of his obligation to the producer by an equal amount. Thus is our previous conclusion supported.
In the course of this discussion, the expressions "fair rate" and "fair return" have been repeatedly used. These terms need no explanation for the ordinary reader of the subject, but the ethical principle applied throughout this paper has its effect in establishing the character of a "fair return," and to this we may now apply ourselves.
We have seen that the user is the residual investor, he appears to get the small end, he has no personal voice in the management of his part of the utility properties. These circumstances are directly attendant on the nature of the contributions made by the user. These are in large part community values that have cost the user nothing directly in money, or else they are made in small amounts from time to time, and at least a portion of such small, continuous and numerous contributions go to purchase some immediate return. This position as residual investor means that the "fair rate" to the user is adjusted, with many attending conditions, to provide a "fair return." The community undertakes to guarantee, in some measure, the safety of the producer's investment. This party is protected against depreciation or deficit, and always against the effects of competition. The regulations under which the mutual arrangements exist have a legal status—are a part of the law of the land. Here, then, we have a condition free from large risks. In the development period, returns may be delayed; but the producer is assured that he will not lose, that all such withholdings will be made up to him and become a basis of continual "fair return." This statement of the case at once disposes of the contention that a "fair return" should be above ordinary interest rates. In fact, the beam is depressed on the side of a lower return than customary in private transactions. Certainly a "fair return" should never be greater than that expected from a permanent or long term investment in a property free from unusual risks.
Finally, we are ready to discuss profits. Many writers hold that in addition to a reasonable interest on the fund invested, the fair return should include profits. The unusual foresight of promoters, the great ability of managers, the doubts and dangers of loss in early days, are all recited as reasons why profits should be allowed. But, sticking strictly to our last, and recognizing the principle here stated in connection with valuation for rate making, we find that the foresight of the promoters has been paid for in proper underwriting and promoting charges, the doubts and dangers of loss have been removed when the user assumes the responsibility of providing for absolute maintenance, and the ability of the managing officials has been rewarded in the usual manner and met as a part of operating charges. The producer, in his personified aggregate, is, to be sure, fewer in number than the user in his personified aggregate. But, nevertheless, the producer is not a personality, and
