Emil Lederer: Expected Returns and Judicial Valuation (1921)

This recorded commission intervention, published on pages 422–423, examines the difficulty of making expected future returns the binding basis of valuation. Lederer’s concern is that an apparently definite formula transfers unresolved economic assumptions to the judge. His argument moves from uncertainty about prices, through a proposed change in terminology, to the practical limitations of reported corporate returns.

Die Formel des zu erwartenden Ertrags erscheint mir deshalb so schwierig, weil dem Richter ein ungeheuer weites pouvoir gegeben wird.

English translation: The formula of the expected return seems so difficult to me because the judge is given an enormously broad power.

The problem is not simply calculating returns but deciding which economic future the calculation presupposes. Expected returns depend on whether domestic prices will converge with world-market prices, how soon this will happen, and whether convergence will be complete. Lederer illustrates the consequences with alternative multipliers applied to prewar returns. A judge anticipating convergence over ten years must distinguish lower returns during the initial period from higher returns afterward. Different plausible assumptions can therefore produce valuations differing by hundreds of percent. The formula conceals discretion rather than eliminating it.

Lederer proposes a limited correction: refer to earnings value without specifying exclusively the value of future returns.

Um diese Schwierigkeit kommen wir etwas herum, wenn wir einfach nur vom Ertragswert sprechen, nicht vom Wert der zukünftigen Erträge. Dadurch lösen wir die Frage nicht, aber wir weisen den Richter nicht an, bloß die künftigen Erträge zugrunde zu legen.

English translation: We get around this difficulty to some extent if we simply speak of earnings value, not of the value of future returns. This does not solve the question, but we do not instruct the judge to base the assessment solely on future returns.

This distinction preserves the possibility of considering earlier earnings alongside prospective ones. Lederer expressly acknowledges that it does not settle the valuation problem. Instead, it avoids prejudging the forthcoming compensation law through a provisional schematic formula. His position combines caution about forecasting with caution about the reach of the present legislative decision: an interim provision should not foreclose the later law’s resolution.

The final part grounds this objection in business practice. Earlier differences in profitability remain relevant despite the disruption of price relationships. Joint-stock companies, Lederer argues, face political pressures against increasing dividends in proportion to currency depreciation and instead seek the route of issuing new shares. Their reported returns consequently remain below what might be shown using a gold-mark basis converted at the current exchange rate. Corporate returns cannot simply be read as an unrestricted adjustment to monetary depreciation.

Ich würde deshalb den künftigen Ertrag nicht als bindende Norm aufstellen.

English translation: I would therefore not establish the future return as a binding standard.

The intervention’s significance lies in its separation of a valuation concept from an exclusive legal rule. Lederer does not reject future returns as relevant evidence; he rejects making them decisive while their measurement depends on uncertain forecasts and politically conditioned corporate practices.