"Again, it is said that it cannot be determined in advance what the effect of the reduction of rates will be. Oftentimes it increases business, and who can say that it will not in the present case so increase the volume of business as to make it remunerative, even more so than at present. But speculations as to the future are not guides for judicial actions; courts determine rights upon existing facts. Of course, there is always a possibility of the future; good crops may increase transportation business, poor crops reduce; high or low rates may likewise affect; but the only fair judicial test is to apply the rates to the business that has been done in the past, and see whether, upon that basis, such rates will be remunerative, or compel the transaction of business at a loss." 37 § 240. Making rates compared with levying taxes. It is a common statement in the discussion of rate making that the situation is the same as in the levying of taxes. This may be used as a figure of speech but it is loose talk at best. There is a certain truth in the principle of charging more against valuable goods than against cheap goods, as has been conceded; but that the carrier can, in analogy to taxation, throw the burden upon the more valuable goods and relieve the cheaper goods in direct proportion to their respective values cannot be admitted. The duty of the carrier is to move all goods at a reasonable price for the service rendered, a matter not to be determined upon any ad valorem basis. The wrong to the public in making what the goods will bear the basis of rates is well pointed out in the succinct quotation which follows: "It is not a question of what the traffic will bear, but rather of what the public should bear. Conditions are such that this rate can be advanced as between the people who pay it and the stockholders who receive "In Central of Ga. Ry. Co. v. McLendon, 157 Fed. 961, it was held that a court will not retain the rate fixed by a commission unless conIvinced that it will result in reduced revenue. it. Is the advance right? Every question as to the reasonableness of a rate may present itself in two aspects. First, is the rate reasonable, estimated by the cost and value of the service, and as compared with other commodities? second, is it reasonable in the absolute, regarded more nearly as a tax laid upon the people who ultimately pay that rate? The considerations which determine the first of these aspects are of but little weight in determining the second. Every such inquiry involves the idea of some limit beyond which the capital invested in railways ought not to be allowed to tax other species of property. is that limit, and how can it be fixed?" 38 What § 241. Governmental regulation best for all concerned. It may fairly be said that governmental regulation, protecting both the public-service companies and the people whom they serve, ought to be for the best interests of all concerned, if it is a policy which is to commend itself to sober judgment. "The railways of our country have been aptly said to constitute the arteries of the national life. The public official or other person who would grudge to them the large measure of prosperity which their inestimable services to the country deserve is as short-sighted as unpatriotic, as narrow as unjust. While this is true, the mistakes or excesses of zeal or judgment on the part of railway officials may at times make these vast enterprises, ordinarily benevolent, instrumentalities of grave private wrong and communal injury. The framers of the Constitution, though unconscious of the indescribable development in the intercommunication of the people, yet 'prophetic and prescient of all the future had in store,' provided for every contingency when it bestowed upon Congress the tersely expressed but elastic power 'to regulate commerce with foreign nations and among the several States.' Congress had exercised this power, and the righteous orders of the great commission it has primarily entrusted with 38 Re Advances in Freight Rates, 9 I. C. C. Rep. 382. the tremendous duty should in all proper cases be respected and enforced by the courts of the country. The organic law upon which this power in Congress and in the courts is founded is the sure guaranty to investors in transportation lines against the assaults, whether of the agrarian or the demagogue, the anarchist or the mob. While, on occasion, the railway company or other corporation may suffer a temporary diminution of revenues from an order of this character, the interest of the public, and in the end the interest of the corporation itself, is conserved. In all such cases the general welfare should control. Salus populi est suprema lex." 39 § 242. Inherent difficulties in accommodating all tests. Whenever the reasonableness of a particular rate charged for a particular service is brought in question there will often be difficulties in accommodating both of these tests which may sometimes seem inseparable. But these difficulties are inherent in the problem, and it is never justifiable not to take both of these tests into account in passing upon a particular rate in its relations to the schedule as a whole. A good illustration of the way in which this sort of problem must be handled may be seen in the extract from a recent case before the Interstate Commerce Commission, which follows: 40 "It is further contended in behalf of the defendants that lumber, considering its character and all the conditions incident to the services rendered in its transportation, was not, at the 14-cent rate in force at the date of the advance, yielding its proper proportion of the revenue required by the defendants to meet their expenses-in other words, that that rate as applied to lumber was not a reasonable rate, viewed from the carrier's standpoint, in that it was not adequately remunerative. The question of the reasonable "Speer, District Judge, in Interstate Com. Comm. v. Louisville & N. Ry., 118 Fed. 613. 40 Central Yellow Pine Assn. v. Illinois C. Ry., 10 I. C. C. Rep. 530. ness in this sense of a rate on a single article of traffic is one of almost insuperable difficulty." 41 § 243. Conflicting authorities still persist. Charging what the traffic will bear will always prove the easiest way to get the proper amount of money, if no legal limitations are put upon this distribution of the burden. To leave the distribution of the burden without law, when the total charge is restricted by law, seems almost stultification. For a disproportionate rate to a particular customer may be more oppressive than a system which, although somewhat too large in its total returns, was one in which he contributed only a proportionate share. 42 Of course, on actual application neither of these theories would to-day be pushed to its logical extreme, the economists would profess to deplore actual extortion in an individual charge; the lawyer would not demand exact distribution of the burden. Legal restriction to some degree is admitted by the economist; economic modification is recognized to some extent by the lawyer. For practical purposes the various theories may be thus reduced to modifications in various degrees of these two persisting theories. 43 41 Where particular rates on a particular commodity between particular points are challenged, the question of net earnings on the particular lines involved is not important, unless it be shown that the margin of profit is so small on the system's business, as a whole, that a reduction in the particular rates would reduce the whole income below the reasonable profit point. Board of Trade of Winston-Salem v. N. & W. Ry. Co., 16 I. C. C. 12, 17. 42 A definite and uniform allotment of funds from the charge imposed for the movement of each character of traffic to provide for interest, dividends, and surplus is not proper. In re Advances on Coal to Lake Ports, 22 I. C. C. 604. 43 A prohibitive rate so high that traffic would not move usually condemns itself. In re Investigation of Advances in Rates on Cement, 20 I. C. C. 588. CHAPTER VI BASIS OF CAPITAL CHARGES $250. Provisions of the Act. 251. Various theories as to proper capitalization. Topic A. Original Cost § 252. Actual investment entitled to return. 253. Cost of proper facilities. 254. What is the actual cost. 255. Cost enhanced by fraudulent contract. 259. Treatment of outside investments. 260. Allowance for unremunerative betterments. 261. Contributions made by the State. Topic B. Outstanding Capitalization § 262 Capitalization outstanding. 263. Nominal capitalization. 264. Stock issues often deceptive. 265. Bonded indebtedness beyond present values. 266. Market value of securities. 267. Securities issued upon reorganization. 268. Capitalization authorized by public authorities. 269. The problem of watered stock. 270. Property acquired from surplus earnings. 271. Inquiry into foregone profits. 272. Existing capitalization hardly excessive. Topic C. Present Value § 273. Power to set aside a statutory rate. 274. Constitutional requirements. 275. Original cost as affecting present value. 276. Going value. 277. Franchise values. 278. Purchase value. 279. Tax appraisals. 281. Capitalized rights. |