subjected to unreasonable rates in order simply that stockholders may earn dividends." § 218. Accommodation of the interests of both sought. The effort of the law, therefore, is to accommodate the more or less conflicting interests of the companies and of the public. The rule that the company is entitled to demand a fair return, upon the reasonable value of the property at the time it is being used for the public, is on the basis of taking the actual cost of the plant and its annual depreciation, and of allowing a fair profit on that footing over and above expenses. But while it is strictly true that the company is entitled to no more than a reasonable return upon its necessary investment, which is embodied in the structure and its natural increment, if any, that goes but a little way towards the solution of the problem, owing to the difficulty of saying just what is reasonable for the shipper to be charged in a given case. That must, for the most part, be left to the good judgment of the tribunal which passes upon each particular case. Only the other day, the Commission in the Five Per Cent Case revised its former conclusions,85 to the effect that, although the railroads were not perhaps getting enough in way of earnings, they could by making charges for services furnished without adequate compensation, and by instituting further economies of operation, make their net income sufficiently large without resorting to direct increases in rates on a large scale. But between August and December of this memorable year the financial situation changed so unexpectedly that the Commission came to the rescue of the earnings of the carriers appreciating that the means of transportation are fundamental and indispensable agencies in our industrial life, and for the common weal should be kept abreast of public requirements.86 86 Interstate Commerce Commission, Aug. 2, 1914. 88 Interstate Commerce Cominission, Dec. 18, 1914. § 219. The complexities of the general problem. So many considerations must be taken into account in passing upon rates that the problem is always a complex one. The difficulties, many of them, arise from the desire to give scope to a variety of principles which must inevitably come into a more or less irreconcilable conflict.87 "When a controversy arises between the public and a carrier, the question of the reasonable limit of a rate usually involves many considerations, and is often difficult to determine. A rate that might be regarded as reasonable and just by a producer and shipper, might, from a carrier's standpoint, be deemed extremely unreasonable and unjust, and so, conversely, a rate that a carrier might claim to be reasonable in itself, and that it might support with strong reasons based upon the cost of the service, the quantity of the business and the characteristics of its line of road, might exhaust the greater part of the proceeds of the producer's commodity, and be destructive to his interests. It is only stating a truism, therefore, to say there is no recognized test of a rate mutually reasonable for a carrier and for the producer of the traffic. The reasonableness of a rate must consequently be ascertained in every instance in which the question arises, by its relations both to the carrier and to the shipper, and by comparison with rates normally charged for like or similar service." 88 Topic B. The Schedule taken as a Whole § 220. Reasonableness of the schedule as a whole. The reasonableness of the schedule as a whole depends as has been seen, upon whether it yields a fair return to 87 The quotation is from Delaware State Grange v. New York P. & N. Ry., 3 Int. Com. Rep. 554, 4 I. C. C. Rep. 588. 88 A rate cannot be discontinued without taking into account its effect upon commercial and industrial con ditions, but there is no absolute rule the carrier. This is largely a mathematical question. The carrier is entitled, first, to pay all expenses; which would include both the actual expenses of operation and also certain annual charges that must be paid before any real profit can be realized. He is entitled furthermore to gain a fair profit on his capital invested. The determination of the actual amount of the capital invested may be a matter of some difficulty; once determined, the rate of profit upon that amount of capital is a question which will be determined, generally speaking, by the ordinary business profit of the time and place. A schedule of rates will be reasonable from the point of view of the carrier if it yields him a net profit equal to that which would be realized, as a business question, from any other business where the capital and the risk were the same.89 It is necessary in framing a schedule to require a proper amount of concession from all parties concerned. The principles on which the fairness of the whole schedule would be determined will be limited by the requirement of fairness to the individual shippers; and on the other hand the principles on which the reasonableness of a particular rate would be determined may need modification because of the just claim of the carrier to a fair compensation. The examination of the reasonableness of the carrier's rates may therefore involve a study both of the reasonableness of the schedule as a whole and also of the reasonableness of the separate rates.90 § 221. Tests of the reasonableness of a schedule. As a general rule, therefore, it will be unjustifiable for the government to reduce the total net returns from the schedule as a whole below what will produce a fair return upon a proper capitalization. A general statement as this leaves much undefined; but it is not altogether im See the course of reasoning in refusing to permit the general advances in 1910 in Advances in Rates, Eastern Case, 20 I. C. C. 243. 90 See the elaborate discussion of certain principles fundamental in rate regulation in Advances in Rates, Western Case, 20 I. C. C. 307. possible to apply it to particular conditions. As an illustration of the actual way in which the problem is handled an extract is made from one of modern cases which are establishing a practicable method of dealing with this intricate problem. In passing upon the constitutionality of the reduction of rates ordered by a State Commission in Matthews v. Board of Corporation Commissioners 91 Judge Simonton said: "The questions made in this case are federal questions and grow out of the Fourteenth Amendment. If the rates fixed are unreasonable, that is to say, if they compel the railway company to conduct its operations at a loss or without a fair remuneration for its investment, then the property of the company is taken and used by the public without just compensation, and it is deprived of its property without due process of law. The jurisdiction of this court depends on the federal question. It is its duty, as it is the duty of all courts, State and federal, to see to it that no right secured by the supreme law of the land is impaired by legislation acting directly on the subject, or through agents created by legislation.92 The law applicable to this case has been settled by a series of decisions of the Supreme Court of the United States. On the other hand, the public cannot require the corporation to use its plant, its money, and its credit without remuneration. The best interests of the public forbid this. Railroads are the arteries of trade. Through them flows the life blood of a community. The best statesmanship contributes to their maintenance and encourages their prosperity. What the remuneration shall be depends upon the circumstances of each case." § 222. Many elements to be taken into account. That these various elements are all taken into consideration in passing upon the reasonableness of a schedule of 91 106 Fed. 7. 92 The carrier is entitled to ask a fair return upon the value of property devoted to public use; public is entitled to demand rate not higher than the services are reasonably worth. Morgan Grain Co. v. A. C. L. R. R., 19 I. C. C. 460. rates may be shown by extracts from some leading cases. Wages, price of materials and supplies, greater amount hauled by trains, destiny of traffic, as affecting cost of operation, and cost of operation are first of all to be considered as the Commission well realizes.93 But the test is more elaborate since the fixed charges must also be considered in addition to the operating expenses. As one court has comprehensively said: "Ordinarily that is a reasonable charge or system of charges which yields a fair return upon the investment. Fixed charges and the costs of maintenance and operation must first be provided for, then the interests of the owners of the property are to be considered. They are entitled to a rate of return, if their property will earn it, not less than the legal rate of interest; and a system of charges that yields no more income than is fairly required to maintain the plant, pay fixed charges and operating expenses, provide a suitable sinking fund for the payment of debts, and pay a fair profit to the owners of the property, cannot be said to be unreasonable.” 94 § 223. Relation of a particular rate to a whole schedule. The general method in passing upon the reasonableness of rates is therefore to discover whether the particular rate is fair, judging the schedule as a whole. As has been seen, this involves the consideration of many factors, some of them conflicting, but it may be said that rates fixed are fair to the company if from the schedule as a whole it gets a reasonable return, and fair to the people served if they pay in each particular case no more than the service is worth.95 In order to meet, as far as may be, both requisites, a particular rate should seldom be passed upon without considering the relations to the schedule 93 Commercial Club of Salt Lake City v. A., T. & S. F. Ry., 19 I. C. C. 218. 94 179 Pa. 231, 36 Atl. 249, 36 L. R. A. 260. 95 Brewer & Haulerter v. Louisville & N. Ry., 7 I. C. C. 224. |