DISCUSSION OF SECOND APPROXIMATION

they may be properly classed as optional employmentsof such capital.

The propriety of such a classification becomes stillmore evident when, instead of mere renewals, we con-sider repairs and betterments, for it is clear that theincome from a farm has a very different present valueaccording as it is tilled or untilled, or tilled in differentdegrees of intensity, that the income from a house soneglected that a leak in the roof or a broken window paneresults in injuring the interior is less valuable than theincome it would yield if properly kept up, and that realestate may be underimproved or overimproved as com-pared with that degree of improvement which securesthe best results.

In all cases the “best” results are secured when thatparticular series of renewals, repairs, or betterments ischosen which renders the present value of the prospectiveincome stream the maximum. This, as we have seen, istantamount to saying that the renewals, repairs, or bet-terments are carried up to the point at which the margi-nal rate of return over cost which they bring is equal tothe rate of interest. The owner of an automobile, forinstance, will replace a broken part and so prolong thelife of his automobile. The.first repair may cost him $10and may save him $200. But such a twenty-fold returncannot be expected from every repair, and beyond a fewsuch really necessary repairs, it soon becomes a questionto what extent it is worth while to keep an automobile inrepair. Repainting the body and regrinding the valvesare both costly, and though, in such instances, the serviceof the automobile is increased in quantity and improvedin quality, the return grows less and less as the ownerstrives after increased efficiency. Under our present hypo-

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