legal restriction, that no one would reopen the controversy with any hope of success. But still at the present time, with all conceding that the gross earnings which a company may take are limited by law in any given case to a determinate amount, the economic school still persists in saying that the company can get these gross receipts by any distribution of the burden that it finds most advantageous."

Topic A. Cost of Service as the Basis

§ 382. Method of estimating cost of service.

In the preceding chapters the total amount of annual receipts which the carrier is justified in taking from its whole business has been discussed. These were, in brief, all annual expenditures, including an allowance for depreciation requirements, and in addition the fair capital charges for the year, arrived at by determining what would be a reasonable return upon proper capitalization.10 A railroad must get this total from its passenger traffic and from its freight traffic. The first difficulty is to decide what proportion should be contributed by the passenger traffic and by the freight traffic respectively; then the same difficulties remain in apportioning to each item of traffic a fair share of the burden. It may be difficult, if not impossible, to apportion to each portion of the traffic its proportionate share of the fixed charges with any degree of accuracy, but at the same time, there are certain items in the cost of performing a particular service

There is no flexible limit of judgment, if all rates must be upon a level of cost, and out of every dollar paid to the carrier must come a fixed amount of return for capital invested. In re Advances on Coal to Lake Ports, 22 I. C. C. 604.

10 The cost of operation is an element to be considered in determining the reasonableness of a rate. In re Advances on Live Stock, 25 I. C. C.

63; North Fork Cannel Coal Co. v. A. A. R. R., 25 I. C. C. 241; Taylor v. N. & W. Ry., 25 I. C. C. 613; Multnomah Lumber & Box Co. v. S. P. Co., 25 I. C. C. 123; Union Tanning Co. v. S. Ry., 25 I. C. C. 112.

The Commission may not act on general impressions, but only on proof. Railroad Commission of Mont. v. No. P. Ry., 26 I. C. C. 407.

which should never be left out of account by a railway management in making its rate for that service. Thus an expert railway management ought to be able to estimate with some degree of accuracy the particular expenditures involved in moving a carload from one point to anotherwages, coal, oil and the like.11

$383. Distribution of the burden.

From the point of view of the carrier, as has been seen, it is enough if the schedule as a whole yield a fair return by way of profit. To the individual shipper, however, the effect of the tariff as a whole is quite immaterial. 12 He is interested in a single rate only, that upon the goods which he is shipping; and from his point of view the important thing is that such goods shall pay no more than a reasonable part of the whole necessary return to the carrier. 13 It is necessary, therefore, to consider next the rules for the proper distribution of the whole burden of the charge upon the individual articles carried. 14 To look at the problem from another point of view, the entire schedule of rates having been established, so that the proportion is properly fixed, it will be easy to test the validity of the rates. The amount to be raised by the entire schedule of rates having been determined, according to the principles already examined, the sum of all the particular rates must equal that amount; and this sum is

11 The Commission often goes into an analysis of the cost of a particular service. See for instance: Detroit Switching Charges, 28 I. C. C. 494; Waverly Oil Works v. R. P. R., 28 I. C. C. 621; R. R. Com'rs of Fla. v. S. Exp. Co., 28 I. C. C. 634; National Syrup Co. v. C. & N. W. Ry., 28 I. C. C. 673.

Cost figures must be more than approximate. Youngstown S. & T. Co. v. P. & L. E. Ry., 29 I. C. C. 428. 12 Shippers are entitled to rates

which are both relatively and inherently reasonable. Coke Producers Ass'n v. B. & O. Ry., 27 I. C. C. 125.

13 Rates should be so adjusted as to be neither too high nor too low relatively. Lumber Rates from S. W., 29 I. C. C. 1.

14 All the expense going into the performing of transportation, from whatever angle it is viewed, should be taken into account in passing upon rates. Standard Mirror Co. v. Pa. Ry., 27 I. C. C. 200.

determined by adding the rates received on account of the known traffic at each station.15

§ 384. Respect paid to the cost basis.

The Commission appreciates that it is not beyond the range of possibility to approximate the cost of carrying freight, as distinguished from passengers, over a certain division, or even the carrying of a certain kind of freight, when this constitutes a considerable portion of the whole traffic over such division. 16 Distance and ton-mile comparisons, although often helpful in reaching a conclusion in respect to the reasonableness of rates, could not be made the sole test, so as to deny consideration to many other potent and controlling forces." The prevailing view seems to be that, while they are a factor in rate making, per ton-mile results are not necessarily controlling. 18 Merely because the per car-mile earnings on certain traffic are higher than the average on all business does not show the particular rates are unreasonable.19 The Commission has held that improvements, which required expenditure of large sums of money, and have added to the efficiency of the service, and, therefore, to its value to the commuters, are entitled to some recognition in determining the reasonableness of increased commutation rates.20 Conversely, if a carrier does not think it proper to make improvements that will reduce cost of operation, it cannot claim that it may raise rates, because cost approaches or overtakes revenue.21 The question of costs is never ignored in passing upon rates; and a slight increase in the cost of operation, therefore, does not justify

15 If this expense is due to costly operation of inadequate facilities it will not be allowed. Switching at Baltimore, 30 I. C. C. 581.

16 In re Advances on Coal to Lake Ports, 22 I. C. C. 604.

V.

17 Muskogee Traffic Bureau A., T. & S. F. Ry., 17 I. C. C. 169.

18 Kansas-Iowa Brick Rates, 28 I. C. C. 285.

19 Ontario Iron Ore Co. v. N. Y. C. & H. R. R. R., 30 I. C. C. 566.

20 Commutation Rate Case, 21 I. C. C. 428.

21 Louisville & N. C. & C. Rates, 26 I. C. C. 20.

an advance of 25 per cent on a low grade commodity.22 A contention of carriers that increased operation costs necessitated increased rates on certain commodities is not supported by any logical inference that it is the rates on the commodity in question which should be advanced, even if the increased cost of operation over the system as a whole is conceded. 23

§ 385. Cost of service the basic test.

More and more, the Commission has been laying emphasis upon the cost of the service, as the element to be given precedence in the determining of a rate. And it seems clear that there must finally be an intimate relation between the actual cost of transportation and the rate paid by the public.24 Certainly, the adequacy of the revenue for the service performed by the carriers must take precedence over market conditions in determining the reasonableness of a rate.25 In every phase of regulation, it is now recognized that in the end there must be a relation between the cost of service and charge to the public for that service. If the character of service performed is changed by public mandate so as to increase expense of performing the service, then the public must pay for its performance; it is therefore in the public interest that every transportation service should be performed in the most economical method. 26 Many decisions of late years have been devoted to discussion of what cost of service implies.27 For it is now understood that the cost of service is necessarily to be considered in determining reasonableness of rate. 28 It is an element in the situation

22 Winters Metallic Paint Co. v. C., M. & St. P. Ry., 18 I. C. C. 596.

23 Rates on Common Brick to Canada, 26 I. C. C. 129.

24 In re Transportation of Wool, Hides, and Belts, 23 I. C. C. 151.

25 Lindsay Bros. v. P. M. R., 25 I. C. C. 368.

26 Albree v. B. & M. R. R., 22 I. C. C. 303.

"Morgan Grain Co. v. A. C. L. R. R., 19 I. C. C. 460.

28 Ohio Face Brick Mfrs. Asso. v. Adams Express Co., 20 I. C. C. 582.

which according to present ideas cannot be ignored.29 It is typical of the doctrines now current that the proof almost invariably demanded for justifying an advance in rates is a showing that the existing rate is unremunerative. 30 Likewise, in deciding complaints based upon the unreasonableness of rates, the cost of service is considered in determining reasonableness of an existing rate.31

§ 386. Costs considered in determining comparative reasonableness.

Respective cost is also held of the greatest importance by the Commission in determining the comparative reasonableness of rates.32 It has long been laid down that rates over the same lines, between the same points, but under differing conditions, must be made with some consideration for the difference in the cost of service.33 In making any comparisons, it will be realized in particular cases that the costs of operation are greater or less than the average. Thus it has been said that the cost of operation is somewhat more, and corresponding rates may properly be somewhat higher, in the territory west than it is east of the Missouri River.34 And because of the shortness of the haul, the ton-mile receipts of New England railroads not improperly average higher than those in any other section of this country, where traffic conditions are otherwise comparable with New England. 35

29 In re Advances on Cotton, 23 I. C. C. 404.

30 In re Advances on Live Stock, 25 I. C. C. 63; In re Advances on Flaxseed, 25 I. C. C. 337; In re Advances on Hay, 25 I. C. C. 680; In re Classification of Empty Barrels, 25 I. C. C. 641; In re Advances on Hops, 25 I. C. C. 16.

31 Baker Commercial Club v. O. W. R. R. & N. Co., 25 I. C. C. 281; Western Classification Case, 25 I. C C. 442; Speigle v. S. Ry. Co., 25 I. C. C. 71; In re Classification of