amount of freight carried be one hundred thousand ton miles, and the gross revenue required from freight be two thousand dollars, the average rate of freight will be two cents per ton mile. If there were no other factors in the problem, therefore, a fair proportionate rate would be the ton-mile average charge. Because, however, of other factors, which cause a difference between commodities with respect to the fair charge for carrying them, a uniform ton-mile rate applied to all cases would not result in reasonable rates.2

1

§ 1199. Recognition of the ton-mile cost basis.

Although generally abhorrent to economists, the tonmile cost basis is well recognized by judges to-day as the first test to be employed in determining the reasonableness of particular rates. In a recent case 3 in the United States Supreme Court, where the issue was whether a certain rate upon phosphates fixed by a commission was fair to the railroad affected, Mr. Justice Brewer, speaking for the court said: "And here we face this situation: The order of the commission was not operative upon all local rates but only fixed the rates on a single article, to wit, phosphate. There is no evidence of the amount of phosphates carried locally; neither is it shown how much a change in the rate of carrying them will affect the income, nor how much the rate fixed by railroads for carrying phosphate has been changed by the order of the commission. There is testimony tending to show the gross income from all local freights and the value of the railroad property, and also certain

1 As will be seen in Atlantic C. L. Ry. Co. v. Florida, 203 U. S. 256, 51 L. ed. 174, 27 Sup. Ct. 108 (1906), discussed in the next paragraph, resort is often had to the ton-mile cost as a basis for regulation.

2 As the Supreme Court of the United States held at the same

term, if the State uses such a basis in regulation it is not oppressive. Seaboard Air L. Ry. Co. v. Florida, 203 U. S. 261, 51 L. ed. 175, 27 Sup. Ct. 109 (1908).

3 Atlantic C. L. Ry. Co. v. Florida, 203 U. S. 256, 51 L. ed. 174, 27 Sup. Ct. 108 (1906).

difficulties in the way of transporting phosphates owing to the lack of facilities at the terminals. But there is nothing from which we can determine the cost of such transportation. We are aware of the difficulty which attends proof of the cost of transporting a single article, and in order to determine the reasonableness of a rate prescribed it may be sometimes necessary to accept as a basis the average rate of all transportation per ton per mile. We shall not attempt to indicate to what extent or in what cases the inquiry must be special and limited. It is enough for the present to hold that there is in the record nothing from which a reasonable deduction can be made as to the cost of transportation, the amount of phosphates transported, or the effect which the rate established by the commission will have upon the income. Under these circumstances it is impossible to hold that there was error in the conclusions reached by the Supreme Court of the State of Florida, and its judgment is affirmed." 1

§ 1200. Ton-mile cost basis not oppressive.

At all events it may be said that governmental regulation based upon the ton-mile basis is not oppressive. This is shown sufficiently in another case 2 involving a similar issue decided by the same Justice on the same day. "With reference to the second of these cases the order made by the railroad commission is said by the plaintiff in error to be an 'irregular, unjust and unreliable method of rate fixing,' and this upon the theory that the order makes the rate per mile the same for any distance, whether one mile or a hundred miles. It appears the 16.43 per cent of all the local freight business of the company in Florida comes from the carrying of phosphates, and ref

1 See also Gulf & S. F. R. R. Co. Railroad Commission (Tex.), 116 S. W. 795 (1909).

V.

2 Seaboard Air Line Ry. Co. v. Florida, 203 U. S. 261, 51 L. ed. 175, 27 Sup. Ct. 109 (1908).

erence is made to several cases in which the courts have noticed the fact that the cost of moving local freight is greater than that of moving through freight, and the reasons for the difference. But evidently counsel misinterprets the order of the railroad commission. It does not fix the rate at one cent per ton per mile. It simply provided that it shall not exceed one cent per ton per mile, prescribes a maximum which may be reduced by the railroad company, and if distance demands a reduction the company may and doubtless will make it. In addition it must be borne in mind that it is to be presumed that the railroad commission acted with full knowledge of the situation; that phosphates were in Florida possibly carried a long distance, the place of mining being far from the place of actual use or preparation for use. Further, when we turn to the report of the railroad company (which of course is evidence against it) we find that the company's average freight receipt per ton per mile in the State of Florida was 8 mills; so that the rate authorized for phosphates was nearly two mills per ton larger than such average. Under these circumstances it is impossible to say that there was error in the conclusions of the Supreme Court of the State, and its judgments are affirmed.” 1

15

100

1

§ 1201. Authorities permitting disproportionate rates.

So far as there is as yet actual law upon this problem of the revision of particular rates the outcome hangs in the balance where it is not unlikely it will long remain. It must be conceded that at first sight the weight of authority would seem to be against one who is claiming that the particular rates in a schedule should not be unreasonably disproportionate. But upon examination this weight of authority will be found only for a limited proposition.

1 But see Tucker v. Missouri

Pacific R. R. Co. (Kan.), 108 Pac. 89 (1910).

1

It is true that by what is still the weight of authority the imposition of a rate by legislation, which fixes so disproportionately low a rate for a particular service as to make that service admittedly unprofitable will nevertheless not be held to be unconstitutional, if from its total receipts the company in question will get a fair return on its proper capital above operating expenses and reasonable charges. The Supreme Court of the United States still holds to the doctrine first clearly announced in Minneapolis & St. Louis Railroad Company v. Minnesota 1 where Mr. Justice Brown in justifying an order of the State commission so reducing the rate on coal that its transportation would be at a loss said: "Notwithstanding the evidence of the defendant that if the rates upon all merchandise were fixed at the amount imposed by the commission upon coal in carload lots, the road would not pay its operating expenses, it may well be that the existing rates upon other merchandise, which are not disturbed by the commission, may be sufficient to earn a large profit to the company, though it may earn little or nothing upon coal in carload lots." 2

1 186 U. S. 257, 46 L. ed. 1151, 22 Sup. Ct. 901 (1902). The court had already committed itself to this doctrine in St. Louis & S. F. R. R. Co. v. Gill, 156 U. S. 649, 39 L. ed. 567, 15 Sup. Ct. 484 (1895).

2 See further to the same effect: United States.-Interstate Consolidated St. Ry. Co. v. Massachusetts, 207 U. S. 79, 52 L. ed. 111, 28 Sup. Ct. 26 (1908); Willcox v. Consolidated Gas Co., 212 U. S. 19, 53 L. ed. 382, 29 Sup. Ct. 192 (1909); Southern R. R. Co. v. McNeill, 155 Fed. 756 (1907); Central of Ga. Ry. Co. v. McLendon, 157 Fed. 974 (1907); In re Arkansas R. R. Rates,

168 Fed. 720 (1908). But see Lake Shore & M. S. Ry. Co. v. Smith, 173 U. S. 684, 43 L. ed. 858, 19 Sup. Ct. 565 (1899).

Arkansas.-Missouri Pacific R. R. Co. v. Smith, 60 Ark. 221, 29 S. W. 752 (1895).

Minnesota.-State v. Minneapolis & St. L. Ry. Co., 80 Minn. 191, 83 N. W. 60 (1900).

Florida.-Pensacola & A. R. R. Co. v. Florida, 25 Fla. 310, 5 So. 833 (1889).

Georgia.-Southern Ry. Co. v. Atlanta Stove Works, 128 Ga. 207, 57 S. E. 429 (1907).

North Dakota.-State ex rel. v.

§ 1202. Authorities opposed to disproportion.

1

It should be noted, however, that there has been vigorous protest of late years against this proposition, even as it has been limited. In this connection the recent case of the Pennsylvania Railroad Company v. Philadelphia County deserves full consideration as the latest expression of the modern tendency to look into the different departments of the business in their relation to one another. In that case there was bill in equity to restrain the enforcement of the Pennsylvania statute imposing a two cent passenger rate. It was urged in defense of the legislation that, although it might leave no profit to the railroad in question upon its passenger traffic, the gross receipts of that railroad would, notwithstanding this, be sufficient to pay a fair profit upon its whole capital. But the Pennsylvania Supreme Court held the legislation unconstitutional upon this showing, Chief Justice Mitchell saying: "True business principles require that the passenger and freight traffic not only may, but should be separately considered. The intelligent business of the world is done in that way. Every merchant and manufacturer examines and ascertains the unprofitable branches of his business with a view to reducing or cutting them off entirely, and there is no reason why a railroad or other corporation should not be permitted to do the same thing as long as its substantial corporate duties under its franchise are performed. While the public has certain rights which in the case of conflict must prevail, yet it must not be forgotten that even socalled public service corporations are private property organized and conducted for private corporate profit. And unless necessary for the fulfillment of their corporate duties they should not be required to do any part of their

Northern Pacific Ry. Co. (N. D.), 120 N. W. 869, 25 L. R. A. (N. S.) 1001 (1909).

1220 Pa. St. 100, 68 Atl. 676, 15 L. R. A. (N. S.) 108 (1908).