narily low rates for certain commodities of such an inferior grade that at the average freight rate it would not move at all, so disproportionate would the freight charge be to its actual value. Sometimes the railroads go further, and make a lower charge to these who are going to utilize the commodity in further manufactures, and those to whom it is of sufficient value in its present shape. 22 This argument in itself is no justification for making disproportionate rates against other members of the public who have no cheaper substitute. It is said for allowing these practices, that provided it is understood that no business shall be done unless there is some margin above the bare cost of operation such additional business will benefit those who must pay the fixed charges to some extent by reducing the average cost of their service. It should be noted, however, that no court has ever suggested that a company which neglected its opportunities to make money by such discriminating rates was doing wrong. 23

$ 235. Service of unusual value.

That the service in question will be of unusual value to the particular patron is no reason why he should be called upon to pay more than any other member of the public should pay. And as a Federal judge recently said, if lumber will bear the advance, that is no reason why it should. 24 That business will still be done at the rate charged is no evidence that it is not unreasonable when a public service is in question, although doubtless it would be in the case of a private business. 25 The monopolistic conditions which characterize public employment would result in extortionate prices being possible, while in a

22 According to Hoover v. Pennsylvania R. R. Co., 156 Pa. St. 220, 27 Atl. 282, 36 Am. St. Rep. 43, 22 L. R. A. 263, such reductions may be made.

23

According to Lumber Co. v. Railroad, 136 N. C. 479, 48 S. E. 813,

such reductions constitute illegal discrimination.

24 Tift v. Southern Ry. Co., 138 Fed. 753.

25 Re Proposed Advances in Freight Rates, 9 I. C. C. 382.

private business the asking of an unreasonable price would simply result in a refusal to do business, since the party quoted the outrageous price could resort to a competitor. The ordinary postulates of political economy are applicable only to private businesses where the law of competition prevails. In the case of public business the law of the land must be invoked to keep charges down to a reasonable level.

Topic D. Bases of Regulation

§ 236. Constitutional limitations upon commission regulation.

For a time after the passing of the original Act there was a period when it was doubtful how far Congress had intended to go in dealing with rates; but the Supreme Court finally decided that the Commission could not go to the length of fixing rates.26 So long as the Commission only had power to investigate the reasonableness of rates brought to its attention, its findings, if not accepted by the carrier, being simply prima facie evidence in proceedings subsequently brought in the court for the enforcement of its orders, the question of the constitutional limitations upon its affirmative authority as a Commission acting with delegated powers did not arise. 27 Since 1906, as has been seen, the Commission has had the power to fix rates in place of the rates which it finds open to condemnation as unreasonable. And the basic rule of our constitutional law applies, therefore, that to declare that the findings of the Commission shall be taken as conclusive evidence of what is reasonable in the premises would be withdrawing ultimate rights fundamentally guaranteed from judicial inquiry, which cannot be done under our system. 28 It follows that, in a suit in the courts to enjoin

28 Interstate Commerce Commission v. Cincinnati, N. O. & T. P. Ry., 167 U. S. 479, 42 L. ed. 243, 17 Sup. Ct. 896.

Cincinnati, H. & D. R. R. v.

Interstate Commerce Commission, 206 U. S. 142, 51 L. ed. 995, 27 Sup. Ct. 648.

28 Hooker v. Interstate Commerce Commission, 188 Fed. 242.

an order of the Commission fixing charges, on the ground that to enforce the rates fixed would result in what would be confiscation, the hearing now, may include the taking and consideration of evidence other than produced previously.29 Only very recently, therefore, have cases got through to the Supreme Court, involving the bases upon which the rates fixed by the Commission may be set aside; but on the list of the grounds upon which the court will go to the length of overruling the Commission, the violation of the guaranties of the Constitution by action alleged to be under the Act leads all the rest. In determining whether an order of the Commission shall be suspended or set aside, the court will first of all consider all relevant questions of constitutional power or right.30 And, therefore, an order, regular on its face, may be set aside if it appears that the rate is so low as to be confiscatory and in violation of the constitutional prohibition against taking property without due process of law.31

31

§ 237. Reasonable rates not necessarily profitable.

It should not be inferred that the rule that regulation of rates shall leave a fair return by way of profit is without exception. There are decisions which show that this is not an inviolable right. A recent Florida case 32 will bring this out, where Mr. Justice Carter said of a plea that at the rates imposed by the Commission the company would not make a fair return above operating expenses: "The vice in this method of pleading lies in the fact that the question of reasonableness is made to depend upon the capacity of the rates to yield a net income over and

29 Missouri, K. & T. Ry. Co. v. Interstate Commerce Commission, 164 Fed. 645.

30 Interstate Commerce Commission v. Union P. Ry., 222 U. S. 541, 32 Sup. Ct. 108.

31 See Interstate Commerce Commission v. Atchison, T. & S. F. Ry.

Co., 231 U. S. 736, 34 Sup. Ct. 316.

32 State v. Seaboard Air Line, 48 Fla. 129, 37 So. 314. The interests of all lines must be considered and not alone those of the line that can handle the traffic with the least cost. Commercial Club of Superior v. G. N. Ry. Co., 24 I. C. C. 96.

above the cost of constructing and maintaining the road and the payment of fixed charges, whereas circumstances may exist under which rates are reasonable which do not afford a net income above the cost of operation and taxes, or the cost of operation, taxes and fixed charges. The returns set forth a few elements entering into the question as to what constitutes a reasonable rate, and attempt to make these elements controlling; whereas the conditions surrounding the operation of the road may deprive them of controlling force." Consistent with this general conception is the contention supported by some cases that transportation for particular transits may be required to be made according to some general system of rates, producing a fair return for the system as a whole, although it is alleged that in a particular instance loss will result.33

§ 238. When fair net earnings left.

It has been held in the case of Minneapolis and St. Louis Railroad v. Minnesota 34 that the rate on a single class of freight may be reasonable, though it is more or less than the average rate, and though it would, if applied to all freight, produce more or less than a fair return to the railroad company. This was a State rate fixed by the railroad commission and attacked as confiscatory under the Fourteenth Amendment. The railroad did not claim that the reduction of this rate alone would deprive it of a fair return, but only that if the reduced rate were applied to all freights the income of the

33 Missouri Pacific Ry. v. Smith, 60 Ark. 221, 29 S. W. 752. In establishing a reasonable rate the strongest line should not alone be considered; the necessities of a line where the conditions of doing business are less favorable should be considered. Spokane v. No. P. Ry., 15 I. C. C. 376.

34 186 U. S. 257, 46 L. ed. 1151, 22 Sup. Ct. 901.

See by way of contrast Pennsylvania Railroad v. Philadelphia Co., 220 Pa. St. 100, 68 Atl. 576, holding that to reduce passenger fares so that there was no sufficient profit left in that branch of the business was going too far, although the freight earnings were so large that the business as a whole was amply profitable.

road would be insufficient. The court held the rate legal, notwithstanding this fact, saying that obviously such a reduction could not be shown to be unreasonable simply by providing that, if applied to all classes of freight, it would result in an unreasonably low rate. On the other hand, in the case of Interstate Commerce Commission v. Stickney,35 it was decided that a carrier under the Act as amended was entitled to a finding by the Commission that the particular charge complained of was unreasonable before a change could be required. Moreover, as that case held, a charge for a service which did not give the carrier more than a fair profit for performing it, was not unreasonable. For the Commission to attempt to fix a new rate at the out of pocket cost, in place of the existing rate which included a profit upon the service performed, was therefore altogether beyond the statutory limitations upon the power of the Commission. Probably, however, this would not be an invasion of constitutional rights, since the profits of the company taken as a whole apparently remained sufficient.

§ 239. Possibility of increase of business.

The suggestion has been made in some cases that reduction ordered in rates may be justifiable if it appears certain that there will be no reduction in earnings as a result, since the increased business consequent upon the lower rate might more than make good that loss, although of some force from a theoretical point of view, must obviously be acted upon in an actual case with the greatest caution. This was one of the many matters discussed in the important case of Chicago & Northwestern Railway v. Dey.36 Mr. Justice Brewer disposed of it in this wise:

35 215 U. S. 98, 30 Sup. Ct. 66.

The fact that the rate on a particular commodity could be reduced without impairing seriously the revenues of the carrier, standing alone, has little value and forms no basis

upon which to determine reasonableness of rates. Minneapolis Threshing Machine Co. v. C., St. P. M. & O. Ry., 17 I. C. C. 189.

36 35 Fed. 883, 1 L. R. A. 744 and note.