the state cannot hope to secure anything
like the tax revenue from private lands in forest as it now secures from
the National Forests; or rather as it will secure when cutting is in full
force in the National Forests.

In this connection it should be emphasized that, as a matter of fact,
it is a fallacy to assume that even the state can practice forestry without
paying a tax. The presence of the utilized forest means people. Peo-
ple mean taxes for schools, roads, and general expenses of government.
Hence the state must spend money for the ordinary purposes for which
taxes are expended. If it does not take this money from its forest
revenue it must come from general revenue. Hence in effect if the state
undertakes to own productive property it must pay taxes which the
private owner would have paid had the resource remained in private
ownership. Since the state is an aggregation of citizens mostly tax-
payers in some form, payment of these expenses out of general funds by
the state is the same as paying a tax by the citizens.

**See p. 40. Taxation in Washington, University of Washington Exten-
sion Series No. 12.

17

Necessity for Securing Capital for Forest Production in the
State of Washington

Production of timber, it appears from the foregoing, is mainly a
question of the investment of capital either by the nation, state, individual,
or some other owner. Those owners who must pay or can get high
interest rates for the use of capital cannot wisely undertake the produc-
tion of timber as an investment, even if they were content with such
long term investments, which is seldom the case. High priced capital
means high cost of growing timber even more strongly than it means
high cost of production in other lines. Yet since the State of Washington
has enormous areas fitted only for the growth of timber, or far better
for such growth than for any other purpose, it seems exceedingly im-
portant that the capital be forthcoming. If capital is not secured, the
state will be unable to utilize this area, unproductive for other purposes,
and by so much fail to obtain the full productivity that its resources
warrant. Failure of this raw material for industry means so much less
industry, which is also a very important matter.

Sources of Capital for Forest Production

There are four sources of capital which may in a greater or less de-
gree be relied upon for large scale forest production, viz., the nation, the
state, the municipality, and the large corporation. As previously stated,
the cost of capital to practically all others is so high that the well in-
formed forester cannot conscientiously recommend forest production as
a profitable or even a self supporting enterprise, except in the case of
the farm woodlot. Of these four possible sources of capital the munic-
ipality may for the present be expected at the most to deal only with
city watersheds, although it would be an excellent investment for many
cities to secure adjacent tracts of rough lands for forest parks, which
could serve, not only for park purposes, but also give revenue to the
city. The large corporation cannot be relied upon to furnish the capital
now nor at any time in the future until it is definitely decided whether
it will have equal privileges with other owners.

It then devolves chiefly upon the state and nation to raise the neces-
sary capital for this need, which a little careful consideration shows to
be vital to the state. The State of Washington has done nothing in this
line as yet and it will no doubt be difficult for it to devote large sums
to this purpose. Instead, therefore, of there being any jealousy of the
work of the federal government in forest production, it seems that intel-
ligent cooperation should be the uniform rule. The writer expects to
see the day when there will be a vigorous demand from the people through
members of Congress for the expenditure of government funds for this
purpose to the end that the resources of the state may be made as
productive as possible. Certainly such productive expenditure is far
more important to the state than federal expenditures on government
buildings, which merely result in moving government offices out of private
buildings, and by so much decrease the demand for space in the latter.
The main advantage of these latter expenditures is the purely selfish one,
that because of the supposed prodigality of the government, persons who
have something to sell (either material or labor) may sell more of it at
better prices for the construction of a government building than for a

18

private building to house the same offices. Forest production by the
federal government means not only benefits from present expenditure of
government funds in the state where they do not interfere with private
enterprise, or even with investment by the state (because there is more
to be done than both can do), but also that the productive results of these
expenditures will mainly accrue to the state in the future because its
citizens will receive wages for protecting, growing, and harvesting the
timber, and when mature using it at reasonable cost primarily in wood
industries, and ultimately in all the other industries of the state.

The federal government at present, however, has its hands fully
occupied in the administration of the considerable areas already set aside
for forest production. There is no probability that those areas will at
present be extended by purchase of private lands, although a policy of
acquisition of alienated lands inside the present boundaries of the Na-
tional Forests would be very useful. Aside from the National Forests,
irresistible logic leads to the conclusion that for the present nothing will
be done to continue cutover lands and land unfit for agriculture, as pro-
ducing areas, thus contributing to the industries and general welfare,
unless it be done by the state.

Will a people, granted popular rule, make expenditures, the benefits
of which will accrue in the more or less distant future, or will they only
make expenditures of the hand-to-mouth sort? Will they use their natural
resources with regard only for today, looting and destroying in any way
to make today's profit the easiest at whatever expense to the future, or
will these resources be conserved? This is undoubtedly the severest test
of democracy, if not the supreme test, in the long run. If only today's
needs are considered and resources destroyed without measures being
taken for replacing the renewable ones, it needs no prophet to see that the
power of a given area to support population must continually decrease.
Place against this the fact that population normally increases and we
cannot escape the conclusion that a continually lower standard of living
must follow, together with a lower civilization as its inevitable result.

The United States, with its great resources and small population, has
not felt the results of the enormous waste of its resources as yet. Cer-
tain eastern states are beginning to feel them, in so far as it concerns
their forest resources, and are taking steps, halting and inadequate so far,
to provide for the future. It remains to be seen whether Washington will
act in time or whether it, too, will wait until the damage done is so great
as to render the cost of repair many times greater than it would be if
immediate action were taken. It seems certain that a wider knowledge
of the need and wonderful possibilities before the state will contribute to
the desired end.

While it is not within the field of this discussion to make extended
suggestions as to state policy, one point deserves mention. Referring to
Table V, showing costs of production on the poorest quality soil, it may
be noted that with private owners the cost of production runs from $14.01
to $37.50 per M. feet. As the material produced on this poor quality
4oil will be very small sized at 60 years of age and consequently of low
value, it is unsafe for any private owner to expect to undertake produc-
tion of timber in this soil quality unless in very exceptional cases. The
state or federal government may do so with a reasonable expectation

19

of at least paying costs. Since this class of land is most certainly not
agricultural in character, it would seem that this would be a wise point
of attack in beginning a policy of purchase by the state for the purposes
of forest production. Here at least is land which will produce nothing
unless the state produces timber upon it. This it can do with benefit to
its industries and without damage to any private interest. The extension
of the purchase policy could be worked out as the needs of the future
might suggest.

Comparative Cost of Providing a Future Supply by Growing New Timber
and by Hoarding Old Timber

This subject is introduced here because of the close relationship to
the problem of growing timber. Most corporations, and to a large extent
the federal government, proceed on the theory that the best way to insure
a timber supply in the future is by hoarding mature timber. It is of
interest, therefore, to apply the financial test to the cost of holding timber
as compared with growing it. This can be done in several ways, one of
which is by reducing to present value the stumpage price at which, in the
foregoing tables, it has been shown that timber can be produced. In
these reductions the same interest rate should be used as was used in com-
puting the cost of growing timber.

Thus by reference to Table III, covering cost of growing timber
on Quality II soil, we find that a corporation working under 5% in-
terest can produce timber for $9.87 per M. ft. B. M. on a 60 year ro-
tation. It would then not be profitable to pay an amount for mature
timber (not increasing its volume, but to be held 60 years) which would
bring its cost to more than $9.87 at the end of that time, except as
the timber now mature would be of higher quality. The amount that
could be paid per M. would be the present worth of $9.87, less the
present value of the cost of protection and taxes throughout the period.
It is somewhat difficult to determine the latter costs, but a conservative
figure may be ascertained. Since the researches of Prof. F. G. Miller
show that timber is already taxed %c per M. per annum on the average,
and the fire risk and protection must also be counted, it seems that 3c
per annum throughout the period would be a very low cost for this item.
The solution then follows.

Referring to interest tables* we find that the present value of $1.00
due 60 years hence will at 5% compound interest be $.0535. The
present value of $9.87 will then be $9.87x$.0535=$.53. Referring to
the same table, we find that the present value of $1.00 due each year for
60 years is $18.929. The present value of $.03 due each year for 60
years would be $.03xl8.929=$.57=present value of the administrative
costs, taxes and other expenses of holding the timber. Deducting the
$.57 (the cost of holding) from $.53 (the present value of $9.87, the
cost of producing timber) we have — $.04, that is, even if the timber
were given to a corporation to be held 60 years it would be cheaper to
grow it than to take the old timber.

To consider the holding of timber in private ownership for 60
years would be far fetched except perhaps in the case of the largest

*C. S. Schenck "Forest Finance," p. 39.

20

corporations, which could be placed on a basis of permanent invest-
ment. It would, however, easily be possible in many cases for corpora-
tions or companies wishing to insure a future timber supply to their mills
to secure tracts bearing young growth at prices which would give the
same advantage relative to the short length of time held that the above
example gives for 60 years. For example, Douglas fir stands 10 to 50
years old can often be purchased at prices little greater than the land
value. If the land value in such cases does not exceed $10.00 per acre
and the timber can be bought for $10.00 per acre, the cost per M. of the
stumpage at the end of 20 years would be as follows, where the interest
rate is 6%. Interest on land value 20 years=$10.00x(1.0620— 1)=
10.00x2.21==$22.10. Cost of young timber is 10x$3.21=$32.10. Cost of
protection and administration for 20 years equals 20(1.0620 — 1)=$7.36

.06

Total cost per acre of the stand at end of 20 years equals $22.10+$32.10
-J-$7.36=$61.56, total cost per acre. If the acre is well stocked and on
Quality I forest soil it should yield 44,000 ft. B. M. per acre at the age
of 60 years, thus the cost per M. ft. 20 years hence would be $1.40. That
is, it would have to sell for only $1.40 per M. ft. to give the present pur-
chaser on those terms 6% on his investment. Mature timber, no longer
making growth, purchased now for even as low as $1.00 per M. and
held for 20 years on land worth $10.00 per acre will cost as follows
where the stand is 50,000 feet per acre and the annual expense of pro-
tection is 20c per acre. Cost of original stumpage payment per acre equals
$50.00x1. 0620=$50.00x3.21==$l 60.50

Use of land=$10x(1.0620— I)=$10x2.21=$22.10

Annual cost of administration and protection
=20 ( 1 .0620— 1 )^$7.36
.06

Taxes at 2c per M. per annum=l .00 ( 1 .0620— 1 ) =$36.78.

.06

Total cost per acre at end of 20 years

=$1 60.50-f$22. 1 0+$7.36+$36.78==$226.74.

Cost per M=226.74=$4.57.
50

Of course this old timber will be more valuable material but not
sufficiently so to make this as good an investment as the young timber
even at the low price of $1.00 for the old. Where $2.00 is paid now the
stumpage price must be over $9.00 per M. in 20 years to make the pur-
chase a 6 per cent investment. Of course, every individual case of this
sort must be dealt with on its merits.

The comparative cost of insuring a future timber supply by growing
timber or by storing mature stands is a more important question on state
and federal lands than on private lands, because it is a reasonable con-
clusion from the tables of cost of growing timber that upon the state
and nation will devolve this task. The state is already pursuing an active
policy of sale of mature timber, but many people question the federal
policy, which is providing for very few sales. There are on the National
Forests large areas of mature and over-mature timber which could be sold
for $1.00 per M. feet or more in any normal times. These stands are

21

over-mature and tend rather to decrease than increase in volume. They
average 40,000 to 50,000 feet B. M. per acre. The cost of holding a
stand of this nature of 40,000 feet volume on Quality I soil would be as
follows, figuring 3 per cent interest, a present value of $1.00 per M.,
$10.00 per acre for soil value and 20c per acre for protection and ad-
ministration.

Soil rent=10.00xl.036°— I)=$10.00x4.892=$48.92.

Future value of timber at compound interest for 60 years
=$40.00x1. 0360=40x5.892=$235.68.

Protection and administration cost 20c per acre for 60 years
=.20(1.0860—

.03

Total cost of holding per M.=$317.21-^-40=$7.93 per M.

Comparing this cost with $3.36, the cost of producing timber on the
liberal estimates shown in Tabel IV it will be more than twice as expensive
for the federal government to secure future timber supply by holding
mature timber now worth $1.00 or more per M. than it would be to cut
off such timber and reforest so as to raise a new crop during the 60 years.
It is, of course, freely admitted that the value of the old timber per M.
feet would be greater than that of the young, but in no such proportion
as indicated above. The cutting of old forests and the growth of the
young on the ground thus vacated will also result in the .area furnishing
within the 60 years over twice as much volume of timber for use of the
people. Seemingly this should be the chief consideration.

It is argued, of course, that the government does not intend to hold
the old timber so long, and that by cutting in 20 to 30 years the govern-
ment can make great profits by holding. This is too great a question to treat
in detail here, but there seems to be no difficulty in demonstrating that
this is poor financial policy. However, it is not necessary to resort to finan-
cial arguments to show that the policy of holding mature and over-mature
timber is bad from the public standpoint, because in a great measure it
defeats one of the principal objects of the National Forests, viz., to fur-
nish a large volume of timber for use by consumers. This is defeated be-
cause the soil functions only for the storage of old timber, not for the
growth of new. Proper forest management requires, however, that the
old stand be removed gradually and replaced by new. Where the federal
government does cut timber, effort is made to see that the ground is re-
forested.

With the state, the argument for immediate cutting of mature timber
within reasonable limits is still stronger, because the interest rate is some-
what higher. The cost of holding mature timber, involving a large initial
investment as compared with growing new timber is, therefore, still higher.
The state's policy fails when it comes to growing the new timber, however.
Nothing is as yet being done in this direction, so that land when cut over
is not even functioning for storage of timber. The two policies may
thus be contrasted, the state's being inadequate in the direction of growing
timber after cutting, and the federal government in the direction of a
reasonable amount of cutting so as to permit growth of new timber.

22

Summary of Principal Conclusions

1. The chief cost of producing timber is the interest on the capital in-
volved.

2. It follows from (1) that the interest rate under which the forest
owner works, to a large extent determines the cost of producing

her to the owner concerned.

3. Taxes, though important, are a minor cost as compared with interest
charges.

4. The costs of production under high interest rates are so great as
to bar forest Droduction to those owners who cannot secure money at
a rate not much, if any, higher than 5 per cent.

5. This makes forest production at a profit possible only to the federal
government, the state, the municipality and the large corporation, and
those owners exceptionally situated as to the ownership of land for
other purposes, such as mining, in connection with farming, etc.

6. Since the federal government is already practicing forestry so far as
its resources make practical at present, the large corporation is not
likely to become interested under present conditions, and the munici-
pality can engage only to a limited extent; there is little hope of
introducing forest practice in adequate manner except through the
state.

23

Caylord Bros.

Makers

Svracuse, N. Y
PAT. JAN. 21,1908

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