for the common good to the extent of the interest they have created. It is only a few years since we have had any detailed law for the regulation of public services. If they did not refuse to render their usual service, and did not charge extortionate prices, little fault was to be found with them in the last generation. Now we are demanding of them the utmost service which they are capable of rendering, upon the terms of full equality for the whole public. If they do not increase their facilities to meet the needs of their growing business, and if they give one customer in any way the least advantage over another, we sternly call their owners to account.

§ 28. Economic limitations create public employment.

The conditions which may produce virtual monopoly, such as natural sources of supply, restricted opportunities of access, limited time at disposal and difficulties in distribution have just been discussed. But of almost equal importance are other factors producing true economic monopoly by deterring effectual competition, such as the cost of the plant, the large scale upon which the business is done, the absence of effectual substitutes and the dependent position of the particular service. These elements in the general situation have doubtless already been taken into account unconsciously; but they are of such importance as to deserve mention. These economic forces of various sorts may either singly or in combination with others, naturally result in a given business in a monopoly of a sort which bids fair to be permanently characteristic of that employment. In these businesses the larger the scale upon which the business is done the lower the cost of performing the service. In such businesses there must be such great sums expended in construction of the plant that none would venture to sink an equal sum in a competing service at the risk of total loss in case of failure. The common fact therefore in all instances of public employment is virtual monopoly so established in the

nature of things that society must reckon with it. And it matters not by what conditions this situation is established so that it has the elements of permanence.

§ 29. Cost of the plant.

The usual characteristic of a public service is the relatively large cost of the plant. In very many instances this runs high into millions which must be invested before the service can be begun. This necessity of getting together so much capital limits fundamentally the amount of such construction. Canals and railroads furnish the chief examples of this. It would take perhaps twenty billion dollars to duplicate our present facilities for transportation; and it is, therefore, practically inconceivable that it will be done. Moreover, in most monopolies there is still another reason why capital is kept from investment in a competing service. The capital invested must be sunk at the risk of failure in this one market. The investment made in such services cannot be withdrawn. Public privileges may be given to a business public in character; and by the same token public regulation of such businesses as are affected with a public interest is justifiable. But what those businesses are depends upon what the experience of our time is and what our insight into the situation with which we are confronted teaches us. Thus to the enormous cost as a deterrent to competition is added the imminent risk of total loss in a desperate competition in which one must perish.

§ 30. Service on a large scale.

The applicant who wishes an individual service of the kind rendered by the established company is almost always at great disadvantage relatively in supplying himself. It is, of course, rare that the possibilities in any given case will be so restricted that if the applicant is refused service by the particular company no alternative is open to him; usually in some way or other he could hit

upon some way out in such a case. But the alternative offered will often be an inadequate substitute, disadvantageous to a greater or lesser degree. In such a situation there is no effectual competition to regulate the action of the original company, and without the interposition of the law there might be great oppression. It is plain that a railroad may not base its rates to a particular shipper upon what it would cost him to cart his goods to market. The mere fact that there are two services is not enough to alter the fact that the situation is essentially monopolistic, for if one may refuse service, the other may also. This would be plainly true in the case of a city where there were two competing telephone systems. There are,

therefore, extrinsic conditions by which it is to be determined what businesses are affected with a public interest; and the law must here as elsewhere deal with existing facts.

§ 31. Legal privileges accompanying public employment. That legal privileges frequently accompany public employment is a coincidence that has struck many ob-. servers as a characteristic of the whole class. It is indeed common to find in the case of public employments of all sorts the enjoyment of an exclusive franchise, or the exercise of eminent domain, the use of the streets, or even a direct grant from the public treasury. The common argument is that because these businesses have been granted these privileges they have thereby acquired their public character. It is submitted, however, that under our constitutional system no special privileges can be granted except for a public purpose; for unless there is public interest apparent the grant is void. We have seen already that the conditions of virtual monopoly, however caused, may give rise to public calling, even when the State has had no hand in the establishment of the situation. This is most suggestive; indeed, one is thus led to an entire inversion of the common statement of the relation between

the existence of public privileges and the establishment of public employment. The real truth of the matter seems to be in the opposite statement, that no business can be granted a privilege under our constitutional system unless it is public in character.

Topic D. Modern Regulation of Public Services

§ 32. Necessary regulation of virtual monopoly.

A review of all of the instances of public employment which have been cited in the course of this whole discussion will show that this conception of virtual monopoly will cover everything. Nothing narrower will do, as for example the difference sometimes put forward between the undertaking of a public service in contradistinction to the furnishing of a public supply. Now, it is true that most

of the cases are cases of service the railway and the warehouse, for example; but other of the cases are of supply,the waterworks and gas works, for instance. Indeed, there is nothing in this distinction, either in economics or in law. It is submitted that any business is made out to be public in character where there is a virtual monopoly inherent in the nature of things. If virtual monopoly is made out as the permanent condition of affairs in a given business, then the law, it seems, will consider that calling public in its nature. On the other hand, if effective competition is proved as the regular course of things in a given industry, the law will hold all businesses within it as private in their character. Under our constitutional system a distinction is made upon this line. In the public calling, regulation of service, facilities, prices and discriminations is possible to any extent. Monopolistic conditions demand such policy; and at no period in history has this been more apparent than now. In the private callings no such legislation should be permitted. Where competitive conditions prevail there should be freedom; and at no epoch in our industries has it been more important to insist upon this. Wherever there is established

monopoly in a business of public importance at any time and from any cause, the protection of the law is requisite, requiring that all shall be served on a reasonable basis. But wherever competition prevails it may be relied upon to bring about all these results by its own imperative laws.

§ 33. Economic conditions at the present time.

As a result of these changed business ideas, and of the great inventions which have constantly tended to increase the magnitude of business enterprises there has been as has been seen in the last fifty years a great growth of employments which have gained virtual monopoly in matters of public necessity. The positive law of the public calling is the only protection that the public have in a situation such as this, where there is no competition among the sellers to operate in its favor. So much has our law been permeated with the theory of laissez faire, which was but lately so prominent in the policy of our State, that the admission has been made with much hesitation that State control is ever necessary. But the modern conclusion, after some bitter experience, is that freedom can be allowed only where conditions of virtual competition prevail; for in conditions of virtual monopoly, without stern restrictions, there is always great mischief. There is now fortunately almost general assent to State control of the public service companies, since it is recognized that the special situation requires an exacting law.

§ 34. Control of the public services.

In recent times there undoubtedly is an increasing need of this stricter regulation of all employments which appear to be affected with a public interest. While it is true that there are many men who still avow the principle of laissez faire, who say that it is the better policy to leave all business with as little interference from the law as possible; the most of men at least appreciate that the law has already taken control of the situation for all time. It is hardly