that they should is of course in effect, however implicitly and unconsciously, an expression of the tribunal's opinion that they may. There are an abundance of dicta 75 and decisions 76 that rates must not exceed cost (including a fair return), in which nothing is said of value. This is of course tacitly to treat value as immaterial when cost is known. In Stanislaus County v. San Joaquin Canal Co.," for example, the Supreme Court, without discussing the value of the service, sustained a reduction in rates on the basis of the profits the company was making, and said:

"It is not confiscation nor a taking of property without due process of law, nor a denial of the equal protection of the laws, to fix water rates so as to give an income of six per cent upon the then value of the property actually used . . . even though the company had prior thereto been allowed to fix rates that would secure to it one and a half per cent a month income upon the capital actually invested in the undertaking. If not hampered by an unalterable contract . . . a law which reduces the compensation theretofore allowed to six per cent upon the present value of the property used for the public is not unconstitutional. There is nothing in the nature of confiscation about it."

There are also some decisions (besides those already discussed) confining rates to cost, in which the contention that the value of the service concerned exceeds its cost is expressly dealt with and declared to be irrelevant. In Oregon & Washington Lumber Manufacturers' Association v. Union Pacific Railroad,78 in disapproving certain advances in rates on lumber, the Interstate Commerce Commission said: "If the old rates were just and reasonable, the defendants cannot justify the advance on the ground of the prosperity of the lumber business. . . ." And in Commercial Club of

75 Turner v. Connecticut Co., 91 Conn. 692, 101 Atl. 88 (1917); Hartford v. Connecticut Co., P. U. R. 1918 C, 611, 627; (Conn. Pub. Util. Com.); Salisbury v. Salisbury Lt., Ht. & Pwr. Co., P. U. R. 1918 E, 331 (Md. Pub. Serv. Com.); Re Farmers and Merchants Telephone Co., P. U. R. 1918 F, 283, 289 (Neb. Ry. Com.); Re Bronx Gas and Electric Co., P. U. R. 1918 D, 300, 329 (N. Y. Pub. Serv. Com., First Dist.).

76 Stanislaus County v. San Joaquin Canal Co., 192 U. S. 201, 213 (1904); Cedar Rapids Water Co. v. Cedar Rapids, 118 Iowa 234, 91 N. W. 1081 (1902); Home Telephone Co. v. Carthage, 235 Mo. 644, 139 S. W. 547 (1911); Garwood v. Colo. Southern Ry. Co., P. U. R. 1916 A, 911 (Colo. Dist. Ct., Div. 2); In re Colo. Springs Lt., Ht. & Pwr. Co., P. U. R. 1916 A, 872, 887 (Colo. Pub. Util. Com.). The Railroad Passenger Rate Case, P. U. R. 1915 B, 362, 368, 369 (Mass. Pub. Serv. Com.; perhaps dictum).

77

192 U. S. 201, 213 (1904).

78 14 I. C. C. 1, 15 (1908).

Omaha v. Anderson & Saline River Railway Co.,79 in holding another lumber rate too high, the commission said:

"Defendants contend that the rate of 261⁄2 cents to Omaha is shown to be reasonable by the facts that the traffic moves freely and that the lumber business in Omaha has greatly increased. . . . We are not, as at present advised, ready to accept the theory that rates may lawfully and reasonably be increased by progressive advances as long as the traffic moves freely. . . . Some traffic must move, and reasonably freely, up to the point where the rate becomes prohibitive.”

A logical modern case, decided by the Supreme Court of Wisconsin, is Duluth Street Railway Co. v. Railroad Commission of Wisconsin.80 The commission had reduced street-car fares, on the ground that the existing ones yielded the company a net return of 72 per cent on the fair value of its property. The court sustained the action of the commission, against the company's contention that the reasonableness of rates depended not upon the company's profit but upon what the service was "worth to the public." The court observed that the value of a service rendered by a monopoly is a vague idea, and continued:

"The cost of the service is the most definite and tangible guide there is to tie to in making rates, if, indeed, it is not the only one. Where rates are so adjusted as to yield a fair return on the value of the property over and above expenses and depreciation, they are reasonable. Where they are so fixed as to materially exceed this sum, they are not."

The House of Lords, and in one case, curiously enough, the Interstate Commerce Commission, 82 seem to have taken the

79 18 I. C. C. 532, 536 (1910).

80 161 Wis. 245, 152 N. W. 887-(1915); P. U. R. 1915 D, 192.

81 Canada Southern Railway . International Bridge Co., 8 A. C. 723 (1883); contains at least a vigorous dictum to the effect that the value of the service to the consumer is practically the only thing that counts in determining how much he may reasonably be charged; that the producer's profit, unless it is "enormously disproportionate to the money laid out," has nothing to do with it. Of course no constitutional question was involved in the case. Moreover, it is not at all clear (as a lower court had pointed out and as the House of Lords implied) that the rates which were approved as reasonable, in the absence of legislative restriction, involved any excessive return to the company; for the return was alleged to amount "at the utmost to 15 per cent," and the physical risk of loss to which the company's bridge was exposed was enormous.

82 Railroad Commrs. of Iowa v. Illinois Central R. R., 20 I. C. C. 181 (1911). The complaint before the Commission asked for a reduction of the railroad passenger fares on a bridge across the Mississippi River. The income which the Illinois Central got from

opposite view of the question whether rates may exceed cost and still be reasonable. But the American law is clearly that rates above cost are unreasonable; that there is no constitutional obstacle to reducing them to cost; and that they should be reduced accordingly, whatever the value of the service may be.

It is clear that there can be no sense of the phrase value of the service, or reasonableness to the consumer, in which it is a criterion superior to, or coördinate with, cost of the service. If there were such a sense, it would follow, whatever the sense were, that the cost criterion would occasionally give way to it; and the cost criterion gives way to nothing. Rates may neither be fixed below cost when the value of the service is low, nor above cost when the value is high.

Is this as it should be? This raises the question, what is meant by value of the service, or reasonableness to the consumer? The phrases are much used and little defined. The word value, since it is spoken of in this connection as a measure of what purchasers should pay, is evidently not used in its ordinary sense: for we ordinarily mean by the value of a thing not a theory but a condition

the amount which people will and do pay for it. Neither, evidently, is value here used in the sense of cost: since it is offered precisely as a criterion distinct from cost. Neither does it mean the rate which will bring the producer the greatest aggregate profit (what the traffic will bear), nor the highest rate which some proportion or other of consumers will pay. There is little serious contention at present that rates should be kept up to such a point, and comparatively little need of a rule of law, or any other motive

the bridge was a complicated bookkeeping question which the Commission did not answer categorically. After stating that “the net earnings of the bridge company are said to amount to about 20 per cent on the original cost of the structure," it intimated some doubt of the accounting processes by which that result was reached; but it did not in terms dispute it, nor fix on any lower percentage as more accurate. And it did distinctly hold that the "generous returns" did not constitute a reason for lowering the rate. This conclusion rested partly on the consideration that "bridges are and have been regarded as precarious properties" — a matter which goes to the cost of the service, and indicates that the real rate of return is less than the apparent But it also rested in part, expressly, on notions of reasonableness to the consumer, including the proposition that "testing the charge of 25 cents for passage over this bridge with the tolls exacted for passage over other bridges we find it not unreasonable." The bare cost basis would hardly have led the Commission to sustain the rate.

one.

than self-interest, to keep them down to it. One critic has been led to the conclusion that "to say that the rate must not exceed what the service is reasonably worth . . . means nothing." " More exactly, perhaps, to say that the rate must not exceed what the service is reasonably worth, in any normal sense of worth, means nothing. Though the proposition means nothing if the words are taken in their ordinary sense, and nothing true in whatever sense they are taken, it may in some special sense of the words mean something false.

The sense which is given to the value of the service is not only special but various. The Interstate Commerce Commission has spoken of "value of the service, with its bundle of constituents," 84 without further definition; and again has used the phrase in the sense of the rates that "commodities and the industries that use them can well stand." 85 In another case, the thing the commission had chiefly in mind seems to have been the rates commonly charged for similar services.86 In Silk Association of America v. Pennsylvania Railroad Co.,87 the commission said, "Illustrative of the value of service is the percentage that the rate paid bears to the value of the article." A federal court has spoken of "the value of the service to the shipper" as "including the value of the goods and the profit he could make out of them by shipment." 88

These various matters have one broad feature in common: they all go to public policy. That is, they affect the question what it is or may be thought desirable to charge for a service, as distinguished from the question what the service costs. No list can be drawn of all the considerations which may affect a tribunal's view of public policy in its bearing on rates. When value of service is spoken of, as it usually is, without attempt at definition,

83 Robert L. Hale, "The Supreme Court's Ambiguous Use of 'Value' in Rate Cases," 18 COL. L. REV. 208, 210.

4 Boileau v. P. & L, E. R. R., 22 I. C. C. 640, 652 (1912).

85 Coke Producers' Assn. v. B. and O. R. R., 27 I. C. C. 125, 132 (1913).

86 Railroad Commrs. of Iowa v. Illinois Central R. R., 20 I. C. C. 181, 186, and 189 (1911). Cf. Re Kent Water & Light Co., P. U. R. 1917 D, 394, 397, where the Ohio Public Utilities Commission said: "The value of the service. . . is reflected more or less by what such service is usually furnished for by other companies to other consumers under similar circumstances." 44 I. C. C. 578, 580 (1917).

87

88 Interstate Commerce Com. v. Chicago Great Western Ry., 141 Fed. 1003, 1015 (1905).

there is no knowing whether the intended meaning is one or more of these enumerated considerations of policy, or other comparable ones, or all of them together; but something that may be classified as an idea of policy is probably always in mind. Perhaps the phrase has been oftenest used, though never defined, in the widest sense it can have (i. e., the widest which excludes cost, and so is intelligible as a proposed criterion coördinate with cost) - the resultant of all the considerations other than cost (and discrimination) which ought as a matter of public policy to influence rates.

Value of the service, in any of these senses, not only is not, but should not be, and in some directions could not be, allowed to overrule cost. The most obvious objection to a value criterion is its indefiniteness. This results not merely from the fact that its formal definition is a matter of uncertainty and dispute. The several proposed definitions are each incapable of being applied to particular facts with any approach to certainty. What is the measure of what "commodities and the industries that use them can well stand"? How many rates elsewhere are to be collected for comparison, and is their simple average, a weighted average, or some other function to be selected? Is the rate per ton on every commodity to constitute the same fraction of its value, and if not, on what are variations from normal to be based? Just how much do all the considerations of public policy (independent of cost) make it desirable that the rate on coal from Scranton to New York should be? Value of the service cannot be made a primary criterion of rates without asking some questions of this sort; and if such questions are to be answered at all, they cannot fail to be answered in a great and shifting variety of ways. As Commissioner Meyer, speaking for the Interstate Commerce Commission, has said:

"As between . . . the cost of the service and the value of the service, the first is decidedly more capable of exact determination and mathematical expression than the latter. If, as some would have us believe, no measure has yet been discovered for ascertaining the cost of the service, what measure is there suggesting anything definite and tangible and sufficiently practical in its application to carry conviction which can be applied to the value of the service?" 89

89 Boileau v. P & L. E. R. R., 22 I. C. C. 640, 652 (1912). Cf. Duluth St. Ry. Co. v. R. R. Com. of Wis., 161 Wis. 245, 152 N. W. 887 (1915).