ments, or the bondholders any interest on their loans, they should be fully advised as to what is done with the receipts and earnings of the company; for, if so advised, it might clearly appear that a prudent and honest management would, within the rates prescribed, secure to the bondholders their interest, and to the stockholders reasonable dividends." 28

§ 345. Cost of supplies.

The articles which a railroad company has occasion to buy are very numerous. Some of these are extensively used, others only in limited quantity. Evidently no general average can be constructed which is reliable without knowing the quantity which is used of each article. 'An advance in the price of coal would be of vital consequence to a railway and would be in no wise offset by a corresponding decline in feather dusters." 29 These are

general questions considered in passing upon the reasonableness of rates. The prices of almost all supplies used in railway construction and operation have advanced. "Comparing 1896 with the present year (1910) nearly all kinds of supplies which enter into the construction, maintenance, and operation of a railroad have very much increased in price. Nearly one-half the cost of operation is labor, and it is said that within that period the wages of railroad employees have advanced 30 per cent. We are told that not only has the price of a day's labor increased, but that the efficiency of that labor for various reasons has decreased. Legislative enactment, both of the federal and of the State Governments, has in the interest of the public and the employees required the employment of additional labor. Laws like the employers' liability act

28 This quotation is included with approval in the opinion of the court in Tucker v. Missouri Pacific Ry. Co., 82 Kans. 222, 108 Pac. 89.

According to a recent decision, a court will take into account the in

creased cost of labor by reason of the reduction of hours. In re Arkansas R. R. Rates, 168 Fed. 720.

29 Re Advances in Freight Rates, 9 I. C. C. Rep. 382.

will add to the damages which railroads must pay for injuries to their employees." 30

§ 346. Unreasonable expenditures.

The Commission has had occasion several times to animadvert upon the practices of the railways in paying extraordinary sums to get business. These must obviously be tested like other operating expenses of the company, and if found to be unduly high without justifiable reason they should be disallowed. Thus in an early investigation by the Commission it reported: 31 "Another cause is found in the active competition for traffic, under the stress of which a vast number of soliciting agents are employed, whose offices are found not only on the corners of the most expensive streets of every city, but in the rural communities as well; and who represent, both in their fixed establishments and in their movement up and down the land, not only the carriers directly, but also various so-called 'lines'-red, white, or blue, as the case may be; whose only interest is to obtain traffic; who have little responsibility of their own or to their ultimate employers; and whose object in life is necessarily to make a record of success in securing business which shall warrant the continuance of their employment and of their pay. All this gilded advertisement and persistent solicitation in the end is paid for by the public. The business exists and the public service of transportation must be done, whether or not any agent intervenes to help along the contract. Whatever arrangements and considerations are devised for the purpose of securing a shipment to a given line are necessarily at the expense and to the prejudice of some other shipper." 32

30 Re Advances in Rates, Eastern Case, 20 I. C. C. 243.

31 Re Underbilling, 1 Int. Com. Rep. 813, 1 I. C. C. Rep. 633.

32 On the general principle that the railroads must look to the basis

of their operations to increase their net, instead of expecting advances in rates, see the Five Per Cent Cases, opinions of August 2, 1914, and December 18, 1914.

§ 347. Improvident arrangements.

And in one case before it where it was shown that large commissions-20 per cent of the gross receipts in one case were being given by certain railroads for the purpose of developing their milk traffic, the Commission said squarely that such expenditures could not be charged against the shippers in making up the rates. To quote the language used: "The Lackawanna and Lehigh Valley are parties to agreements entered into mainly for the purpose of developing their milk traffic, and under which compensation is afforded to the other contracting parties equal to a considerable share of the gross receipts from the transportation. Such compensation, as the business has been increased or 'developed' on the Lackawanna, or may become greater on the Lehigh Valley, seems extravagant, but whether either agreement is disadvantageous to the carrier or otherwise is matter for it to determine. Improvident management of the road is primarily a matter of internal or corporate concern, to be dealt with by the corporation and its creditors among themselves.33 But extraordinary or unnecessary cost of operation or management cannot be permitted to cause unreasonable or unjust rates, discriminations, preferences or prejudices." In a later case 35 where it was shown that the expense of doing the express business was high by reason of the fact that large percentages, often as high as 55 per cent of the gross receipts, were paid to the railroads for the exclusive privilege of doing business over their lines, the Commission said that neither legally nor morally could it consider that these arrangements in themselves would justify higher rates for transportation than would otherwise be legal. 36

33 Citing Shamberg v. Delaware, L. & W. Ry., 3 Int. Com. Rep. 502, 4 I. C. C. Rep. 660.

34 Milk Producers' Asso. v. Delaware, L. & W. Ry., 7 I. C. C. Rep. 92.

11 34

35 Hormel & Co. v. C., M. & St. P. Ry., 26 I. C. C. 112.

36 In re Express Rates, 28 I. C. C. 132.

§ 348. Estimating labor cost.

Estimating labor cost is by no means so simple a process as it seems. In one important case before the Commission,37 this matter was examined rather elaborately, as the railways affected claimed the right to advance rates by reason, for one cause, of the increase in wages. On that point the Commission said, in part: "The railroads insist that this advance in the per diem wages does not represent the actual increase in the cost of the labor itself for the reason that owing to the regulations and requirements of the various labor organizations that labor is less efficient. For illustration, a station agent formerly did the work of a telegraph operator whereas to-day two persons must be employed. Without expressing any opinion as to the reasonableness of these regulations and requirements we are inclined to think that the claim is well taken and that there has been for various reasons a loss, as compared with ten or twelve years ago, in the quantity of work which a day's labor means." In a later proceeding, of even greater importance, the Commission said: "The same remark would seem to apply to wages as they stand after the recent increases. Railroad labor, certainly organized railroad labor, is probably as well paid, and some say better paid, than labor of other kinds, upon the average. Railroad employees will hardly expect to receive wages which exceed those paid to other forms of labor for the same grade of service, and this Commission certainly could not permit the charging of rates for the purpose of enabling railroads to pay their laborers extravagant compensation as measured by the general average compensation paid labor in this country as a whole." 38

§ 349. Scientific management.

Statements of increased cost of transportation can have little weight when presented in the abstract, with no at

7 Rates from St. Louis to Texas Points, 11 I. C. C. Rep. 238.

38 Advance in Rates, Eastern Case, 20 I. C. C. 243.

tempt to consider corresponding reductions resulting from greater efficiency. It must be carefully observed that, owing to the introduction of certain economies in railroad operation, a given quantity of work produces a much greater result; these different economies come mostly to the same end, the handling of a greater amount of paying freight in a train.39 Concerning the possibilities of getting greater results at lower costs out of the same laborers, even at higher wages, by "scientific management," so called, the Commission said that it could not find that the railroads could make good any part of these actual advances in wages by the introduction of scientific management, 40 but that the Commission still holds to the principle that, before any general advance can be permitted, it must appear that carriers have exercised proper economy in conduct of their business. And certainly rates cannot be advanced because of wasteful, corrupt, or indifferent management.11 To put it mildly, it is not clear to the Commission that the public should stand responsible for mistakes made in management of railroads.42 Railroad management should be most progressive; and continual increases in efficiency are to be looked for. 43 If carrier does not see proper to make improvements that will reduce cost of operation, it cannot claim that it may raise rates because cost approaches or overtakes revenue.44 For instance, increased tractive power of locomotives would tend to reduce the operating cost per unit of freight transportation. 45

§ 350. Loans.

It is obvious that a loan made by a company during

39 Hormel & Co. v. C., M. & St. P. Ry., 26 I. C. C. 112.

40 Advance in Rates, Eastern Case, 20 I. C. C. 243; Advance in Rates, July, 1914.

41 The Five Per Cent Cases, I. C. C. Aug. 2 and Dec. 18, 1914.

42 R. R. Commission of Texas v.

Atchison, T. & S. F. Ry., 20 I. C. C. 463.

43 Arlington Heights Fruit Exchange v. S. P. R. R., 20 I. C. C. 156. 44 Louisville & N. Co. C. & C. Rates, 26 I. C. C. 20.

45 Traffic Bureau of W. v. L. & N. R. R., 28 I. C. C. 533.