calculation. By 'going value' we understand is meant that value which arises from having an established 'going' business. While not the exact equivalent of 'good will,' as applied to ordinary business, it is of a somewhat similar nature, and attaches to the business, rather than to the property employed in such business. The fact that the business is established is, of course, a material fact in ascertaining the value of the plant, and especially is this true where the property is being estimated for the purposes of sale or condemnation; but as a basis for estimating profits its significance is less apparent. The merchant who sells an established business may properly place a high value on the good will which he relinquishes to the buyer; but so long as he continues in the enjoyment of the business he has created he does not add the value of the good will to his capital stock in estimating the percentage of his annual profits."18 So far, however, as a going business involves the elements discussed in the last sections, its property is actually more valuable than the mere physical elements of which the plant is composed. The physical connections of its plant, the cost of fitting it for its purpose, the loss of interest on the investment during construction and until the plant is in complete and lucrative operation, all add an actual value to the plant and are properly included in the construction account and form part of the actual capital employed in the enterprise. To this effect is the language of Mr. Justice Savage in Kennebec Water District v. Waterville:19 "A completed system of waterworks, such as the company has, without a single connection between the pipes in the streets and. the buildings of the city, would be a property of much less value than that system connected, as it is, with so many buildings, and earning in consequence thereof the money which it does earn. The fact that it is a system in operation, not only with a capacity to supply the city, but actually supplying many build 18 Cedar Rapids Water Co. v. Cedar Rapids, 117 Iowa, 250, 91 N. W. 1081 (1902). 19 97 Me. 185, 54 Atl. 6, 60 L. R. A. 856 (1902). ings in the city, not only with a capacity to earn, but actually earning, makes it true that the 'fair and equitable value' is something in excess of the cost of reproduction.' 371. Consideration given to the entrepreneur. The suggestion was thrown out in one opinion of the Interstate Commerce Commission20 that a certain return upon the ability to conceive and execute the project might be taken into consideration. But in the light of the context, this appears to be no more than a fair return upon the investment. The quotation follows: "As already remarked, the Southern Railway is the consolidation of numerous independent railroad properties. It has become through this process of growth a great railroad system embracing to-day a mileage of more than 6,000 miles. In this operation properties which were worthless have been put together to form a valuable whole. The physical condition of those properties has been enormously improved. The facilities afforded to their patrons have been increased. The whole territory involved must be benefited by this amalgamation, so far as its physical service is concerned. This enterprise is a perfectly legitimate one. The men who have conceived and executed it are entitled to a fair return upon the money which has been actually invested in it. They are entitled, in addition, to a reasonable profit upon the ability to conceive and execute a project of this sort. They have no right to exact a return upon an extravagant capitalization, but whatever has honestly and in good faith and reasonably gone into this enterprise should be protected. On the other hand, the people in this territory are entitled to protection."21 20 Danville v. Southern Ry., 8 I. C. C. Rep. 409. 21 See, also, Metropolitan Trust Co. v. Houston & T. C. R. R., 90 Fed. 683, B. & W. 342 (1898). § 382. Rates fixed must not produce a deficit. 383. Some return requisite. 384. Adequate return ought to be left. 385. Rates may be reduced provided reasonable return is left. 386. Reasonableness of return a judicial question. 387. Fair rate of return. TOPIC B-INTEREST UPON BONDS. § 388. Interest upon outstanding bonds protected. 389. The rate of return upon investments in general. 390. Rates at which governments can borrow, no criterion. 391. More than current rates of interest not secured to bondholders. 392. Prevailing rate of interest allowed. TOPIC C-DIVIDENDS ON STOCK. § 393. Reasonable dividends allowed. 394. Current rates of return. 395. Usual business profit. 396. Rate of return dependent upon locality. 397. Paying dividends dependent upon commercial conditions. 398. Recoupment in prosperous times. 399. No right to raise rates in prosperous times. 400. Creating a fund for payment of uniform dividends. TOPIC D-RATE OF RETURN DEPENDENT UPON THE CHARACTER OF THE ENTERPRISE. § 401. Larger returns in risky enterprises. 402. Hazards of the business considered. 403. Whether the return upon all property should be the same. 404. Rate of interest dependent upon the safety of the investment. § 381. Elements in determining a fair return. What constitutes a fair rate of return may not be fixed by general rule but is largely a question of the particular case. It depends to a certain extent upon the character of the enterprise; in established businesses a lower rate should be expected than in new ventures. Again, it depends upon the nature of the security; upon bonds a lower rate of interest is secured than the percentage payable in dividends upon stocks. These are the principal considerations, but as the discussion advances it will be seen that there are other minor matters to be taken into account. It will make some difference, also, in what manner the matter comes before the court for decision. If the question is whether a rate fixed by one in a public service is producing an unreasonably high rate of return, that is one thing. If the question is whether a rate fixed by public authority, either by the Legislature directly or by a commission acting in pursuance of legislative authority, is unreasonably low, that is another matter. It is obvious that there is all the difference of reasonable alternatives between these two aspects of the problem, that eight per cent. might not be too much return by a schedule fixed by the company in one case, while a reduction of a schedule by legislation so as not to produce more than six per cent. might not be outrageous in the other. TOPIC A-ESTABLISHMENT OF THE DOCTRINE OF ADEQUATE RETURN. § 382. Rates fixed must not produce a deficit. As will be seen, the earlier cases under the Fourteenth Amendment established that the State might regulate the rates of those engaged in public employment. The attention of the court was directed to showing that the power to regulate existed, and practically nothing was said about the limitations upon that power.1 And indeed the complainants did not adduce evidence that the rates fixed by the state were inadequate, but they denied simply that the rates could be regulated at all. But as soon as the power to regulate was once established the point was urged that the power had its limitations, and this the court conceded in very guarded language. For example, in the Railroad Commission cases2 Chief Justice Waite said: "From what has thus been said it is not to be inferred that this power of limitation or regulation is itself without limit. This power to regulate is not a power to destroy, and limitation is not the equivalent of confiscation. Under pretense of regulating fares and freights, the State cannot require a railroad corporation to carry persons or property without reward; neither can it do that which in law amounts to taking private property for public use, without just compensation, or without due process of law." As late as the case of Reagan v. Farmers' Loan & Trust Company this requisite was not stated unequivocally. In that case Mr. Justice Brewer said: "It is unnecessary to decide, and we do not wish to be understood as laying down an absolute rule that in every case a failure to produce some profit to those who have invested their money in the building of a road is conclusive that the tariff is unjust and unreasonable. And yet justice demands that every one should receive some compensation for the use of his money and property, if it be possible without prejudice to the rights of others.”4 1 Peik v. Chicago & N. W. R. R., 94 U. S. 155, 24 L. Ed. 94 (1876); Chicago, B. & Q. Ry. v. Iowa, 94 U. S. 164, 24 L. Ed. 97 (1876); Chicago, M. & St. P. Ry. v. Ackley, 94 U. S. 179, 24 L. Ed. 99 (1876); Tilley v. Savannah, F. & W. Ry., 5 Fed. 641 (1881). 2116 U. S. 307, 29 L. Ed. 636 (1886). 3 154 U. S. 362, 38 L. Ed. 1014, 14 Sup. Ct. 180 (1894). 4 The cases in the earlier period which required not much more than that the reduction of the rates under legislation should not work confiscation by producing a deficit in the operation of the company were: UNITED STATES SUPREME COURT: Munn v. Illinois, 94 U. S. 113, 24 L. Ed. 72, B. & W. 71 (1876), affirming Munn v. People, 69 Ill. 80; Peik v. Chicago N. W. Ry., 94 U. S. 164, 24 |