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P U B L I C A T I O N s
OF THE
A M E R I C A N E C o No M I c. A s so C I A T I O N
THIRD SERIES ISSUED QUARTERLY.
Vol. VII, No. 2. - PRICE, $4.oo PER YEAR.
RAILROAD RATE CONTROL
IN ITS LEGAL ASPECTS
A STUDY OF THE EFFECT OF JUDICIAL DECISIONS UPON
PUBLIC REGULATION OF RAILROAD RATES.
BY
HARRISON STANDISH SMALLEY, Ph.D.,
sºr -
Instructor in Political Economy
University of Michigan
1905.
Copyright, 1906, by
AMERICAN ECONOMIC ASSOCIATION
THE PRINCETON PRESS
PRINCETON, N. J.
TABLE OF CONTENTS
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CHAPTER I. PUBLIC REGULATION OF RATEs.
+ “---
CHAPTER II. THE DOCTRINE OF JUDICIAL REVIEW.—I.
º: -
Origin and purpose of public control of rates. Evils to ~~
be remedied, especially discrimination, extortion and insta-
bility. Measures adopted. Attitude of the railroads, in
general. Resistance to rate-making by legislatures or com-
missions. Arguments. Decisions of the United States
Supreme Court—(I) as to the power of legislatures to fix
rates, (2) as to power of states over interstate rates, (3) as
to charter exemptions from legislative control, and (4) as
to judicial review of legislative rates. . . . . . . . . . . . . . . . . . . . . .
The doctrine of the Granger Cases. Acceptance of that
doctrine for a brief period. Its first modification,-Mr. Chief
Justice Waite's dictum. Resulting uncertainty of view, evi-
denced in several cases. The doctrine loses ground, and
is finally renounced. The Minnesota Case, its history and
treatment in the United States Supreme Court. The opinion
of Mr. Justice Blatchford, creating a doctrine of judicial
review based on the Fourteenth Amendment. The doctrine
stated. Its incomplete form. The dissenting and concur-
ring opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CHAPTER III. THE DOCTRINE OF JUDICIAL REVIEW.—II. º
Cases subsequent to the Minnesota Case. Is the reason-
2^
25
ableness of rates inherently a judicial question? The mean-
ing of “ due process of law,”—in the Minnesota Case, in
later cases. Just compensation an element in “ due process.”
No compensation ever provided by the states. Hence only
important judicial question is, do rates deprive of property?
“Property” includes income from property. Rate regula-
tion deprives of property only when it reduces income below
point of reasonableness. Effect of rates on income must be
determined in advance. Methods in determining effect. As-
sumption that rates will not effect volume of traffic. And
that earnings will be reduced in proportion to reduction in
rates. Length of time covered by calculation. Methods
illi1strated by Smyth v. Ames. How local costs are estab-
lished. What earnings should be considered? Present
status of law on this point. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
T; - fº. ray gº & * ,
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iv.
Table of Contents
CHAPTER IV. THE DOCTRINE OF JUDICIAL REVIEw.—III.
Reasonableness of income. Uncertainty of the judicial
doctrine on this point. The question in some leading cases.
Views of lower courts. General principle adopted by the
Supreme Court. But exceptions recognized, of four classes.
Return must be on reasonable value of property. How fair
value to be determined. Management of road must be
economical and honest. Rights of the public must be re-
garded and industrial condition of the community must be
considered. Inadequacy of judicial principles of reason-
ableness. Resumé of the entire doctrine of judicial review.
Miscellaneous considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CHAPTER V. THE RESULTS OF THE DOCTRINE.—I.
Nature of the iiiuuily. Central attitude of the law and
the courts as to public and private rights. Reduction of
rates. Power of states to reduce rates seriously impaired
by judicial review. First, because an improper limit is
placed on power of reduction. Error involved in the limi-
tation—arbitrary distinction between reasonable earnings
and other earnings. Inconsistency of the judicial doctrine.
Second, because methods of determining effect of rates on
earnings are erroneous. Criticism of methods. Third, be-
cause principles upon which “reasonableness” of income is
determined are unfair to the public. Principles examined.
General conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CHAPTER VI. THE RESULTS OF THE DOCTRINE.-II.
Power of rate enforcement also seriously impaired by
judicial review; because success of a few roads may permit
escape of the rest; and because rates may be suspended by
injunction. Should all “unreasonable * rates be suspended ?
Judicial view of reasonableness not commendable. Hence
many reasonable rates may be suspended. Rates which con-
form to judicial standards may also be suspended by “tem-
porary’ injunctions. Use of temporary injunction objec-
tionable, because (I) rates are acts of legislation, (2) public
interests are involved, and (3) the “temporary” period may
be so long as to defeat the usefulness of the rates. Railroads
much encouraged to contest rates. Consequence of loss of
power to enforce rates, (I) on adapting rates to industrial
conditions, (2) on the problem of stability, and (3) on
making of rates on basis of public utility. Result of judicial
review on the spirit and ideas of the commissions. Loss of
energy and of correct views. Interpretation of railroad
opposition to regulation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-
67
83
Table of Contents V
CHAPTER VII. REMEDIES.
Two chief difficulties to be remedied. Suggestions for cor-
recting both : (I) a constitutional amendment; (2) compen-
sation for property taken; this plan described; its objections
and advantages discussed; (3) legalized pooling and consoli-
dation of competing lines. Suggestions to permit reductions
in rates: renewed and energetic action by commissions,
especially (I) as to judicial methods, (2) as to obiter dicta,
and (3) as to rates on single commodities and for parts of
lines. Suggestions to make enforcement possible: (1) Act
of Congress forbidding injunctions; (2) requirement of bond
from companies; (3) expeditious trial, and special courts;
(4) more conservative action in rate-making. Conclusion.. I30
LIST OF CASES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I46
INTRODUCTION.
The following chapters are devoted to one of the phases
of the railroad problem. Their purpose is to disclose the
relation which has come to exist in this country between
the courts and the railroad commissions. To this end
they attempt to trace the development of what is termed
the doctrine of judicial review—the principle that the
courts have jurisdiction to review rates made by commis-
Sions and to restrain the enforcement of such as may be
found unreasonable. They nex endeavor to determine
how seriously this doctrine, in its practical application,
has affected the efficiency of such commissions as are em-
powered to establish schedules of railroad rates. And
finally, from the difficulties thus disclosed, they venture to
point out the possible avenues of escape.
Manifestly the discussion of a subject which involves
but one phase of a problem, cannot appear in its proper
light without some preliminary exposition of the problem
as a whole. Yet so thoroughly familiar are most of the
aspects of the railroad problem that their extended treat-
ment must be entirely unnecessary. Accordingly the
author has confined himself, in the first chapter, to a por-
trayal in barest outline of the historical back ground of
the problem and of its basis in economic theory. Only
those matters which bear a very important relation to
the particular question discussed in the later chapters, are
subjected to comment of any length. Indeed the whole
purpose of the preliminary chapter is to cast the light of
history and of theory upon the problem of judicial review,
in order to discover its significance, and to determine the
point of view from which it should be regarded.
327 - : I
2 American AEconomic Association [328
It will be noticed that throughout the work reference
is made only to rates established by state commissions,
and to the judicial doctrine pertaining thereto. That
doctrine, as will be shown, is based upon the Fourteenth
Amendment to the Federal Constitution, which forbids
each state to deprive any person of property without due
process of law, or to deny to any person within its juris-
diction the equal protection of the laws. Up to the pre-
sent time, therefore, the judicial doctrine has operated
only as a restraint upon state railroad control. But the
significance of the doctrine is much broader than that fact
would imply. For the Fourteenth Amendment, in so far
as it attempts to preserve the rights of private property
from invasion by the states, has a counterpart in the
Fifth Amendment, which forbids the national government
to take property without just compensation and without
due process of law. It is evident, therefore, that should
the federal government ever attempt to fix railroad rates.
the doctrine of judicial review would be extended to em-
brace such regulation.
At the present writing (April 14, 1906) it seems prob-
able that before long Congress will enact a rate regulation
law, and should that event occur the matter will at once
become of great importance. For even if an amendment
providing specifically for judicial review should not be
incorporated in the act, the courts would nevertheless
possess that right just as fully as they now do in regard
to state control. Even a provision for judicial review to
determine whether rates are “fairly remunerative"
would not change the scope of the judicial investigation,
for that, as will be seen, is the purpose of judicial review
under the Constitution. Thus the courts would assume
the same relation to the Interstate Commerce Commis-
sion that they now maintain toward the state commis-
sions, and consequently the same serious difficulties which
329] Amtroduction 3
now confront the states would await the agencies of
national control.
But the doctrine of judicial review is of even wider
importance, in that it applies not only to the regulation
of railroad rates, but to public control of charges in other
lines of business as well. Whether the doctrine elabo-
rated in railroad cases is to govern the courts in passing
upon charges prescribed by the legislatures for private
industries which have become so far affected with a pub-
lic interest as to be subject to government control of their
rates—such as warehouses and stock yard companies—
is not clear, especially in view of such cases as Budd vs.
New York, Brass vs. Stoeser, and Cotting vs. Kansas
City Stock Yard Company. Mr. Justice Brewer’s re-
marks in the last named case, though uttered obiter, are
interesting because of their suggestion of a different form
of review in cases involving industries of this kind. How-
ever that may be, there is no doubt that the doctrine of
judicial review worked out for railroads applies also to
the regulation of other forms of public business. And
so the same restraints placed upon government control of
railroads exist in the case of all public service or quasi-
public corporations, limiting, for example, the public
regulation of street railway fares, and of gas and water
rates. These facts lend additional interest to the follow-
ing inquiry as to the limits which the courts may set,
under our Constitution, to public control of railroad rates,
and as to the justice and expediency of such limitation.
CHAPTER I.
PUBLIC REGULATION OF RATES.
Public control of railroad rates has existed in this
country for hardly more than a third of a century. Prior
to about 1870 it was the policy of our governments, both
state and national, to let railroad traffic matters alone.
Indeed, with the exception of a few statutory provisions
designed to promote security of life and limb in the oper-
ation of railroads, no public regulation of any kind was
attempted. On the contrary, the American governments
very generally encouraged and supported railroad enter-
prises through substantial grants of land and money.
That railroad companies would ever require any consid-
erable measure of restraint or control was not at first
imagined, for they were regarded as public benefactors.
And that there could be anything hostile between their
interests and those of the public was not apparent until
many years had passed and our railroad system was
fairly well developed. When the fact did appear, how-
ever, many of the states were not slow to adopt a definite
policy of regulation, in which lead they were followed in
1887 by the Federal Government. The initiation of this
policy, then, was not the result of speculations concerning
the proper functions of the state, but on the contrary was
caused by the appearance of serious abuses in railroad
management, and by the realization that they were the
inevitable consequence of unrestricted private control.
What these abuses are, and in what characteristics of the
railroad industry they have their origin, it is important
to observe in order to appreciate the significance of those
measures which the public has adopted for their correc-
tion.
4 33O
331] Public Regulation of Rates - 5
In any statement of railroad evils attention is most
raturally directed first to unjust discrimination, as the
most serious of all. “Discrimination * is a term which,
as applied to railroads, embraces, if it does not cover, a
multitude of sins. The forms which unjust discrimina-
tion may take are myriad. There may be undue prefer-
ences in rates as between persons, or communities, or
Commodities, or connecting lines. Again, the preference
may be involved, not in the rates themselves, but in per-
sonal favors to the fortunate shipper, or in the character
of the service rendered, as in a most abundant car sup-
ply, or more expeditious carriage. When involved in
the rates, however, the discriminations may be effected
through differences not only in the charges for carriage,
but in the charges for other services, such as loading,
switching, storage, and demurrage. Discriminations in
rates may be public, appearing in the printed schedules
of the company, but in the vast majority of cases they are
privately made. When so made they most commonly
take the pernicious form of secret rebates, though not in-
frequently they are effected through the equally vicious
practice of false billing. But there are innumerable
Other ways. Quite recent investigation has brought to
light the discriminations concealed by the incorporation
of the so-called “industrial roads.” “Midnight sched-
ules '' are also a late discovery—so far as the public is
concerned—and the private car abuses are also fresh in
mind. So far as passenger traffic is concerned, the con-
nivance of railroads with scalpers has long been a fami-
liar story. In these, then, and many other ways do the
railroads too frequently succeed in evading their duty as
common carriers to serve all on equal and reasonable
terms. - . . . . . w ...'
The mere enumeration of these practices, however, is
sufficient to prompt the inquiry as to why railroad man-
6 American AEconomic Association [332
agers are disposed to indulge in them, since they must
mean in many cases a reduction in revenue, and in all
cases must tend to complicate the already difficult admin-
istration of the property. In reply it may be said that
railroad managers do not often desire to discriminate,
that on the contrary they are usually loath to do so, but
that they are driven to that course whether they will or
no. Under the conditions of competition as it prevails
among railroads, there is no alternative except between
discrimination and speedy insolvency.
The explanation of this fact is found in one of the
characteristic features of the railroad industry, namely,
the relation between expenses and volume of traffic. Ex-
penses increase but slightly when traffic increases greatly.
This is true not only because the fixed expenses of any
railroad company are so large a proportion of the whole,
but because even the variable items of expenditure do not
begin to keep pace with the growth of traffic. These
facts lead to two important immediate results. In the
first place, railroad managers are under a constant and
powerful incentive to get business even at reduced rates,
They realize that an increase in traffic means a much more
than proportional increase in net earnings; in other
words, augmented business means a decided reduction in
the cost of carrying each unit of traffic. Since this is
So, they are not only inspired to seek customers in all the
commercial highways and hedges, but they are also
strongly tempted to accept traffic at reduced rates—in-
deed to offer reduced rates in order to secure it. But
now a second consequence of this peculiar relation be-
tween expenses and volume of traffic is, that it is utterly
impossible to determine what any given service will cost
the company." A traffic manager, therefore, tempted as
‘It is not only impossible to determine in advance the cost of
rendering any particular service, but it is impossible to discover what
that cost has been even at the end of the year when all accounts are
333] Public Regulation of Rates 7
he is to accept each item of traffic if need be at a reduced
rate is entirely without data which would enable him to
fix the point below which a rate would be unremunerative.
Such being the case, his conduct under the stress of com-
petition is most natural. He offers whatever rate is
necessary to get the business away from his rivals, de-
voutly hoping all the time that the rate will not prove in-
jurious to his road, but utterly without means of judging
its effect. The outcome is that traffic managers are
Swayed by an impulse to accept traffic at almost any rate,
if compelled to do so by competition. “Get business ''
is their motto. “Get it at a high rate, if possible; at a
low rate if necessary; but get it.”
The consequences of this fact are familiar to all. Com-
petition between railroads is fierce and intense, and con-
stantly tends to develop into the “cut-throat” variety,
ending perhaps in the all too familiar “rate wars.”
Dominated by the passion for traffic, eager to snatch it
from competing lines, each road cuts rates wherever nec-
essary, or offers other advantages to get the traffic for
itself. And thus swarm into industrial life that horde of
evils to which allusion has been made—the evils of unjust
discrimination. Thus are railroad managers compelled
by the exigencies of their business to wield unceasingly
a tremendous power through which one man, one in-
dustry, one town may be built up, while others are crip-
pled or destroyed. Of course it may happen that a pow-
erful industry may secure such an influence in the control
of a railroad that discriminations may intentionally be
in. It is practically impossible to apportion the total expenditures
among the various kinds of traffic—freight, passenger, milk, express,
and mail. And even if the freight expenses could be determined,
it would be impossible to apportion them among the various individ-
ual items, so as to determine cost of carriage, terminal expenses, etc.,
of each, or even the total cost of each. Cost keeping is impossible
in the traffic department of a railroad.
8 American AEconomic Association [334
made for the purpose of crushing the former's rivals; but
even where this element is lacking, unjust discrimination
is not only a possibility in railroad management—it is a
natural and inevitable consequence of all unrestricted
railroad competition. Railroads do not usually wish to
discriminate, but they are compelled to do it. Discrimi-
nation may drive them into bankruptcy, but abstinence
from it is sure to do so, so long as competition persists.
They discriminate in order to live—though their dis-
crimination may sometimes kill them.
A second railroad evil hardly less serious than that
just considered, and certainly no less the outgrowth of
causes inherent in the business, is extortion. The im–
position of exorbitant charges is in large measure a conse-
quence of monopolistic elements in the railroad industry.
Many communities enjoy the services of but one railroad,
and of no other means of transportation; and while the
number of such places is at present slowly diminishing,
there is no doubt that to the end of time the number will
continue large. Of course as to such points there can be
no competition at all. Even potential competition almost
wholly fails as a restraining force, because of the immense
cost of duplicating a railroad's plant and equipment, and
because of the long time which the process of duplication
must consume. The railroads are consequently free, in
the absence of government control, to fix rates on the
monopoly principle of maximum net return. The only
practical limitation upon their power is that which arises
from the influence of rates at competing points upon
rates at intermediate points, but even this, as experience
has abundantly shown, is wholly inadequate. Extortion
may exist, moreover, even in the presence of competition.
The nominal, or public rates applying to competing points
may themselves be exorbitant. Of course discrimina-
tions, as already explained, result in a lower charge being
335] AE’ublic Regulation of Æates 9
exacted from most shippers, but the small or innocent
Shipper may very likely have to pay the scheduled rate.
And Of course arrangements such as pools, consolidations,
or communities of interest, may be made which destroy
competition in whole or in part, temporarily or perman-
ently. To the extent to which such arrangements are
effective, rates are subject to the arbitrary control of the
railroads. The public has no guarantee of reasonable
charges. +
A third evil of private railroad management is instabil-
ity in rates. The industrial interests of every community
demand that railroad charges shall be stable. The trans-
portation factor is an essential one in all industries, and
accordingly an element of transportation expense is pre-
sent in the cost of practically every commodity. For
railroad rates, therefore, to be unstable is to introduce an
element of serious uncertainty into all business. That
this is a highly undesirable thing needs no argument.
Yet the fact that the public interest demands stability in
rates is not always a conclusive argument with the traffic
manager. Private railroad management furnishes no
guarantee that rates, once established, will remain unal-
tered until changing industrial conditions demand their
alteration.
Such are the principal evils so far as rates are con-
cerned, which have grown up with the development of the
railroads, and against which legislation has been di-
rected.” Through just what measures the public has
endeavored to abate these mischiefs, it is now appropriate
for us to inquire.
* Certain other evils, such as the granting of free passes to public
officers; attempts to evade or limit liability; and incompetent or
negligent maintenance and operation of roads, are not dealt with
here, as they are not of importance in connection with the subject of
this work.
IO American AEconomic Association [336
Legislation designed to prevent unjust discriminations
has, up to the present time, taken chiefly the form of pro-
hibitions against Such practices, coupled with penalties
for infraction of the law. In many states railroad com-
Sioners have been charged with the duty of discovering
violations of the law, and of directing against the guilty
parties the prosecuting agencies of the government, but
in many other states these agencies have been left without
special assistance in this work. Leaving out of account
a few minor provisions of law, our governments, both
state and national, have rested content with this merely
prohibitory legislation.
Against extortion also have been leveled prohibitory
statutes, reinforced with penal provisions. To these have
been added other laws forbidding the merger or consoli-
dation of competing railroad companies, and declaring
that no arrangements in the nature of a pool shall be
enforcible at law. These provisions have been designed
to preserve competition wherever it exists, thereby pre-
venting the companies from fixing monopoly rates. In
addition to these two classes of laws, a number of states,
as well as the United States, have endeavored to solve
the problem through the appointment of railroad commis-
sions invested with a general authority to supervise rail-
road companies, and, among other things, to advise with
them in regard to their rates. The majority of states,
however, which have established commissions, have gone
further than this, and have empowered their commissions
actually to fix rates for the railroad companies. In some
instances the legislatures have themselves exercised this
power and have passed maximum rate laws. Thus it is
seen that the states have resorted to several expedients
to obviate the danger of exorbitant railroad charges.
The measures which have already been mentioned are
also designed to secure stability in rates. Laws against
337] Public Regulation of Rates I I
unjust discrimination and extortion, insofar as they are
Successful, must necessarily prevent those disturbances
in Schedules which are so injurious to all business. And
especially effective in producing this result must be the
public regulation of rates. No further measures, there-
fore, peculiar to this difficulty, have been alopted by the
States.
In these various ways, then, have our governments
endeavored to correct the evils of private railroad man-
agement. How, now, let us ask, have these attempts at
control been regarded by the companies? To which, if
any, have they offered resistance in the courts?
While railroad companies have no doubt often felt that
they were being much abused, they have made no serious
effort to disprove the validity of certain laws. Thus
those general provisions requiring reasonable rates and
service, forbidding unjust discrimination and extortion,
have been generally recognized as within the proper scope
of legislative power. So also anti-pooling and anti-
consolidation clauses, being no more than adaptations to
modern conditions of the old common law rule on re-
straint of trade, are generally acknowledged to be valid.
Even an advisory commission empowered to recommend
changes in rates is conceded to be a proper creature of the
police power. Such methods of control as these, rail-
roads have as a general rule refrained from resisting in
the courts. They have rather exercised their ingenuity
to discover methods of rendering them nugatory in prac-
tice.
But the case has been entirely different with statutes
fixing rates or establishing commissions with power to fix
rates, From the very beginning of railroad control the
companies have resisted such laws with tireless energy.
Case after case has been started, and very few which in
the trial courts have been decided adversely to the roads,
I 2 American AEconomic Association [338
have been abandoned until a ruling has been obtained
from the Supreme Court of the United States. Every
argument has been used to defeat these measures of pub-
lic regulation, and the ablest counsel in the country has
been employed in the attempt to accomplish that end.
The grounds upon which the resistance of the railroads
has been based are four in number: :
I. That the legislature has no right to fix rates.
2. That, even conceding that right to the legislature,
some of the state laws have been void insofar as they
have attempted to regulate interstate commerce.
3. That, again conceding the legislature's power, the
charters of some companies exempt them from its exer-
cise. -
4. That, still conceding the legislature's right, its
power is not absolute, but the rates are subject to review
by the courts. Rates ought to be reasonable, even if
made by the state, and whether they are or not is a judi-
cial question, and cannot be conclusively determined by
the legislature.”
Let us examine each of these contentions, and the reply
which has been made to it by the Supreme Court of the
United States.
I. It was most natural that railroad rate regulation
should first be most vigorously resisted on the broad
ground that the legislature is without constitutional power
to fix rates, directly or indirectly. The spirit of our in-
stitutions—legal, political and economic—contemplates
the widest possible freedom of individual action in in-
dustry, and limits the play of government interference
within very strict bounds. Especially are prices, rates, and
* In addition to these objections it will be recalled that the power
of the Interstate Commerce Commission to fix rates was successfully
resisted on the ground that Congress never intended to confer it
upon the Commission. See I. C. C. v. C. N. O. & T. P. Ry. Co.,
I67 U. S. 479.
339] Aublic Regulation of Rates I 3
so forth left to the determination of competitive forces.
But this is not all. The constitution of the United States
contains in unmistakable terms a guarantee of the rights
of liberty and property, as against both the federal and
state governments. In view of the former fact it is not
altogether surprising that the railroads should have at
first regarded governmental control of rates as a denial
of fundamental rights which have been the product of
centuries of Anglo-Saxon history. In view of the latter
fact, it was inevitable that they should promptly call in
question the constitutionality of such measures of control.
In the first cases which arose, therefore, this argument
was pushed to its farthest limit, and the question was thus
squarely presented as to whether rate control is an infrac-
tion of the Constitution, or, on the other hand, is a proper
exercise of the recognized police power of the states.
The so-called “ Granger-Cases '' were the first in which
this question was at issue, and were the cases in which it
was definitely determined.* In those cases the right of
the legislature to regulate rates was firmly established,
and in those and succeeding cases the basis on which that
right reposes was clearly stated. The railroad business
is essentially a public business, and, therefore, railroad
companies, though private corporations, have devoted
their property to public use and are discharging a public
function. This being the case, it naturally follows that
in the employment of their property, in the conduct of
their business, railroad companies must be subject to pub-
* The “Granger Cases * were eight in number, and all arose under
the “Granger Laws” which had been passed in Illinois, Iowa, Wis-
consin and Minnesota. The leading case, Munn v. Illinois, involved
the validity of a statute fixing maximum rates for the storage and
... handling of grain in public warehouses, but all the other suits dealt
with railroad laws. See table of cases for their titles. All of the
cases ultimately reached the federal Supreme Court and were decided
in 1876. They are reported in 94 U. S. II.3, et seq.
I4. American Economic Association [34o
lic control. It would be intolerable that the management
of a public industry, and especially rates to be charged
by it, should be left to the ungoverned whim of private
parties, to whom the state had delegated its function in
order that the public might be served. The right of the
state to control rates, therefore, flows from the very
nature of the railroad industry. -
That the railroad business is public in character is a
proposition which the Supreme Court has maintained
upon three separate grounds, each of which would seem
to be sufficient in itself. In Llue ſiist place a railroad
Company is a common carrier, and, as was said by Mr.
Chief Justice Waite, “ common carriers exercises a sort
of public office, and have duties to perform in which the
public have an interest.” In another of the Granger
cases he added: “Railroad companies are carriers for
hire. They are incorporated as such, and given extra-
ordinary powers in order that they may better serve the
public in that capacity. They are, therefore, engaged in
a public employment affecting the public interest and
(are) subject to legislative control as to their rates of
fare and freight.” And this control of the rates of
Common carriers, as the Chief Justice pointed out, was
exercised as long ago as the third year of the reign of
William and Mary."
In the second place a railroad is a public highway, and
it has always been recognized that the creation and main-
tenance of public highways is a function of the state. A
railroad company, therefore, is engaged in a public busi-
ness. “A railroad is a public highway,” declared Mr.
Justice Harlan in Smyth v. Ames, “ and none the less
so because constructed and maintained through the
agency of a corporation deriving its existence and powers
* Munn v. Illinois, 94 U. S. 130.
* C. B. and Q. Rol. Co. v. Iowa, 94 U. S. I64.
"3 W. & M., c. 12, Sec. 24.
341] Public Regulation of Rates I5
from the state. Such a corporation was created for pub-
lic purposes. It performs a function of the state.” “
In the third place, the grant of the right of eminent
domain and its use by railroad companies is incontest-
able proof of their public character. A fundamental
principle of the law of eminent domain is that the power
shall be exercised for a public purpose and for a public
purpose only.” The grant of that power to a railroad is
therefore tantamount to an assertion by the state that a
railroad's business is public—that its property is devoted
to a public use—and the acceptance of the power by the
company is likewise equivalent to a confession of that
fact. Were it not so the exercise of the power by the
railroads would be wholly unjustifiable." Closely allied
to this consideration is another. In this country rail-
roads have been the beneficiaries of much public aid. In
many places taxes were once levied to assist the com-
panies in the construction of their roads; and whatever
may be said as to the wisdom of this policy, the validity
of these taxes, in the absence of special constitutional
restraint, is beyond doubt. Yet it is also a fundamental
rule of the law of taxation that the power shall be used
only for a public purpose. Therefore it may be said
here, as was said of the eminent domain, that the levying
of the taxes was an assertion by the state, and the accept-
ance of their benefits an admission by the railroads, that
the industry is public.
But while we have here three grounds on which it is
possible to argue that the railroad business is public, it
will be observed that there is an important distinction
between the first two and the last. The first two are
* I69 U. S. 544. See also Lake Shore, etc., Ry. Co. v. Smith, 173
U. S. 690.
* Cooley; Constitutional Taw, 3rd ed., p. 366.
* See Smyth v. Ames, 169 U. S. 544. ". . . 3° 22
t
:
:
*
tº
© . Tº
I6 American Economic Association [342
causes of the public character of the industry; the last
is a consequence of it. Railroads are public because the
roads are public highways and the companies common
carriers; but they are not public because the powers of
eminent domain and taxation have been exercised for
their benefit. In other words, the exercise of these powers
has not created publicness in the industry, for they cannot
lawfully be used except for a purpose that is already in-
trinsically public. Their exercise, therefore, is not the
cause of publicness, but rather a test or proof of it. And
it furnishes a good argument for the validity of govern-
ment control, for the railroads, having received the bene-
fit of these important sovereign prerogatives, are forever
estopped from denying the public character of their busi-
ness—a character but for which the use of these powers
would have been unlawful. .
The railroad industry is therefore a public industry,”
and because of that fact it is subject to legislative control
as to its rates. This legislative power extends of course
to all business of a public character, and therefore applies
not only to railroads but to all public service corporations,
such as other common carriers, municipal lighting, water
and street railway companies, and so forth. It is well
established, however, that the right of a legislature to
regulate rates and prices extends not only to such indus-
tries as these, but to others which are not public in char-
acter as well. This fact and the reason for it, have
frequently tended to produce confusion of thought as to
the real legal basis of railroad control. At the risk of a
digression, therefore, it seems advisable to inquire into
the ground upon which the Supreme Court sustains a
legislature's right to fix prices for a non-public industry,
in order that the ground upon which railroad control is
based may be clearly distinguished.
* See Lakeshºe-etº, Ry. Co. v. Smith, 172 U. S. 690, 696.
* * tº
* * * * * †
343] Public Regulation of Rates 17
The general doctrine of the Court is that when prop-
erty is “clothed with a public interest,” or “devoted to
a use in which the public has an interest,” it becomes sub-
ject to legislative control as to its price, or as to the rates
for its use. The doctrine in this form has been vigor-
ously assailed, as far too sweeping and as lacking in
definiteness. What is to limit the discretion of the legis-
lature? the opponents of the doctrine inquire. Is it not
true that almost all business is affected with a public in-
terest? What industry is there in which the public has
not some measure of concern ? Yet must all prices be
liable to variation at the whim of a legislature? Such
questions suggest the criticisms which have been made
again and again and which have come from members of
the bench as well as from the general public. Mr. Justice
Brewer, for example, while upholding in no uncertain
terms the power of a state to control public industries,
such as railroads, submitted a most spirited dissent from
the opinion of the Court in Budd v. New York "*—a
case in which a statute imposing rates of charge for ware-
houses was upheld by the majority of the court.
But in spite of criticism, the doctrine as a general
proposition has become firmly established. It is subject,
however, to considerable limitation. Not all business
which is clothed with a public interest is subject to legis-
lative control of its rates—but only such industries as
exhibit qualities or peculiarities which mark them as fit
subjects for public control. But what are the character-
istics which will have this effect? This question cannot
be answered with perfect definiteness, for the Court has
never marked out clearly all of the limitations of its
doctrine. Certain general ideas are involved in its de-
cisions, however, and may be stated, There can be no
doubt whatsoever that if an industry is public in char-
* I43 U. S. 517.
I8 - American Economic Association [344
&
acter it is “affected with a public interest" in a sense
which completely justifies public control. This is doubt-
less the most intense form which the public interest can
assume. But a less intense interest, that is, interest in
a non-public business, may also be sufficient. Thus in
Munn v. Illinois, a statute fixing the charges for ware-
houses was sustained. The warehouses concerned were
held to have become sufficiently “clothed with a public
interest,” apparently for two reasons: first, because of
the gencral use and great importance of their service, and
secondly, because they presented the case of a “virtual
monopoly.” A third consideration may be found, for
example, in the regulation of rates for hacks and car-
riages, namely, a grant by the government of special
privileges. So also a long standing custom of fixing
prices of a certain sort may be deemed to impart a suffi-
cient element of public interest, and to justify a contin-
uance of the practice. It will not do to take any of these
considerations in its full meaning, however. None of
them will always be sufficient to justify public control.
Thus the mere fact that an industry is of use and great
importance is not sufficient, or our legislatures would be
fixing the price of coal, ice, food, clothing, steel, and a
score of other commodities, as well as rents. Nor have
we any reason to believe that a “virtual monopoly ’’ will
under all circumstances subject an industry to price con-
trol. Were that so, our legislatures would possess a
more powerful weapon against the Trusts than they now
seem to suspect. Nor, again, can the grant of a special
privilege be always sufficient—otherwise all corporate
charters, at least all special charters, would imply a power
in the state to fix prices for the corporation. It is not
even certain that the dignity of age will always justify a
continuance of legislative price making. It is more than
possible that an effort to fix the price of bread, formerly
345] Aublic Regulation of Rates I 9
a common practice, could now be successfully resisted.
Thus it seems evident that no hard and fast rule can be
laid down as to the potency of any of these elements to
create a public interest sufficient to justify price control.
All that can be said, therefore, is that the presence in an
industry of one or more of these elements (and perhaps
others not yet disclosed by the Court) will under certain
circumstances and conditions,—to be judged of in each
case by the Court—be deemed to have clothed the in-
dustry with a public interest, sufficient to subject it to
public control. Thus the class of industries so subject
is not a definitely determinable one, but must gradually
change with the evolution of industry.” -
But whatever uncertainty may attach to the control of
prices in industries private in character, and however
difficult it may be to define the exact grounds on which
such control is based, no suspicion of uncertainty or diffi-
culty appears in the regulation of railroad rates. The
public nature of the railroad industry is a full and suffi-
cient justification of the control. True it is that in that
industry there are other features of public interest be-
sides its public character: the elements of monopoly, of
general use and importance, and of special privileges
“As said Mr. Chief Justice Waite in speaking of warehouses:
“Certainly if any business can be clothed ‘with a public interest and
cease to be juris privati only, this has been. It may not be made so
by the operation of the Constitution of Illinois, or this statute, but it
is by the facts. . . . . Neither is it a matter of any moment that no
precedent can be found for a statute precisely like this. It is con-
ceded that the business is one of recent origin, that its growth has
been rapid and that it is already of great importance. And it must
also be conceded that it is a business in which the whole public have
a direct and positive interest. It presents, therefore, a case for the
application of a long-known and well established principle in social
science, and this statute simply extends the law so as to meet this
new development of commercial progress.” Munn v. Illinois, 94
U. S. 132, 133. -
2O American AEconomic Association [346
from government are all present. But these additional
factors simply add strength to the basis of railroad con-
trol, and do not in any sense subject it to the uncertainty
which is characteristic of the control of private indus-
tries, in which these factors are the only ground of regula-
tion. The controlling consideration in railroad control
is the public character of the business.” So true is this
that even those who deny the potency of any argument
to justify price control in private industries, do not often
question the judicial doctrine of railroad regulation.
Indeed, no more forceful exposition of that doctrine can
be found than that given by Mr. Justice Brewer, in an
Opinion in which he denied the right of a legislature to
fix charges for warehouses:
“The creation of all highways is a public duty. Rail-
roads are highways. The State may build them. If an
individual does the work he is protanto doing the work
of the State. He devotes his property to a public use.
The State doing the work fixes the price for the use. It
does not lose the right to fix the price because an indi-
vidual voluntarily undertakes to do the work.” ”
It is settled law, therefore, that a state may regulate
railroad rates.” But while the courts rest this authority
*The statement that a public industry is subject to legislative con-
trol as to its prices, does not, of course, imply that the list of public
industries is made up and is forever unchangeable. Here, as in the
case of the peculiar class of private industries just mentioned, his-
torical development necessarily works gradual changes. Thus we
find the Supreme Court saying in San Diego Land and Town Co. v.
National City: “That it was competent for the State of California to
declare that the use of all water appropriated for sale, rental or dis-
tribution should be a public use and subject to public regulation and
control, and that it could confer upon the proper municipal corpora-
tion power to fix the rates of compensation . . . is not disputed, and
is not, we think, to be doubted.” I74 U. S. 753.
* Budd v. New York, I43 U. S. 549.
* It has never been doubted by the courts that this power of regu-
lation may be exercised either by the legislature, or by a commission
to which the legislative power is delegated. See Tilley v. Railroad
Co., 5 Fed. Rep. 641; Railroad Commission Cases 116 U. S. 307.
347] . Aublic Aegulation of Æates 2 I
upon a purely legal basis—to be found in the public
character of the road as a public highway, and of the
company as a common carrier—it is also possible to fur-
ther justify and sustain the judicial position by con-
vincing arguments of an economic character. The
monopolistic elements in the railroad industry, the nature
of railroad competition, and, in general, the extensive
economic, Social and political significance of railroads,
and hence the power of railroad managers, are consider-
ations effective in strengthening the conviction that the
Courts are justified in sustaining public regulation of
rateS.
But what, it may be asked, is the precise significance
of the term “regulate.” Does it include a power to
establish absolute rates, from which a railroad may be
forbidden to vary, or is the power confined to merely
maximum rates? This question has never been con-
clusively determined by the Supreme Court for the reason
that it has never been directly at issue in any case. In
spite of this fact, however, the answer has practically
been given, for the Court, in asserting and describing
the legislative power, has repeatedly used the term
“maximum”, or an equivalent.” It has, therefore, all but
committed itself to that view of the case. On principle,
also, that would seem to be the proper view. The Four-
teenth Amendment operates to impose reasonable re-
* For example: “It has been customary from time immemorial for
the legislature to declare what shall be reasonable compensation, or
perhaps more properly speaking, to fix a maximum beyond which any
charge would be unreasonable.” 94 U. S. 133. “The right to estab-
lish a maximum of charge . . .” 94 U. S. I34. “The state may
limit the amount of charges by railroad companies.” 94 U. S. I76,
and II6 U. S. 325. “The legislature of a state, having power to fix
maximum rates and charges . . .” I73 U. S. 690. For other ex-
amples see 94 U. S. I25, 162, 179; II6 U. S. 330, 335; 173 U. S. 687,
694; 186 U. S. 261. No case, so far as I can discover, has ever held
that rates may be absolute.
22 American Economic Association [348
straints on the police power of the States. It does not
prevent the imposition of reasonable maximum rates, nor
the prohibition of rate cutting which amounts to unjust
discrimination, for the high interests of the public de-
mand that it be protected from extortionate and prefer-
ential railroad rates. But it would be hard to imagine
public policy demanding a prohibition of all reduction in
rates, reasonable as well as unreasonable. The repeated
dicta of the Court, then, seem to find support in the
merits of the question. It need hardly be added that the
view of the federal Supreme Court is coul, olling in this
matter, the question being one under the Constitution of
the United States.
Thus has been established the right of the legislature
to establish rates for the railroads within its jurisdiction.
And as this doctrine was clearly enunciated in the first
rate cases, the prime defence of the companies against
public control at once broke completely down. We have
now to consider the other arguments which they have
brought to their aid. Two are not of much importance
for our present purpose and may be briefly mentioned.
II. In some of the Granger Cases objection was
raised to the laws involved, on the ground that they
affected interstate commerce, and hence were void at
least insofar as they applied to commerce not strictly
infra-state. This objection was met by the Court with
the distinct assertion that in the absence of Congressional
action each state might regulate such interstate commerce
as affected its own citizens. This was the law until 1886,
when a divided Court Overruled this feature of the
Granger Cases.” The rule as then announced—that the
* Wabash, etc. Rd. Co. v. Illinois, 118 U. S. 557. It will be re-
membered that this case had an important influence in hastening
federal legislation. The Interstate Commerce Act was passed at the
next session of Congress. -
349] Aublic Regulation of Rates 23
states can regulate only such commerce as is purely infra-
state—has since remained undoubted law.
III. In many of the earlier cases, also, the railroads
sought exemption from the operation of the laws, on the
ground that their charters exempted them from public
control of their rates; but the answer of the Court
brought them small comfort. In this matter the Court
simply applied the old rule regarding grants—particu-
larly grants of immunity—by the state. In no case, said
the Court, is it to be presumed that a charter confers
exemption from legislative control. The presumption
is all the other way, and to overcome it requires a clear
indication of legislative intent. Thus even a clause in
the charter conferring upon the company the right to fix
its rates does not excuse the road from the rates made by
the state. It is excused only if the charter, in addition
to granting that power, contains expressly or by clear
implication, a renunciation by the state of its right of
regulation. Under such a doctrine, of course, no rail-
road incorporated under general laws, and almost none
incorporated by special act could claim exemption from
public control.”
A matter of some interest is suggested by the Court’s
assertion that immunity from rate control may be given
in a railroad charter. It has always been said that the
fixing of the rates is an exercise of the police power. Yet
it is a well settled doctrine of the police power that a
state cannot dispossess itself of that power, cannot con-
tract it away. It would seem, therefore, that rate regu-
lation is not in reality a phase of the police power, but
that it stands on a different basis. What that basis may
be, is indicated by a further distinction which may be
drawn between rate control and the ordinary forms of
* See Ruggles v. Illinois, Io& U. S. 541, and Stone v. Farmers'
Loan and Trust Co., II6 U. S. 307.
24 American AEconomic Association [35o
police regulation. In general the police power is em-
ployed to control matters of private concern for the gen-
eral good, but rate regulation is used to control matters
of public concern. Is not the public character of the rail-
road business alone sufficient to justify public regulation?
But whatever interest may attach to speculations of this
character, there is no doubt that at present the courts de-
clare the police power to be the basis of rate control.
IV. We come now to the fourth defence of the rail-
road companies, and the one with which the remainder
of our work will be concerned. The railroads have con-
tended that rates ought to be reasonable, by whomsoever
made; that what is reasonable is a judicial question; and
that therefore the courts are competent to review legis-
lative rates in order to determine their reasonableness.
Into the varying replies which the Supreme Court has
made to this contention it is now our purpose to inquire.
CHAPTER II.
THE DOCTRINE OF JUDICIAL REVIEw.—I.
The argument that rates established by public author-
ity should be subject to the scrutiny of the courts in order
that their reasonableness may be judicially determined
was advanced and urged with much force in the Granger
Cases—the first cases involving the validity of railroad
control. It was therefore necessary for the Supreme
Court to consider the question and to pronounce upon it.
It did so, and in its expressions upon the point there
appears no lack of definite conviction. The power of the
legislature was held to be complete and exclusive, subject
to no restraint from the courts. The force with which
this doctrine was enunciated may be indicated by quota-
tions from the opinions of the Court, read by Mr. Chief
Justice Waite. In the Munn case are found these words:
“It is insisted, however, that the owner of property is
entitled to a reasonable compensation for its use, even
though it be clothed with a public interest, and what is
reasonable is a judicial aud not a legislative question. As
has already been shown, the practice has been other-
wise. . . . We know that this is a power which may be
abused; but that is no argument against its existence. For
protection against abuses by legislators, the people must
resort to the polls, not to the courts.” And again: “Of
the propriety of legislative interference within the scope
of the legislative power, the legislature is the exclusive
judge.” ”
In the Peik case, counsel for the railroad argued that
“ the question of what is reasonable compensation is for
‘94 U. S. I.33, 134.
*94 U. S. 132.
351] 25
26 American Economic Association [352
judicial determination and cannot be decided by the legis-
lature.” “ The reply of the Chief Justice to this conten-
tion was perfectly clear. He said: “As to the claim that
the courts must decide what is reasonable, and not the
legislature. This is not new to this case. It has been
fully considered in Munn v. Illinois. Where property
has been clothed with a public interest, the legislature may
fix a limit to that which shall in law be reasonable for its
use. This limit binds the courts, as well as the people.
If it has been improperly fixed, the legislature, not the
courts, must be appealed to for the change.” “
Again, in the Ackley case the only matter which re-
ceived mention in the opinion of the court was the ques-
tion whether the railroad company could “recover for
the transportation of property more than the maximum
fixed by the Act of 1874, by showing that the amount
charged was no more than a reasonable compensation for
the services rendered.” The question was answered by
a decided negative. “The limit of recovery,” said the
court, “is that prescribed by the statute.” "
It can be no misinterpretation of language here quoted
to say that it indicated a deliberate judgment and a clear
conviction on the part of the Court, as to the question
discussed. However much that matter may have been
overshadowed by the major question in the cases, it re-
ceived attention at the hands of the Court, and was settled
in no doubtful terms. When the Granger Cases had
been decided, therefore, the law was that the reasonable-
ness of rates is a purely legislative question, that neither
the Common Law nor the Federal Constitution permits
the railroads to seek relief in a judicial review of rates
made by the legislature.
*94 U. S. 167.
*94 U. S. 178.
*94 U. S. 179.

353] The Doctrine of /udicial ſteview 27
For a period of nine years this rule was sustained with-
Out modification and guided the judiciary in its treatment
Of railroad cases. An illustration of its application may
be seen in the case of Tilley v. Savannah, etc. R. Co.,"
decided in 1881. This case involved the power of the
Georgia Railroad Commission to act under a statute
authorizing it to fix railroad rates. Mr. Justice Woods,
of the Supreme Court, who was then sitting on circuit,
held that there was only one conclusive test of the rea-
sonableness of rates—for the railroad to try them—and
that its only remedy, should the commission's rates prove
unreasonable, was to apply to that board or to the legis-
lature. “My conclusion is,” he continued, “that the
Act of the Legislature of Georgia is not in violation of
either the Constitution of the United States or of the
state of Georgia . . . that it (the Legislature) may pre-
scribe rates, either directly, or through the intervention
of a commission, and that the question whether the rates
prescribed by the legislature, either directly or indirectly,
are just and reasonable, is a question which the Legisla-
ture may determine for itself.” ". .
After nine years of unqualified acceptance, however, a
modification of this rule was introduced in the opinion of
the Court, read by Mr. Chief Justice Waite, in the Rail-
road Commission Cases,” which were suits in equity
brought to restrain the Mississippi Railroad Commission
from establishing rates, on the ground that the charters
of the companies exempted them from public control of
their charges. In determining that the charters afforded
no such exemption the court reaffirmed the right of the
* 5 Fed. 641.
* 5 Fed. 664. See Ruggles v. Illinois, IOS U. S. 526, and concur-
ring opinion of Mr. Justice Field on p. 54I ; also Spring Valley Water
Works v. Schottler, IIo U. S. 347.
* Stone v. Farm.crs’ Loan and Trust Co. and two other cases,
(1886) II6 U. S. 307, 347, 352.
28 American AEconomic Association [354
legislature to regulate railroads, but in the midst of the
Opinion are found these significant words: .
“From what has thus been said it is not to be inferred
that this form 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
pretence of regulating fares and freight, the State can-
not require a railroad corporation to carry persons or
property without reward; neither can it do that which
in law amounts to a taking of private property for public
use without just compensation or without due process of
law.”
Continuing, the Chief Justice said: “What would
have this effect we need not now say, because no tariff
has yet been fixed by the Commission, and the statute of
Mississippi expressly provides ‘ that in all trials of cases
brought for a violation of any tariff of charges so fixed
by the commission it may be shown in defence that such
tariff so fixed is unjust.’” ”
Thus the suggested modification remained, in this case,
merely an obiter dictum, but its importance lay in the fact
that it was the first hint in any prevailing opinion of the
court that the legislative power of control was subject to
limitations other than those which might be imposed
through popular suffrage. The dictum did not go so far
as to describe the nature and extent of those limitations,
nor to state through what agencies they could be enforced.
It was simply a declaration in general terms that the rail-
roads possessed rights of property which were secure
even from the legislative power of regulation. -
Three years later Mr. Justice Gray, in his opinion in
a rate case, remarked that “the general rule of law that
governs this case has been clearly stated and developed
in opinions of this Court delivered by the late Chief
Justice.” The fact is, however, that at that time the
* II6 U. S. 331.
* Dow v. Beidelman, I25 U. S. 680, 686.
35 5] The Doctrine of Judicial Review 29
Court was anything but clear upon the subject. For a
period of five years after the Railroad Commission Cases
the law was in a very unsettled condition, and for this
the dictum of Mr. Chief Justice Waite was wholly re-
sponsible. It is idle to speculate as to what effect he
would have given to his words had he been spared to
share in the trial of later cases. His death left their full
meaning undetermined, and until 1890 no authoritative
decision was reached. During that time his colleagues
on the Supreme bench and other jurists as well specu-
lated upon his dictum, in attempts to discover its proper
implications and applications, but without complete defin-
iteness or harmony of conclusion.
Thus, in the opinion of the Court in Dow v. Beidelman,
a case in which the railroad claimed that the passenger
rates fixed by an Arkansas statute would reduce its net
yearly income to less than I} % on the “ original cost of
the road,” and to only a little more than 2% on its bonded
debt, Mr. Justice Gray cited several cases, quoting Chief
Justice Waite's dictum, but after showing that the rail-
road had offered no evidence as to the cost of its bonds
or the sum paid for its road, continued as follows:—
“Without any proof of the sum invested by the reor-
ganized corporation or its trustees, the court has no
means, if it would under any circumstances have the
power, of determining that the rate fixed by the legisla-
ture is unreasonable. Still less does it appear that there
has been any such confiscation as amounts to a taking of
property without due process of law.” "
In this case, then, it is evident that the Court was not
free from doubt as to its power to test the reasonableness.
of rates. A more positive statement appeared in the
opinion of the Court, read by Mr. Justice Field, only a
few months later in the Georgia Railroad and Banking
Co. v. Smith. After quoting from the Railroad Com-
* 125 U. S. 686, 690. The italics are mine.
3o American Economic Association [356
mission Cases and Dow v. Beidelman, the learned Justice
remarked:
“It has been adjudged by this court that the legisla-
ture of a state has the power to prescribe the charges of a
railroad company for the carriage of persons and mer-
chandise within its limits, in the absence of any provision
in the charter of the company constituting a contract
vesting in it authority over those matters, subject to the
limitation that the carriage is not without reward, or
upon conditions amounting to the taking of property for
public use without just compensation; and that what is
done does not amount to a regulation of foreign or inter-
state commerce.” ” -
But as the only contention in this case was exemption
by reason of charter provisions, no application was made
of the dictum as to carriage “without reward or upon
conditions amounting to the taking of private property
for public use without just compensation.”
The precise question, however, was directly involved
in a suit which came before Mr. Justice Brewer, then a
circuit judge, in 1888, after the Arkansas case, but be-
fore the Georgia case had been passed upon by the
Supreme Court. Taking up the dictum of Chief Justice
Waite and Justice Gray's holding in Dow v. Beidelman,
the now eminent jurist interpreted them as establishing
in a most thorough way the power of the courts to inter-
fere in matters of railroad rates. The action * was for
an injunction to restrain the Railroad Commission of
Iowa from enforcing rates made under the authority of
an Act of 1887. In his opinion Judge Brewer quoted
from the opinions in the Railroad Commission and Dow
cases, and then proceeded:
“It is obvious from these last quotations that the mere
fact that the legislature has pursued the forms of law in
*I28 U. S. 174, 179.
* Chicago and Northwestern R. Co. v. Dey, 35 Fed. Rep. 866.
357] The Doctrine of /udicial Review 3 I
prescribing a schedule of rates does not prevent inquiry
by the courts, and the question is open and must be de-
cided in each case, whether the rates prescribed are within
the limits of the legislative power, or mere proceedings
which, in the end, if not restrained, will work a confisca-
tion of the property of complainant. Of course some rule
must exist, fixed and definite, to control the action of the
courts, for it cannot be that a chancellor is at liberty to
substitute his discretion as to the reasonableness of rates
for that of the legislature. . . . . The right of judicial in-
terference exists only when the schedule of rates estab-
lished will fail to secure to the owners of the property
some compensation or income from their investment. As
to the amount of such compensation, if some compensa-
tion or reward is in fact secured, the legislature is the
sole judge. The question is one alone of policy. . . .
The rule, therefore, to be laid down, is this: That where
the proposed rates will give some compensation, however
small, to the owners of railroad property, the courts have
no power to interfere. Appeal must then be made to
the legislature and the people.” “
Here is a clear enunciation of the doctrine of judicial
review from a lower court, and, what is more important,
its practical application through the granting of an in-
junction against a railroad commission. In another
case, also,” which he decided the same day, Judge Brewer
issued an injunction restraining the Minnesota Commis-
sion from enforcing a certain switching charge, which
the railroad claimed would prove unremunerative. These
two cases could leave no doubt that in Judge Brewer's
mind unremunerative rates were unreasonable, and un-
reasonable rates it was competent for the judiciary to
Suspend. * .
Some months later " the Supreme Court of Florida
* 35 Fed. Rep. 878, 879.
* Chicago, St. Paul, Minneapolis and Omaha R. Co. v. Becker,
35 Fed. Rep. 883.
* Pensacola, etc. R. Co. v. Florida, 25 Fla. 310.
32 American Economic Association [358
had under consideration rates made by the state commis-
Sion, which the railroad claimed and the commission
admitted would not allow the road to pay its operating
expenses. Reviewing the Railroad Commission, Dow,
Georgia and Dey cases, with thorough approval of Judge
Brewer’s opinion in the last named case, the court de-
clared that the enforcement of unremunerative rates is a
wrong, for which there is no remedy but in the courts.
Accordingly it adjudged the contested rates to be an at-
tempt to take property without just compensation and
without due process of law.
From this brief review of the suits which followed the
Railroad Commission Cases, it is evident that in a very
few years the Supreme Court had placed a broad inter-
pretation upon Chief Justice Waite's dictum, while some
of the lower courts had gone so far as to announce a
definite theory of judicial control. The question had not
been authoritatively determined by the Supreme Court
because it had not been squarely presented, but such had
been the tendency of judicial opinion since 1885, that one
could have foretold the nature of Court's decision when
a clear case arose. It was but a matter of time before
the period of uncertainty would be ended by a definite
recantation by the Court of the conviction so clearly ex-
pressed in the Granger Cases. -
It was in 1890 that the test came. The case, the Chi-
cago, Milwaukee and St. Paul R. Co. v. Minnesota,”
originated in 1887, in a complaint made to the Minnesota
Commission alleging the unreasonable character of cer–
tain milk rates charged by the railroad. . The complaint
was forwarded to the railroad and a date fixed for an
examination. Upon that date both the railroad and the
complainants appeared by attorney, and the Commission
* 134 U. S. 418.
[359 The Doctrine of Judicial Review 33
“ proceeded to investigate the complaint.” Some weeks
later the Commission served its decision upon the railroad
with an order fixing new and lower rates. Upon the
refusal of the railroad to put them in force, the Commis-
sion applied to the Supreme Court of the State ** for a
writ of mandamus to compel the adoption of the rates.
On the hearing the railroad asked for a reference to take
testimony regarding the reasonableness of the Commis-
sion's rates, but this application was denied upon the
ground that the statute declared the Commission’s rates
to be conclusively reasonable, and, as decided in the
Granger Cases, this legislative determination was bind-
ing upon the courts. The court, therefore, granted a
peremptory writ of mandamus. The railroad company,
however, sued out a writ of error to the Supreme Court
of the United States, asserting its right to contest the
reasonableness of the Commission’s rates, under the
Fourteenth Amendment to the Federal Constitution. The
case was decided March 24, 1890, the opinion of the
majority of the Court being read by Mr. Justice Blatch-
ford. -
In his opinion the learned jurist reviewed the facts of
the case, and the decision of the Supreme Court of Min-
nesota, then discussed the question as to whether the rail-
road's charter exempted it from legislative control, and
having decided that question in the negative, announced
the important point to be whether the form of regulation
adopted in this case was valid.
Launching into the discussion of this subject, he as-
serted the necessity of adopting the construction placed
upon the Minnesota statute by the state court—that the
Legislature intended the Commission’s rates to be con-
clusively reasonable. Upon such a construction he de-
clared the statute to be clearly invalid:
*38 Minn. 281.
34 American AEconomic Association [360
“It conflicts with the Constitution of the United States
in the particulars complained of by the railroad company.
It deprives the company of its right to a judicial investi-
gation, by due process of law, under the forms and with
the machinery provided by the wisdom of successive ages
for the investigation judicially of the truth of a matter
in controversy, and substitutes therefor, as an absolute
finality, the action of a railroad commission which, in
view of the powers conceded to it by the state court, can-
not be regarded as clothed with judicial functions, or
possessing the machinery of a court of justice.”
Under the statute, said the Court, the Commission
had but to “find ’ a railroad's rates unreasonable, adopt
others, and notify the company of the fact.
“No hearing is provided for; no summons or notice
to the company before the commission has found what it
is to find, and declared what it is to declare; no opportu-
nity is provided for the company to introduce witnesses
before the commission,--in fact, nothing which has the
semblance of due process of law; and, although in the
present case, it appears that, prior to the decision of the
Commission, the company appeared before it by its agent,
and the commission investigated the rates charged by
the company for transporting milk, yet it does not ap-
pear what the character of the investigation was, or how
the result was arrived at.” 4°
Continuing, Mr. Justice Blatchford called attention to
another provision of the statute, requiring all railroad
rates to be equal and reasonable. Nevertheless, although
here the railroad alleged that the Commission’s rates
were not equal and reasonable, the statute did not permit
them to show that fact in judicial proceedings. This re-
straint was clearly wrong: “The question of the reason-
ableness of a rate of charge for transportation by a rail-
road company, involving, as it does, the element of rea-
sonableness both as regards the company and as regards
the public, is eminently a question for judicial investiga-
* I34 U. S. 456, 457.
361] The Doctrine of /udicial Review 35
tion, requiring due process of law for its determination.
If the company is deprived of the power of charging rates
for the use of its property, and such deprivation takes
place in the absence of an investigation by judicial mach-
inery, it is deprived of the lawful use of its property, and
thus, in Substance and effect, of the property itself, with-
out due process of law, and in violation of the Constitu-
tion of the United States, and in so far as it is thus de-
prived, while other persons are permitted to receive rea-
sonable profits upon their invested capital, the company
is deprived of the equal protection of the laws.”
From this argument the conclusion emerged that the
issuing of a peremptory writ of mandamus by the state
court was unlawful, because in violation of the Constitu-
tion of the United States. In its judgment, therefore,
the Court remanded the case for further proceedings not
inconsistent with its opinion, remarking, however, that
unless the state court changed its construction of the
statute so as to permit of judicial review of the rates, the
Only possible proceeding was to dismiss the application
for the mandamus.**
The opinion of Mr. Justice Blatchford in this case has
been described at length and many passages have been
* I34 U. S. 458. With this compare the following from the dis-
senting opinion of Mr. Justice Bradley: “No one questions the con-
stitutionality or propriety of boards for assessing property for
taxation, or for improvement of streets, sewers, and the like, or of
commissions to establish county seats, and for doing many other
things appertaining to the administrative management of public
affairs. Due process of law does not always require a court. It
merely requires such tribunals and proceedings as are proper to the
subject in hand.” I34 U. S. 464.
* On the same day the Supreme Court, through Mr. Justice Blatch-
ford, handed down its opinion in the case of the Minneapolis Eastern
R. Co. v. Minnesota, I34 U. S. 467. The Minnesota Commission
had fixed a switching charge which the railroad refused to adopt.
The Commission secured an alternative writ of mandamus, and in its
reply the railroad asserted that the rate was unreasonable and would
36 American AEconomic Association [362
freely quoted for several reasons. In the first place, be-
cause of the great importance of the case. It marks the
turning point in American railroad law; it indicates the
definite adoption by the Supreme Court of a policy
fraught with tremendous consequences both to the rail-
roads and to the people. In the second place, because the
reasoning of the Court does not repose on its former de-
cisions or Opinions. In all that part of his opinion which
deals with the question under discussion, Mr. Justice
Blatchford cites no case or other authority except the
obiter dictum in the Railroad Commission Cases. His
doctrine was new law, freshly made out of whole cloth.
But still another reason for the extended discussion
of his opinion is that it is not entirely easy to understand
its reasoning. It must be confessed that the discussion
is somewhat confused, and it is therefore difficult to satis-
factorily digest its substance. The following, however,
is believed to be a practically faithful statement of the
doctrine of judicial review as it presented itself in this
C2S62 .
Although railroad companies are quasi-public in char-
acter they are entitled to the protection of the Fourteenth
Amendment. Therefore,
I. They cannot be deprived of property without due
process of law. But since rates imposed by the state may
deprive them of the lawful use of their property, and
hence, in substance and effect, of the property itself, such
rates must be enforced only after an investigation by
judicial machinery, that is, after due process of law has
been Observed.”
deprive it of property without due process of law. Its request to
make proof of these matters was, however, refused and a peremptory
writ of mandamus issued. Upon its reasoning in the other case, and
especially because no notice to the railroad or hearing had been
granted before the charge had been fixed, the Federal Supreme Court
reversed the judgment of the State Court.
*The statute in this case, however, did not provide nor require due
process of law, nor did it appear that the commission employed it in
fixing the rate.
363] The Doctrine of Judicial Review 37
2. They cannot be denied the equal protection of the
laws. But if they are deprived of the lawful use of their
property with due process of law, while other persons are
not, they are denied the equal protection of the laws.”
This, then, is the doctrine of judicial review as it ap-
peared when first authoritatively announced in 1890. It
will at Once be seen, however, that in this form, it was in
but a crude and rudimentary state, and much litigation
was needed to develop and refine it. As pronounced by
Mr. Justice Blatchford, many questions of importance
were left unsettled, and it is to the later decisions of the
court that we must look for answers to these questions.
The next two chapters will therefore be devoted to a
study of the evolution of the doctrine up to the present
time.
It remains now merely to remark that although the
doctrine of this case was far from complete, the result
of the case was clear and definite. The Court had ex-
ecuted a right-about-face. Mr. Chief Justice Waite's
repeated assertion in the Granger Cases, that the judg-
ment of the legislature binds the courts as well as the
people was distinctly renounced. So far as those cases
dealt with the relation of the courts to the legislature they
were definitely overruled. The doctrine of judicial re-
view was born.
Only three of the justices who decided the Granger
Cases were on the bench when this Minnesota case was
considered. Of these, Mr. Justice Field had dissented in
the former cases and naturally agreed with the majority
in their holding. But Mr. Justice Bradley delivered a
vigorous dissent, asserting that the majority had prac-
tically overruled Munn v. Illinois; claiming that reason-
ableness is a legislative and not a judicial question; and
deploring “an assumption of authority on the part of
* Such might have been the effect of the statute in this case.
38 American Economic Association [364
the judiciary, which, it seems to me, with all due defer-
ence to the judgment of my brethren, it has no right to
make.” In this dissenting opinion Mr. Justice Gray
and Mr. Justice Lamar concurred.
The third surviving member of the Granger Court was
Mr. Justice Miller, who concurred “with some hesita-
tion ” in the judgment of the Court. His brief opinion
consisted of a series of propositions, which, in his judg-
ment, embodied the rules of law applicable to such cases.
It may be said that his views were largely adopted in sub-
Scqucht decisions of the Court.
* 134 U. S. 462.
CHAPTER III.
The Doctrine of /udicial A'eview.—//.
We are now to consider the evolution of the doctrine
of judicial review, from its crude condition in the Minne-
sota Case to the well-developed and somewhat complex
form which it presents to-day. In pursuing this study,
constant reference must be made to the important cases
decided since 1890, and it therefore seems advisable to
delay our analysis of the subject long enough to take a
hasty view of those cases.
The first case upon our subject to come before the fed-
eral Supreme Court, after the Minnesota case, was the
Chicago and Grand Trunk R. Co. v. Wellman," which in-
volved a Michigan statute fixing maximum charges.
Finding that the evidence was insufficient to prove the
rates unreasonable, the Court sustained the statute. On
the same day on which this was decided, Mr. Justice
Blatchford read the opinion of the majority of the Court
in the curious case of Budd v. New York.” This was an
action brought to test the constitutionality of a New
York statute fixing rates of charge for warehouses, and
as this was precisely the question involved in Munn v.
Illinois, the case is of special interest. The opinion was
definite in its conclusion—the statute was sustained—but
for uncertainty of argument it would be hard to find its
equal in all the books of law. At one point it states that
“we must regard the principle maintained in Munn v.
* 1892. I43 U. S. 339. To be referred to hereafter as the Well-
man case.
* 134 U. S. 517. To be referred to hereafter as the Budd case.
365] - 39
4O American AEconomic Asssociation [366
Illinois as firmly established, and we think it covers the
present case.” At another point it attempts to distin-
guish the Minnesota case, by asserting that the opinion
there had reference only to charges fixed by a commission
and was not concerned with rates fixed by a legislature.
Then, as if fearing that this might imply a total lack of
judicial control over legislative rates, it resorts to the
hopeless uncertainty of Dow v. Beidelmann, and quotes
the dubious clause, “if it (the Court) would under any
circumstances have the power" of determining a legis-
lative rate to be unreasonable. Under cover of this make-
shift doctrine, the opinion goes on to show that the com-
plaint in this case alleged no unreasonableness in the rates,
and then repeats the words: “even if under any circum-
stances we could determine that the maximum rate fixed
by the legislature was unreasonable.” |
It is, of course, hard to construe such an opinion as
this, but a fair inference would seem to be that at this
time there was some doubt in the mind of Mr. Justice
Blatchford, if not in the minds of other members of the
Court, as to whether the doctrine of judicial review
should be extended to rates made directly by a legislature.
That there was no such doubt, however, as to most of the
justices, is evident from the fact that Mr. Justice Brewer’s
opinion in the Wellman case, read on the same day, and
to which no dissent was offered, clearly asserted the right
of the courts to review legislative rates. “The legisla-
ture,” he said, “ has power to fix rates and the limit of
judicial interference is protection against unreasonable
rates.”8 -
Two years later the same jurist laid to rest as grace-
fully as was possible, any doubt that may have been
raised by the Budd Case by saying that because the
records in that case had not shown the rates to be un-
* I43 U. S. 344.
[367 The Doctrine of /udicial Review 4. I
reasonable, “there was no occasion for saying anything
as to the power or duty of the Court in case the rates as
established had been found to be unreasonable.”
In the Reagan cases the doctrine of judicial review
was reaffirmed and much elaborated. These important
cases,” decided in 1894, all involved rates made by the
Texas Railroad Commission. Injunctions to restrain
the Commission from enforcing the railroads from oper-
ating the rates, had been sought in the Circuit Court and
had been granted. Indeed so sweeping was the decree
of that court that the Commission was forbidden to es-
tablish any rates whatever. This last feature of the
decree was reversed by the Supreme Court, but so far as
the decree restrained the enforcement of the rates already
established, it was affirmed, the court finding, after in-
vestigation, that the rates were unreasonable.
On March 4, 1895, three suits were decided by the
Supreme Court, speaking through Mr. Justice Shiras.
The leading case was St. Louis and San Francisco Ry.
Co. v. Gill " and the others " were settled upon the prin-
ciples therein declared. It is interesting to note that
these cases involved the same statute as Dow v. Beidel-
man—the Arkansas Maximum Passenger Rate Act of
1887. There was no longer, however, the uncertainty
which characterized the utterances of the Court in that
case. The right of the courts to test the reasonableness
of legislative rates was clearly declared, although, because
the evidence had not shown their unreasonableness, the
rates were sustained.
* Reagan v. Farmers’ Loan and Trust Co. I54 U. S. 398.
* Reagan v. Farmers’ Loan and Trust Co., and four other cases,
I54 U.S. 362, 413, 418, 420.
* I56 U. S. 649. To be referred to hereafter as the Gill case.
* St. L. & San F. Ry. Co. v. Stevenson, and same v. Trimble, I56
U. S. 667.
42 American AEconomic Association [368
In 1896, in the case of the Covington and Lewington
Turnpike Co. v. Sandford,” the Supreme Court elabor-
ated the doctrine still further and employed it to restrain
the enforcement of rates made by the Legislature of
Kentucky for the turnpike company. And on March 7,
1898, was delivered the opinion of the Court in the great
case of Smyth v. Ames,” which had been brought to con-
test the validity of the Nebraska Maximum Rate Law of
1893. The Supreme Court affirmed the decree of Mr.
Justice Brewer in the Circuit Court, restraining the en-
forcement of the rates. The opinion of the Court, pre-
pared by Mr. Justice Harlan, worked out our doctrine in
great detail.
A variation on the usual form of question presented to
the Court appeared in the Lake Shore, etc. R. Co. v.
Smith,” in which was involved a Michigan statute re-
quiring railroads to sell mileage books and fixing the
price therefor. Although there was strong dissent, and
although the reasoning of Mr. Justice Peckham's pre-
vailing opinion is not at all clear, there can be no doubt
that in the opinion of the majority the statute was “a
violation of that part of the Constitution of the United
States which forbids the taking of property without due
process of law.” It was therefore declared to be invalid.
Another variation of the question presented itself in
San Diego Land and Town Co. v. National City,” which
involved the power of certain local officers to fix water
rates under the California Act of March 7, 1881. In
*I64 U. S. 578.
* I69 U. S. 466; see also 171 U. S. 361. To be referred to here-
after as the Smyth case.
* 1899. I73 U. S. 684. To be referred to hereafter as the Lake
Shore case.
* 1899. I74 U. S. 739. To be referred to hereafter as the San
Diego case.
369] The Doctrine of /udicial Review 43
1884, in the Spring Valley Water Works v. Schottler,”
the Supreme Court, in pursuance of the principles of the
Granger Case, had held that such regulations of water
rates was a proper exercise of legislative power, and was
not subject to judicial review. But in the San Diego
case this view was abandoned. Citing the Wellman,
Reagan, and Smyth cases, the Court asserted its right to
test the reasonableness of the rates under the Federal
Constitution. The rates were, however, upheld as valid.
The Chicago, Milwaukee and St. Paul R. Co. v. Tomp.
kins tº arose from a suit by the railroad to restrain the
enforcement of a schedule made by the South Dakota
Commission. The decree of the trial court was in favor
of dismissing the bill and vacating the injunction, but, on
appeal of the railroad, all proceedings were stayed in the
lower court. The Supreme Court held that the decision
of the trial court was based on an inadequate finding of
fact, the cost of local business not having been deter-
mined, and it therefore reversed the decree and remanded
the case to the lower tribunal with instructions to appoint
a master to fully find the facts and then to proceed as
equity might require. In pursuance of this decree the
Circuit Court found the rates to be unreasonable and per-
petually enjoined their enforcement.*
In McChord v. Louisville and Nashville R. Co.,” the
railroad applied for an injunction to restrain the Ken-
tucky Commission from fixing any rates whatever, on
the ground of threatened multiplicity of suits and irre-
parable injury. The court, however, maintained the
right of a commission to establish rates, stating that an
* IIo U. S. 347. Supra, p. 27, footnote.
* 1900. I76 U. S. 167. To be referred to hereafter as the Tomp-
kins case.
* Chicago, Milwaukee and St. Paul R. Co. v. Smith, IIo Fed. Rep.
473.
* 183 U. S. 483.
44 American AEconomic Association [37o
injunction could be granted only when, after their estab-
lishment, they could be shown to be unreasonable.
A novel question was presented by the Louisville and
Nashville Railroad v. Kentucky, decided in 1903.” The
question involved was the power of the courts to review
action taken by the Railroad Commission in pursuance of
a statute authorizing it to exempt railroads from time to
time from the operation of the “Long and Short Haul
Clause.” The railroad relied on the cases just reviewed,
but the Supreme Court held that they applied only to
rate-making, that in Such a case as this no such luattel was
involved, and that the action of a commission was there-
fore final. It is difficult to perceive why a discretionary
power to compel obedience to a Short Haul Clause is not
one feature of the power of rate-making. Certainly
through it the earnings of a company can be profoundly
influenced. In this particular, however, the Supreme
Court refused to extend the doctrine of judicial review.
The last Supreme Court case upon this subject is the
Minneapolis and St. Louis R. Co. v. Minnesota, also de-
cided in 1902,” in which was sustained a coal rate im-
posed by the State Commission.
Many other applications of the doctrine of judicial
review may be found in the lower courts. A few only
can be mentioned here. In the Cleveland Gaslight and
Coke Co. v. Cleveland,” Mr. Justice Jackson, then a
circuit judge, cited the Minnesota case as authority for
granting an injunction to restrain the enforcement of a
city ordinance fixing the price of gas. In 1894 Mr. Jus-
tice Brewer and Judge Dundy decided the case of Ames
v. Union P. R. Co.” adversely to the Nebraska Maxi-
* 183 U. S. 503. . -
* 186 U. S. 257. To be referred to hereafter as the Minneapolis
and St. Louis case.
* 1891. 7I Fed. Rep. IIo.
* 64 Fed. Rep. I65.
[371 7%e ZXoc??-??ze of Judicial Review 45
mum Rate Law, its decree being affirmed by the Supreme
Court in Smyth v. Ames. About a year later District
Judge Clark enjoined the enforcement of gas rates fixed
by the city of Memphis, citing as authority the Minnesota
and Reagan cases.”
In the same year * Judge Wellborn, of the United
States District Court asserted the right of the courts to
review rates fixed by the Secretary of War, under pro-
visions of an Act of Congress, for a railroad which had
been incorporated and aided by the United States, al-
though he declared the rates in controversy valid, inas-
much as no showing was made to the contrary.” And
a few months later Mr. Justice McKenna, then Circuit
Judge, restrained the enforcement of rates made by the
California Commission.” *
In these, and other cases, has the doctrine of judicial
review been elaborated and authoritatively pronounced.
With this cursory glance at the leading cases on the sub-
ject, we may now proceed to inquire their effect upon
that doctrine.
No one can read the opinion of Mr. Justice Blatchford
in the Minnesota case without being impressed by the
emphasis there laid on the phrase “due process of law.”
Evidently he was profoundly impressed by the absence
of provisions in the statute requiring formal procedure
by the commission in the investigation and decision of
rate cases. And no less was he impressed by the absence
of evidence, upon the record, tending to show that the
commission had actually employed those forms which
have been “provided by the wisdom of successive ages
* New Memphis Gas and Light Co. v. Memphis, 72 Fed. Rep. 952.
* 1896.
* Atlantic and Pacific Rd. Co. v. U. S. 76 Fed. Rep. 186.
* Southern Pacific R. Co. v. Railroad Commissioners, 78 Fed. Rep.
236.
46 Zhe AEconomic Association [372
for the investigation judicially of the truth of a matter
in controversy.” “No hearing is provided for ”; he
complains of the statute, “no summons or notice to the
Company; . . . no opportunity provided for the com-
pany to introduce witnesses before the commission,-in
fact, nothing which has the semblance of due process of
law; and, although,” he continues, “ in the present case it
appears that, prior to the decision of the commission, the
company appeared before it by its agent, and the com-
mission investigated the rates charged by the company
for transporting milk, yet it does not appear what the
character of the investigation was, or how the result was
arrived at.”24
On this point the suit of the Minneapolis Eastern Rail-
way Co., decided on the same day, presented even a clearer
case. Says Mr. Justice Blatchford, in his opinion in that
case: “the commission states that it made its findings
after due and careful inquiry and consideration; but it
does not appear that the Minneapolis Eastern Railway
Company had any prior notice of any hearing at which
such finding was made, or any opportunity of being
heard in regard thereto, while it does appear that it asked
leave of the court to make proof of the matters set up in
its return; and that its request was denied.”
The emphasis which is thus strongly laid in both cases
upon the absence of formal procedure in the work of the
commission might well justify the inference that it was
because of this lack that the statute was found to be re-
pugnant to the Constitution. It provided for no notice,
or hearing, or opportunity to present evidence, in short,
for none of the features of the procedure of courts:—
the commission had but to “find ’’ whatever it might
* 134 U. S. 456, 457.
* 134 U. S. 482.
373] The Doctrine of /udicial A'eview 47
choose to find. For that reason due process of law was
denied to the railroads, in proceedings which might re-
sult in depriving them of property, and insofar as rail-
roads were subjected to such treatment while other per-
Sons were not, they were denied the equal protection of
the law. Such an interpretation of the cases seems not
unfair, and might well prompt the conclusion that if
statutes should require, and a commission employ, all of
the forms of law, the rates made by the commission would
be secure against judicial interference; that the most
which the courts could do, should the rulings of the com-
mission be appealed to them, would be to determine
whether the necessary formalities had been observed.
The rates might be absurdly low, but if the forms of law
had been followed in their establishment, they could not
be disturbed by the courts. We have, then, to consider
whether this view is a fair inference from all the adjudi-
cations of the Court. - -
It must be said, in the first place, that although the
question of procedure was the dominant consideration
in these opinions of Mr. Justice Blatchford, there was one
other idea, advanced in the Minnesota case, not wholly
consistent with the inference suggested above. It will
be remembered 4% that the learned justice contended that
“the question of the reasonableness of a rate of charge
for transportation by a railroad company . . . is emi-
nently a question for judicial investigation.” From this
might possibly be drawn the conclusion that the reason-
ableness of rates is by nature a question for the courts to
determine, and in which they cannot be bound by the
decision of an administrative, or, at most, quasi-judicial
body. This is evidently the view which Mr. Justice
Bradley attributes to the majority of his brethren. In
* Supra, p. 34.
48 - Z%e AEconomic Association [374
his dissenting opinion he says: “It is urged that what is
a reasonable charge is a judicial question. On the con-
trary it is preeminently a legislative one, involving con-
siderations of policy as well as of remuneration. . . .
This is just where I differ from the majority of the court.
They say in effect, if not in terms, that the final tribunal
of arbitrament is the judiciary; I say it is the legisla-
ture.”27
Under such an interpretation of Mr. Justice Blatch-
ſold's language this phase of the doctrine of judicial re-
view as announced in the Minnesota case, would present
itself somewhat as follows:—
Rates made by the legislature or by a commission may
be carried to the courts for two purposes, (I) to deter-
mine whether that due process of law commanded by the
Fourteenth Amendment, has been observed in their for-
mulation; (2) to secure a determination by the courts of
their reasonableness, it being within the province of the
courts, irrespective of the Constitution, to decide such
Questions. -
In this form, the doctrine of judicial review would
effectively preclude the idea that simply because a com-
mission follows the forms of judicial procedure, its rates
are exempt from judicial scrutiny and control. But it
must be admitted that the doctrine as authoritatively
enunciated by the Supreme Court has not taken this
form. The theory of the inherently judicial character
of the question of reasonableness has never been adopted
by that court. Aside from the sentence already quoted
from Mr. Justice Blatchford's opinion, in only one in-
stance has any member of the supreme bench asserted
that theory. In the Reagan cases Mr. Justice Brewer
spoke as follows:—
* I34 U. S. 462.
[375 The Doctrine of /udicial A'eview 49
“It has always been recognized that, if a carrier at-
tempted to charge an unreasonable sum, the courts had
jurisdiction to inquire into that matter. . . . The prov-
ince of the courts is not changed, nor the limit of judicial
inquiry altered, because the legislature, instead of the
carrier, prescribes the rates.”
Giving full weight to these dicta of Justices Blatchford
and Brewer, it may nevertheless be safely said that their
view as to the inherent competence of the courts in rate
cases, irrespective of constitutional provisions, has not
been adopted by the Court. It is at least certain that the
Court has not felt that it could safely repose its authority
upon the basis of the theory, and has sought for a firmer
foundation. And indeed it must be admitted that the
theory cannot command acceptance. It can hardly be
maintained in the face of the historical fact that until
very recent years it was never supposed that the judiciary
could control the legislature in its regulation of quasi-
public property. “As has been shown,” said Mr. Chief
Justice Waite in Munn v. Illinois,” “the practice has
been otherwise.” Rate-making is historically a legisla-
tive function, and there is much reason to agree with Mr.
Justice Bradley that what is a reasonable charge is pre-
éminently a legislative question, “involving considera-
tions of policy as well as of remuneration.” Moreover,
it is far from conclusive to say that because the courts
could restrain unreasonable rates made by a carrier to
whom the legislature had permitted the privilege of
making their own rates, they can also restrain rates when
made by the legislature itself in pursuance of its un-
doubted power and in fulfillment of its duty to the people.
The courts may control private citizens, especially in their
enjoyment of a public privilege, where they may not con-
trol a co-ordinate branch of the government.
* 94 U. S. 133.
* 134 U. S. 462.
5o American AEconomic Association [376
But whatever the considerations may be to which the
Supreme Court has given weight, it is certain that it has
never insisted upon the theory in question, and has not
been content to rely upon it in working out the doctrine
of judicial review. So solitary are the two utterances
of Justices Blatchford and Brewer, and so entirely dif-
ferent is the basis upon which the Court has finally
reposed, that it may be safely said that the theory of the
judicial character of the question of reasonableness forms
no part of the doctrine of judicial review.
This being true, the question recurs: Is a court limited
in a rate case to an investigation of the procedure em-
ployed by the commission, and must it sustain rates, how-
ever low, if it finds that they have been established as a
result of those formal proceedings which are contem-
plated by the phrase “due process of law P” Evidently
this is not so. For the slightest study of rate cases re-
veals the fact that in almost every instance the investiga-
tion of the court has been directed not at the procedure
of the commission, but at the reasonableness of the rates.
The question then arises as to the theory upon which the
courts base this broader authority. If, as we have just
seen, they are not prepared to insist that reasonableness
of rates is in its nature a judicial question, why may they
nevertheless determine that question?
The answer to this query is to be found in a broader
interpretation of the phrase “due process of law.” To
Justice Blatchford those words apparently suggested no
more than the forms of judicial procedure. In other
cases, however, they have been recognized as including
the further idea of “just compensation.” No state shall
deprive a person of property without due process of law,
but should a state, in taking private property, employ all
the judicial procedure and machinery known to man, yet
fail to return just compensation for that property, it
377] The Doctrine of /udicial Review 5 I
would not have used “ due process of law.” Just com-
pensation, then, is an essential element in due process of
law, and under the Fourteenth Amendment, therefore,
the question is open for determination by the courts as
to whether rates are such as to deprive of property, and
whether, if so, just compensation is made for the prop-
erty so taken. Moreover, if a railroad is in fact deprived
of its property without just compensation, it is not only
denied due process, but, since other persons receive just
compensation for property appropriated by the state, it is
also denied the equal protection of the laws.” Thus these
two clauses of the Fourteenth Amendment are both vio-
lated. -
Something akin to this idea has probably lain behind
all of the decisions of the court within the last fifteen
years, but it has not always been clearly stated. In the
Minnesota case, for example, while Mr. Justice Blatch-
ford gave no expression to such an idea, Mr. Justice
Bradley clearly saw that the decision of the majority
necessarily involved in it, and in his dissenting opinion
he objected to it in decided language.” In other cases,
however, the idea has been definitely approved. In 1897,
for instance, an unequivocal enunciation of it was made
in the Chicago, Burlington, and Quincy R. Co. v. Chicago,
where we read these words: -
“A judgment of a state court even if it be authorized
by statute, whereby private property is taken for the state,
or under its direction for public use, without compensa-
tion made or secured to the owner, is, upon principle
and authority, wanting in the due process of law required.
by the Fourteenth Amendment of the Constitution of the
United States, and the affirmance of such judgment by
the highest court of the state is a denial by that state of a
* See remarks of Mr. Justice Brewer in the Reagan cases, 154 U.
S. 399.
* See 134 U. S. 465.
52 American Aconomic Association [378
right secured to the owner by that instrument.” ”
This, then, is the fundamental idea in the doctrine of
judicial review. The Fourteenth Amendment prohibits
the states from appropriating private property without
just compensation. The constitutional questions pre-
sented by a rate case are, therefore, these: -
I. Do the rates deprive the railroad company of prop-
erty?
2. If So, has just compensation been made or ade-
quately provided for P
Let us comment first on this second question, as it can
be disposed of in a few words, thus leaving us free to
examine the first, which will require a somewhat ex-
tended treatment.
There can be no doubt that a state's power to appropri-
ate private property for public purposes is unlimited so
long as just compensation is made to the owners. It is
clearly within the power of the state, therefore, to reduce
a railroad's rates to any extent whatsoever, provided
only that it recompenses the company for whatever prop-
erty may be taken by means of the imposition of rates.
This course, however, has never been taken by any of our
states. In other words, no state has yet made provision
for payment from the state treasury of amounts required
to compensate the railroads for losses due to legislative
or commission-made rates. Accordingly this second
question has never yet come before the courts. Should,
however, a state adopt a plan of compensation and essay
to make payment to the companies, there is no doubt
that the question would still be open for the courts to de-
cide as to whether the compensation was ample, or
“just.”88
*I66 U. S. 226, 241; and see Backus v. Union Depot Co., 169 U. S.
557, 565.
* The real meaning of the doctrine of judicial review has some-
379] The Doctrine of /udicial Review - 53
But since no legislation has ever been enacted for
compensatory payments the only question which has as
yet been presented to the courts is the first of those just
mentioned: Do the rates deprive the railroad company
of property? To answer this question in any particular
case requires an understanding of the broader question
as to what amounts to a deprivation of railroad property
through a reduction of rates. To the consideration of
this question we must now devote ourselves.
To begin with, it may perhaps hardly be necessary to
state that property, as the term is used in the Fourteenth
Amendment to the Constitution, signifies more than
mere tangible objects. Among other things it also em-
braces the fruits or income of property. To deprive a per-
son of the fruits of his property is to deprive him of prop-
erty within the meaning of the constitutional prohibition.
This being true, the thought which most naturally arises
is this: that any change in a railroad's rates which re-
sults in a reduction of its earnings must amount to a
times been obscured by a wrong use of the word “compensation.”
The word has been used occasionally in the sense of a railroad's
earnings from operation. For example: “The state cannot withhold
from the owners of private property just compensation for its use.
That would be a deprivation of property without due process of law.”
San Diego Land and Township Co. v. National City, I74 U. S. 739.
Again: “The corporation may not be required to use its property for
the benefit of the public without receiving just compensation for the
services rendered by it.” Smyth v. Ames, 169 U. S. 546. These
statements, of course, are not accurate. They are true only under
the assumption that the state has made no provision for indemnifying
the railroad for the property taken. While such an assumption is
natural in view of the fact that no state has yet made provision for
indemnification, this double use of an important word is nevertheless
unfortunate, as it tends to confuse an already intricate subject. A
railroad is not entitled to just compensation from shippers for ser–
vices rendered; and it is entitled only to just compensation from the
state for property taken through the medium of undue reductions in
rates. -
54 w American AEconomic Associatton [38o
deprivation of property, for it has deprived the company
of a part of the fruits or income of its property. This is
certainly true in fact, but in contemplation of law it is
not. Not even the most ardent exponent of the doctrine
of judicial review has gone so far as to assert that all
reduction in a railroad's earnings, without compensation,
is a violation of the Constitution. In the view of the
Supreme Court, the State is competent to reduce income
to a certain point. Down to that point the reduction is
not a deprivation of property; beyond that point, it is.
What is the point? It is the point of “reasonable in-
come.” A railroad is entitled to a reasonable income
from its business; all income above that amount the state
may freely take; but the state cannot reduce its income
below that amount without making adequate compensa-
tion.
From what has just been said it naturally follows that
the question,-do the rates in any given case deprive of
property?—resolves itself into two others:
I. What effect will the rates have on the earnings of
the company? -
II. Will the earnings allowed by the rates be a reason-
able income P
These two questions a court must answer before it
can dispose of a railroad rate case. Now it is easy to see
that they are difficult to answer. By what methods is
a court to determine the effect of any given rates on
earnings? And on what principles is it to judge the
reasonableness of a company’s income? These are seri-
ous questions, presenting many difficulties, and we shall
therefore consider them separately and in detail.
I. First, as to the methods of discovering the effect of
rates on earnings. There is only one fairly satisfactory
way of determining this—for the railroad company to
put the rates in operation for a period sufficient to dis-
381] The Doctrine of /udicial Review 55
close their effect on its earnings. But this method, how-
ever excellent abstractly considered, is anything but satis-
factory to the companies. For if, after the period of
trial, it appeared that their earnings had been unduly
reduced (i. e., below the point of “reasonableness”) they
would have no adequate means of recoupment. Their
only remedy at law would be to sue each one of the ship-
pers who had used the road during that period for the
difference between the rate paid and the fair rate—in
many individual cases a trivial sum, but all aggregating
a considerable amount. Thus the railroads would have
no recourse except to multitudinous and unprofitable
suits. It is because of this inadequacy of the remedy at
law that the companies early resorted to courts of equity,
and that those courts have recognized their right to an
injunction restraining the enforcement of rates which
seem calculated to unjustly diminish their revenues. In-
deed the almost invariable form of action employed to
test the validity of rates is a bill in equity to restrain their
enforcement. - -
But what does this use of the injunction mean? It
means that the courts are required to determine, before
the rates have been in force at all, whether they will
so seriously affect the future earnings of the company as
to be repugnant to the constitution. Thus a task of great
difficulty is imposed on the courts. It would not, indeed,
be a simple matter to discover the exact effect of the rates
after they had been in force for a year or more; but to
estimate with sufficient accuracy for judicial purposes
their future effect, must necessarily be a matter of intri-
cate and elusive character. Nor is the difficulty of the
task lightened by the fact that upon that estimate depends
the constitutionality of an act of legislation which bears
directly upon the welfare of the public and the railroads,
as well as upon the success of a great System of railroad
56 American AEconomic Association [382
regulation. Constantly has the Court asserted the em-
barrassing character of this question, but none the less
has it recognized its duty to face it squarely.
How, then may the future effect of rates upon earnings
be determined P. The starting point from which judicial
calculations proceed is the assumption that the traffic of
the company will continue to be the same that it was for
a period of time prior to the establishment of the rates.
The effect of the rates is, therefore, to be determined by
applying them to the past business of the company. This
method might, indeed, seem questionable, in view of the
universally acknowledged fact that a decrease in rates
almost always augments the volume of traffic; and it
might therefore seem only fair to assume that the busi-
ness under the commission’s rates, if they were lower
than those formerly in force, would be greater than the
past business. This view is supported by a solitary pas-
sage in the Wellman case where Mr. Justice Brewer said:
“may it not be possible,_indeed does not all experience
suggest the probability—that a reduction of rates will
increase the amount of business and, therefore the earn-
ings?”84
This passage, however, stands alone in the decisions
of the Supreme Court. Exactly the opposite assumption
has formed the basis of the reasoning in every other case.
And, indeed, no better expression of the view actually
held by the Court can be found than in the words of Mr.
Justice Brewer himself in the Dey case:
“It is said that it cannot be determined in advance
what the effect of a reduction of rates will be. Often it
increases business, and who can say that it will not in the
present case so increase the volume of business as to make
it remunerative, even more so than at present? But
speculations as to the future are not guides for judicial
action: courts determine rights upon existing facts.”
* I43 U. S. 343. -
* 35 Fed. Rep. 881.
383] The Doctrine of Judicial AEeview 57
And, apparently, “existing facts º' must be interpreted
to mean the business which the company has handled for
a reasonable period prior to the establishment of the rates,
and which may be regarded as assured to it for the future
with reasonable certainty. -
If, therefore, the actual facts of the past, rather than
the probable facts of the future, are to form the starting
point of the calculation, how is the Court to proceed?
Several ways at Once suggest themselves. Obviously the
earnings of the company under the new rates might be
determined by applying the rates to the former traffic.
That is, the number of ton miles actually hauled might
be multiplied by the new rate, the product representing
the gross earnings from operation possible under the new
rate should business neither increase nor diminish. This
would seem to be a fair and reasonable, as well as a
simple method, but curiously enough, it has not received
the sanction of the courts. There is some authority for
a method which compares the new rate with the actual
cost of the service to be performed. Thus in the Becker
case,” where the Minnesota Commission had fixed a
switching charge of one dollar per car and the company
alleged that the cost of switching one car had been $1. I4,
it was held that the new rates would be unremunerative.
So, also, in the Gill case, where the legislature of Arkan-
sas had fixed a passenger rate of three cents a mile, the
company claimed that the actual cost of carrying a pas-
senger a mile was three and three-tenths cents; and, in
sustaining the rate because of the inadequacy of the com-
pany's evidence, the Court took no exception to this mode
of attempting to show that earnings would be cut down
below expenses.
It is submitted, however, that such authority for this
* 35 Fed. Rep. 883.
58 American AEconomic Association [384
method as may be found in these two cases (one of them
a circuit court case) is not sufficient to establish it as one
to which the Supreme Court has lent its sanction. And
in this conviction One is strengthened by the reflection
that it is necessarily an erroneous method, inasmuch as it
is utterly impossible to determine the cost of any particu-
lar Service in the railroad industry, even when proceed-
ing upon the basis of past business.
In every case in which the effect of rates upon earnings
has been calculated, the Supreme Court has always em-
ployed a third method—one which requires a determina-
tion of the reduction made by the new rates in the sched-
ules formerly in force. The percentage of reduction in
gross earnings will, in contemplation of the courts, be
equal to the percentage of reduction in the rates. Thus,
in the Smyth case, as we shall presently see, it was found
that the law reduced the rates formerly charged by
twenty-nine and one-half per cent., and it was therefore
held that the law would diminish gross earnings by
twenty-nine and one-half per cent.
This is unquestionably the method approved by the
Court, and employed in the great cases. It is clearly
illustrated in the Dey, Covington, and Smyth cases. In
the Reagan cases the same general idea was employed,
though it was not asserted, because it was not necessary
to assert, that the reduction in earnings would be in ex-
actly the same proportion as the reduction in rates. And in
the same proportion as the reduction in rates. And in
the Minnesota Eastern case the method was impliedly
approved, though it was not necessary to the decision of
the case. *
Since, then, the basis of the calculation as to whether
the new rates will be remunerative, must be the former
earnings, the former rates and the former expenses of the
company, a further question becomes pertinent. When
385] The Doctrine of Judicial Review 59
the company presents evidence as to these matters, how
long a period of time must the evidence cover ? Must it
show the earnings, expenses, and rates for one, two, three,
or more years? This question has never been discussed
by the Court, and, therefore, has not been authoritatively
answered. The time covered by the evidence in actual
cases has varied greatly. In the Dey case, it was one
year. In the Wellman case the offering was again for
One year, and although the suit went against the railroad
it was not because of the short period covered by the evi-
dence. In the Covington case, the business of the road
“ for a number of years last past ’’ formed the basis of
the contention; while in the Smyth case the term was
three, and in the Reagan cases, a little more than three
years. In the final disposition of the Tompkins case,
evidence for one year only was held sufficient. It is evi-
dent, therefore, that three years are adequate, and it is
probable that one would be regarded as sufficient, unless
it could be shown to have been an exceptional year.
It may now be advantageous to illustrate this judicial
method of determining the effect of rates on earnings by
describing the process employed by the Supreme Court
in an important and typical case. Smyth v. Ames fur-
nishes excellent material for the purpose of such an illus-
tration. That case involved the Nebraska Maximum
Freight Rate Act of 1893, which contained a classifica-
tion of freight and prescribed a general schedule of rates.
Seven railroads were involved in the suit, and the prob-
lem before the Court was to determine the effect of the
legislative rates on the earnings of those companies.
The Court approached the problem by approving the
railroad's contention that a proper method of testing the
legality of the rates would be to determine their effect
had they been in force during the three years preceding
their promulgation. Its next step was to announce as a
6o American Economic Association [386
conclusion from the evidence that the act reduced the
rates in force by 29.5 per cent., that is, that the legislative
rates were on the average only 70.5 per cent. of the rates
which were being Operated in 1893 and had been oper-
ated for some three years or more as a result of voluntary
action on the part of the roads concerned. These pre-
liminary points determined, the way was open to attack
the main problem.
The Court next presented a number of tables contain-
ing statistics regarding the affairs of the severl roads
during the three years under discussion. From these
tables the items of essential importance have been taken
and are reproduced in the table below. It will be seen that
in the first column is given the gross receipts from local,
or infra-state freight received by each road each year. In
the second column is given the amount of reduction which
would have resulted from the Act had it been in force
during each of the years. This, of course, is 29% per
cent. of the actual receipts—since it had already been de-
cided that the rates were reduced 29% per cent. by the
Act. The third column consists of the remainders left
after subtracting the amounts in the second from those in
the first column, and shows the amounts which would
have been received had the Act been in force. The next
column gives the gross operating expenses incurred in
handling the local freight. The last two columns are a
result of comparing the third and fourth, and show the
amounts which the companies would have gained or lost,
so far as local freight is concerned, had they been operat-
ing the rates fixed by the Act.
387] The Doctrine of Judicial Review 6I
What would
Gross Amount have been Total
receipts of reduc- received expense Gain Loss
1891 from local tion by under rates of local
freight Act—29% fixed by business
per cent. Act
Burlington Road $1,066.871 $314,726 $752,145 $813,382 $61,237
St. Paul Road IIo,933 32,725 78,208 89,611 g; II,403
Fremont Road 348,408 Io2,78o 245,628 288,591 $37,087
TJnion Pacific Road 278,211 82,072 I96,139 219,619 23,480
Omaha Road 75,581 22,296 53,285 98,451 45,166
St. Joseph Road 21,817 6,436 I5,381 23,22I 7,840
Kansas City Road 6,732 I,985 41747 7,374 2,627
1892
Burlington Road I,237,884 365, I75 872,709 918,881 46,172
St. Paul Road I235C33 36,294 86,739 93,455 6,716
Fremont Road 336,714 99; 33O 237,384 271,761 34,377
TJnion Pacific Road 398,262 II 7,487 28o,775 264,605 I6,17o
Omaha Road 88,335 26,058 62,277 9I,090 * * 28.813
St. Joseph Road 3I, OO4 9,146 21,858 26, 1 I4 4 256
Kansas City Road 6,630 I,955 4,674 5,648 974. .
1893
Burlington Road I,242,416 366,512 875,904 Q38,147 62,243
St. Paul Road I42,542 42,049 IOO, 493 Ioff,307 5,814
Fremont Road 424,437 I25,208 299,229 27O, IQ3 29,036
Union Pacific Road 413,7I4 I22,045 291,669 283,435 8,234
Omaha Road 8o,519 23,753 56,766 83,851 27,obs
St. Joseph Road 33,802 9,97I 23,831 24, 354 523
Kansas City Road 9,445 2,786 6,659 8,169 * - - I, 5 IO
A word should perhaps be added as to the method of
estimating the total cost of local freight business. Taking
all business, the percentage of actual gross expenses to
actual gross receipts was found for each company. It
was then decided, on the basis of evidence submitted, that
the percentage of Operating expenses to earnings is, in
general, fully IO per cent. higher on local traffic than on
all the business of a company.” The first percentage
found was therefore increased by ten to get the percentage
of expenses to earnings on local business. This per-
centage was then taken of the gross receipts from local
freight. The result was the cost of the local freight
business. For example, it was found that in 1891 the
* In other cases the Court has recognized the higher cost of local
business above interstate or through business. “That there is a dif-
ference is manifest, and upon such difference the opinion of experts.
familiar with railroad business is competent testimony and cannot
be disregarded.” Chicago, Milwaukee and St. Paul Ry. Co. v.
Tompkins, 176 U. S. 179. Because of this difference in cost the sum.
of two local rates conceded to be reasonable is not necessarily a rea-
sonable through rate. Minneapolis and St. Paul R. Co. v. Minnesota,
186 U. S. 262.
62 American Economic Association [388
percentage of expenses to earnings on all the business of
the Burlington road was 66.24. The percentage of ex-
penses to receipts on local business alone was accordingly
held to be 76.24. But now, as appears from the table
above, the earnings of the Burlington from local freight
in 1891 were $1,066,871. The expenses of that freight
were therefore 76.24 per cent. of $1,066,871, or $813,382.
Similar calculations were made in each of the other cases.
Before concluding our remarks on the method of de-
termining the effect of rates on earnings it is necessary
to notice one further matter. A study of the illustrative
case just described naturally prompts the following query.
The doctrine of judicial review forbids a state to deprive
a railroad of the reasonable income on its property with-
out just compensation; yet in this case of Smyth v. Ames
inquiry was not made as to the effect of the rates on the
earning power of each company; the effect of the rates
on earnings from local freight only was considered. But
now, might it not be possible that the small loss on local
freight business might not seriously affect the total earn-
ings of the company from all sources—inter-state as well
as local ; passenger, express, etc., as well as freight? In
other words, might not the company still be able to earn
a reasonable income from its business in spite of this loss
on local freight in Nebraska P And if so, why should the
Nebraska Act be held to be repugnant to the Constitu-
tion P -
This question was squarely presented in Smyth v. Ames
and so far as questions of inter-state and local business
are concerned was answered by the Court in the following
language: “ The reasonableness or unreasonableness of
rates prescribed by a State for the transportation of per-
sonal property within its limits must be determined with-
out reference to the interstate business done by the car-
389] The Doctrine of Judicial Review 63
rier, or to the profits derived from it. The State cannot
justify unreasonably low rates for domestic transporta-
tion, considered alone, upon the ground that the carrier
is earning large profits on its inter-state business. Nor
can the carrier justify unreasonably high rates on domes–
tic business upon the ground that it will be able only in
that way to meet losses on its inter-state business.”
Continuing, the Court explained more definitely the
reason for this view by quoting from the opinion of Mr.
Justice Brewer rendered when the case was in the Circuit
Court. “It may be as stated by counsel,” that jurist had
said, “that the annual earnings of the Chicago, Burling-
ton and Quincy Co. are $27,916, I28, and that the total
amount of reduction * is only $365,175; . . . but the
entire earnings of the Chicago, Burlington and Quincy
are more than twenty times the receipts from local freight
in Nebraska, and to reduce such earnings by twenty times
$365,175, would make a startling difference in their
amount. The fact that the State of Nebraska can reach
only one-twentieth of the total earnings gives it no greater
right to make a reduction in regard to that one-twentieth
than it would have, had it the power over the total earn-
ings and attempted in them a like per cent. of reduction.
If it would be unreasonable to reduce the total earnings
of these roads twenty-nine and a half per cent., it is,
prima facia, at least, equally unreasonable to so reduce
any single fractional part of such earnings.” •
From these quotations the relations of interstate and
local traffic to the case are perfectly clear. A single
state controls only part of the business of a road; as to
that business it can reduce earnings only in a proportion
which would be fair if applied to all earnings of the com-
pany—because, of course, it is only by means of this
* 169 U. S. 541.
* Caused by the Act.
64 American Economic Association [390
principle that other jurisdictions to which the company
is subject, can exercise an equal power of control. But
there is another aspect of the question which is not at all
clear. What may be said in regard to the purely local
traffic which the State exclusively controls? That traffic
consists of various elements—freight, passenger, milk,
express and mail. Can the state justify an unreasonable
reduction in earnings from freight ° on the ground that
the reduction caused thereby in the total local earnings
is no more than reasonable, because of large earnings
permitted on passenger and other traffic; Can a state,
in other words, justify its conduct in controlling railroads,
by showing that it permits a reasonable income from all
of the business subject to its control—although the vari-
ous elements in that business may be very unequally
treated P
No explicit answer to this question can be found in the
opinions of the Supreme Court. A fair inference, how-
ever, from the opinion in Smyth v. Ames seems to give a
negative reply. From what is there said, it seems fair to
conclude that the percentage of reduction in earnings
from each separate class of local traffic must not be
greater than would be reasonable were it applied to all
the business of the company. It is true that some doubt
is thrown on the matter by the last sentence in the quota-
tion last given from Mr. Justice Brewer: “If it would
be unjust to reduce the total earnings of these roads
twenty-nine and a half per cent., it is, prima facia, at least,
equally unreasonable to reduce any single fractional part
of such earnings.” The words, “prima facia, at least,”
are the significant ones. They imply that it is a pre-
sumption which may possibly be rebutted. Nevertheless
Mr. Justice Brewer had himself just declared, in regard to
“That is, a percentage of reduction which is applied to all the
earnings of the company would be unreasonable.
391] The Doctrine of Judicial Review 65
the evidence that the rates would reduce earnings by
twenty-nine and a half per cent. : “The effect of this testi-
mony is not destroyed by the table offered of the percent-
age of reduction on the total amount of business done by
these companies in the state.” And in the table referred
to, “the total amount of business done by these com-
panies in the state ’’ meant the gross earnings from pas-
sengers and freight, both through and local, carried in
Nebraska. All this would seem to imply that the com-
pensatory effect of large passenger earnings would not
be considered, and that the public regulation of each
class of traffic must stand or fall by itself. This is only
an inference, however, and in the absence of a direct de-
cision on the point, no positive statement can be offered
with confidence.
One or two other questions have arisen as to the earn-
ings which should be considered when estimating the
effect of rates established by a state. In the Gill case it
was held that they should be the earnings from local busi-
ness on all the line of company within the state, and not
on any one part of it.” The Supreme Court has also
recently held that a commission may impose very low
rates on isolated articles of freight; and that it is not
good defense for a railroad to show, in such a case, that
the same rates applied to all classes of freight would pre-
vent it from earning a reasonable income. The rates
may be justified, if the company can recoup its loss on the
particular articles from gains on other parts of its local
business, so that a “reasonable income * is still earned.
But whether the recoupment must come from gains on
local freight, or whether it may come from gains on all
local business is not clearly disclosed. It seems probable,
however, that the former is the rule.
* 156 U. S. 666.
66 American Economic Association [392
Let us now summarize the decisions as to the earnings
which should be considered. That they should be the
earnings from purely local, and not from inter-state
business is certain; that they should be the earnings from
the local business on the entire road of the company
within the state is also certain; that they should be the
total earnings from local freight if rates on a few articles
only are concerned is probable, though not certain; and
that they should be the total earnings from 1ocal freight
if freight rates are concerned, from passenger traffic 11
passenger rates are concerned, and so forth, is also prob-
able, though not certain. But for these uncertainties,
then, it could be said that the earnings to be considered
are the total local earnings from the class of traffic af-
fected by the rates in question.
II. We have now discussed the judicial methods em-
ployed in determining the effect of rates upon earnings.
This question answered, however, the work of a court in
any case is but partly done. Before a reply can be made
to the initial query—do the rates deprive of property?—
a further inquiry is necessary. The court must ask
whether the earnings permitted by the rates can fairly be
called a “reasonable income " from the railroad's busi-
ness.” If they can, then the rates do not deprive of
property; if they cannot, the reverse is true. But now
upon what principles is a court to determine what income
is “reasonable?” This question we must now examine;
and accordingly the next chapter will be devoted to its
discussion.
* Supra, p. 54.
CHAPTER IV.
7%e Doctrine of /udicia/A’eview.—//7.
What are the principles by which the “reasonableness *
of railroad earnings may be judged? The vagueness of
the term “reasonableness '' at once suggests the difficulty
of the question. It is hard indeed to determine the prin-
ciples; and harder yet to apply them in a concrete case.
Yet the task of doing both of these things has fallen upon
the courts, and consequently an attempt may be made to
gather from their dicta and from their acts an idea of
what, in judicial contemplation, the word “reasonable-
ness '' implies. **
In pursuing this inquiry we have not the advantage of
perfectly consistent expressions of opinion by the various
courts, nor even by the several members of the Supreme
Court, and an entirely satisfactory result is therefore im-
possible. The form of the problem confronting the judi-
ciary, nevertheless, is evident. Are earnings reasonable
if sufficient to pay only operating expenses? Or must
they also cover fixed charges? May it even be true that
beyond this they must provide a dividend upon the stock
of the corporation ? And, if so, how large a dividend is
to be regarded as reasonable?
The difficulty of determining with precision the judicial
attitude on these questions is enhanced by the fact that
very much that has been said upon them has been of the
nature of obiter dicta. Caution, of course, demands that
proper discrimination be made between such dicta and
principles which were, so to speak, essential in the decrees
of the court. And a final construction of the judicial
393] . 67
68 American Economic Association [394
doctrine on this point must necessarily give more weight
to the latter than to the former.
A brief attention to some of the principal cases will
best serve to introduce this subject. In the Dey case the
railroad alleged that the reduction in the schedules would
decrease earnings by a sum exceeding the amount paid out
in dividends in each of the three preceding years, and that
the effect would be to prevent the railroad from declaring
any dividend at all. There being no evidence from the
state to the contrary the enforcement of the rates was en-
joined. In his opinion Judge Brewer declared what, in
his judgment, constituted a reasonable income, stating
it to be such as would cover all operating expenses, all
fixed charges, and some dividend, however small, the size
of the dividend being purely a matter for legislative dis-
cretion.*
In the Reagan cases a number or railroads were in-
volved. All of them were in anything but a prosperous
condition; some had never paid operating expenses, to
say nothing of fixed charges and dividends. The best
of them had not for three years been able to meet all of
their fixed charges. It was shown that the rates imposed
by the Texas Commission were lower than those formerly
in force, and this, according to the theory of the courts
already mentioned, was conclusive evidence that earnings
would be reduced by them, The rates were accordingly
suspended, the Supreme Court holding that because the
roads had been operated in the past at a loss to the own-
ers it was not just to so reduce rates as to increase the
amount of that loss.” :
In the Covington case the turnpike company set up that
for a number of years last past its operating expenses had
averaged about one-half of its earnings, that inasmuch as
* 35 Fed. Rep. 879.
* I54 U. S. 419.
395] The Doctrine of /udicial Review 69
the legislative act reduced the tolls about fifty per cent.
its future earnings would barely cover ordinary expendi-
tures; and that, moreover, certain extensive repairs would
be imperatively necessary in the near future. The Su-
preme Court thereupon suspended the rates, stating that
they were so low as to prevent the company “from main-
taining its road in proper condition for public use, or
from earning any dividends whatever for stock holders.”
In the Smyth case, as we have already seen,” the court
determined that, generally speaking, the earnings per-
mitted by the legislative rates would not cover operating
expenses. It is true that in four out of the twenty-one
cases presented in the table, some excess over expenses
appeared, but as to those exceptional cases the Court held
that “the receipts or gains above operating expenses
would have been too small to affect the general conclusion
that the act, if enforced, would have deprived each of the
railroad companies involved in these suits of the just
compensation secured to them by the Constitution.”
In the final disposition of the Tompkins case the Com-
mission’s rates were suspended because it was found that,
while the earnings under the rates would be sufficient to
pay all operating expenses, the balance left would not be
sufficient to pay the proportion of the interest on the
bonded debt properly chargeable to local traffic."
The inference to be drawn from what has so far been
said is that earnings, to be reasonable, must cover all
operating expenses and fixed charges, and must even
allow some dividend upon stock. In the Dey case, as we
have just seen, Mr. Justice Brewer held that rates per-
mitting any dividend, however minute, are fair, but a few
* I64 U. S. 592.
* Supra, p. 61.
* 169 U. S. 547.
“Railroad Co. v. Smith, IIo Fed. Rep. 473.
7o American AEconomic Association [396
years later, in his opinion in the Wellman case, we find
him implying, though not asserting, that the dividends
ought to be “reasonable.” “The courts,” he declared,
“should be fully advised as to what is done with the re-
ceipts and earnings of the Company, for if so advised it
might clearly appear that a prudent and honest manage-
ment would, within the rates prescribed, secure to the
bondholders their interest and to the stockholders reason-
able dividends.” "
In regard to the size of the dividends to be allowed,
some of the lower courts have gone even further than this.
Thus, in the New Memphis Gas and Light Co. v. Mem-
phis,* District Judge Clark held that the dividends to
which a quasi-public corporation is entitled while under
public control should “correspond to the ruling rate of
interest.” And in the Southern Pacific Railroad Co. v.
Railroad Commissions * Mr. Justice McKenna, then a
circuit judge, denounced the idea that a railroad company
should be compelled to accept a “microscopical profit.”
In his view dividends ought to be adequate in every case
—though what “ adequate ’’ might mean is not disclosed.
It is safe to say, however, that the Supreme Court has
not indorsed these extreme views. On the contrary, it
has been gradually assuming, in its dicta at least, a much
more conservative attitude. The general principle which
the Court seems to have adopted is this: that a railroad
company is entitled to earnings sufficient to pay operating
expenses, fixed charges, and some dividend—a reasonable
dividend. But it has repeatedly declared that this is only
a general proposition and that it may have many excep-
tions. That is to say, there may be cases in which earn-
ings not sufficient to pay dividends, or not even sufficient
* I43 U. S. 345.
*72 Fed. Rep. 952. . - +. - •.
*78 Fed. Rep. 236. . . . .
397] The ZJoctrine of Judicial Areview 7 I
to pay all expenses and fixed charges will be held to be
reasonable.
Thus in the Reagan cases it was said:
“It is unnecessary to decide, and we do not wish to be
understood as laying down as 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. . . .
There may be circumstances which would justify such a
tariff.” 10
Fully as pointed are the remarks of Mr. Justice Harlan
in the Covington Case:
“It cannot be said that a corporation is entitled, as of
right, and without reference to the interests of the public,
to realize a given per cent. upon its capital stock. . . .
The public cannot properly be subjected to unreasonable
rates in order simply that stockholders may earn divi-
dends. . . . If a corporation cannot maintain such a
highway and earn dividends for stockholders, it is a mis-
fortune for it and them which the Constitution does not
require to be remedied by imposing unjust burdens upon
the public.” " •
This same general idea was restated with much force
by the same learned justice in Smyth v. Ames, and has
received confirmation in other cases. In fact the Supreme
Court, by oft-repeated dicta, has practically committed
itself to the doctrine that, although as a general proposi-
tion, a railroad is entitled to earn reasonable dividends,
that right is not absolute, but is subject to limitations.”
Conditions may exist and circumstances arise which would
justify the state in imposing rates under which earnings
would be reduced to or below the dividend paying point.
While but very few of these conditions have ever been
present in any case in such a way as to affect the decision,
and are therefore entitled to rank as precedents, many
"154 U. S. 412.
* I64 U. S. 596, 597.
* See San Diego, etc. Co. v. National City, I74 U. S. 757.
72 American AEconomic Association [398
others have been stated and some often restated as obiter
dicta, and are therefore entitled to some consideration.
We have, now, therefore, to inquire what those circum-
stances and conditions are which may in some cases
justify rates too low to be profitable to the railroad, and
which ,moreover, when a dividend is allowed, must enter
into the determination of the question as to whether that
dividend is reasonable. Throughout the discussion it
should be borne in mind that obiter dicta alone are being
dealt with, except where the contrary is specifically stated.
The circumstances recognized in the opinion of the
Supreme Court may be classified under four heads—those
affecting the base upon which the rate of profit should be
reckoned; those which have to do with the management
of the road; those which have to do with the rights of the
public; and those which have to do with the industrial
condition of the community traversed by the road. Let
us consider these in order.
I. In the first place it has been held that what a com-
pany is entitled to demand is no more than a “fair return
on the reasonable value of the property at the time it is
being used for the public.” The rate of profit which
should be secured by the rates must therefore be reckoned
not on the capitalization of the company, but upon the
“reasonable value " or “fair value of the property used
by the railroad for the public convenience.” As a result
of stock watering, or otherwise, the face value of the
bonds and stocks may exceed this “fair value”; neverthe-
less earnings no more than a fair return on the real value
need be allowed by the rates for distribution among the
security holders. “If a railroad corporation has bonded
its property for an amount that exceeds its fair value, or
if its capitalization is largely fictitious, it may not impose
* San Diego Land and Town Co. v. National City, I74 U. S. 757.
* Smyth v. Ames, I69 U. S. 546.
399] The Doctrine of /udicial A'eview 73
upon the public the burden of such increased rates as may
be required for the purpose of realizing profits upon such
excessive valuation or fictitious capitalization.” The
elements to be considered in determining the “fair value *
of the property have of course been recognized as multi-
tudinous, but in Smyth v. Ames the following enumera-
tion was given to suggest such as are of special im-
portance.”
I. The original cost of construction.
2. The amount expended in permanent improvements.
3. The present as compared with the original cost of
construction.”
4. The amount and market value of the stocks and
bonds.
5. The probable earning capacity of the road under
the rates in question.* *
6. The amount of operating expenses.”
7. Whatever other matters may be properly considered.
In the Reagan cases additional emphasis was laid on
the third of these considerations. In its opinion the
Court remarked that the construction of a road might
* Smyth v. Ames, I69 U. S. 544, and see San Diego, etc. Co. v.
National City, I'74 U. S. 757-8. -
* I69 U. S. 547.
“It is not certain whether this means “present value * or “present
cost of duplication ” as compared with the original cost of con-
struction.
* It is difficult to see what the fifth and sixth consideration have
to do with this immediate question. The problem is to find the fair
value of the property, in order to get a base upon which to reckon
the percentage of profits which the tariff in question will yield. The
amount of those profits is no doubt to be largely determined by the
earning capacity of the road under the tariff, as compared to its
operating and other expenses. If earning capacity and expenses are
considered in discovering this amount of profits, it would of course
be a mistake to consider them in determining value of the property
to which that amount is to be referred in order to arrive at the per
centage of profit.
& 3.
74 American AEconomic Association [4oo
have been at a time when material and labor commanded
a high price, the actual cost of the road therefore exceed-
ing its present value; and that, moreover, there might
have been extravagance or needless expenditure of money
on the railroad.” The actual outlay of money is not,
therefore, in such cases, a test of the “fair value " of the
property, and if Securities had been issued to cover this
Outlay, they should not be taken as the base upon which
to reckon profits. The same principle was later laid
down with added force in the San Diego case.”
II. In the second place it has been held that unless the
administration of a road has been economical and honest,
the company’s defense against legislative control is weak-
ened. If its earnings have been reduced by its own im-
prudent or dishonest management, it cannot always suc-
cessfully resist a reduction in rates on the ground of its
already scanty revenue. Thus in the Reagan cases it was
declared that if there has been waste in the management
of a road, if the company has been paying “enormous
salaries '' or has been indulging in “unjust discrimina-
tions resulting in general loss,” it cannot use the practices
as a defense against legislative reduction in rates.” The
legislative rates will be sustained if they would permit a
reasonable income to a company which would abstain
from such practices.
This general principle, moreover, is not supported by
obiter dicta alone. In the Wellman case it was to a cer-
tain extent involved in the disposal of the suit. One of
the grounds on which the Court sustained the rates was
that the railroad had made no showing as to what had
been done with its earnings. The court declared that it
should be fully advised on this point, “for if so advised,
5
* 154 U. S. 412.
* 174 U. S. 757-8.
* 154 U. S. 412.
4 or ) The Doctrine of /udicial Review 75
it might clearly appear that a prudent and honest man-
agement would, within the rates prescribed, secure to the
bondholders their interest and to the stockholders rea-
sonable dividends.” ” -
III. In the third place, the Court has repeatedly de-
clared that the railroad's right to earnings is further cir-
cumscribed by considerations relative to the rights of the
public. In the Minnesota case” Justice Blatchford stated
that the question of the reasonableness of a rate involved
the element of reasonableness as regards the public as well
as the railroad, and in his concurring opinion Justice
Miller denied the right even of the legislature to make
rates “in utter disregard of the rights of the public.” ”
Again, in the Reagan cases,” in concluding his statement
of limitations upon the right of railroads to profits, Jus-
tice Brewer said that there were doubtless many other
matters affecting the rights of the community in which
the road is built. The idea was expressed with much
more force and elaboration in later cases. We have al-
ready had occasion to quote some of Mr. Justice Harlan's
utterances on this point in the Covington case.” Again,
speaking for the Court in the Smyth case, he referred to
the railroads’ contention that rates ought to permit the
payment of dividends as well as all expenses, commenting
upon it in these words:
“In our opinion the broad proposition advanced by
counsel involves some misconception of the relations be-
tween the public and a railroad corporation. It is un-
sound in that it practically excludes from consideration
the fair value of the property used, omits altogether any
consideration of the right of the public to be exempt from
unreasonable exactions, and makes the interests of the
* I43 U. S. 345.
* 134 U. S. 458.
* 134 II. S. 459.
* 154 U. S. 412.
* Supra, p. 71.
76 American Economic Association |402
corporation maintaining a public highway the sole test in
determining whether the rates established by or for it are
such as may be rightfully prescribed as between it and the
public.” 27
Upon this point the utterances of the Court have been
clear, vigorous and numerous. Stated briefly, rates must
be just both to the public and to the railroad —these are
the words in which the theory has been repeatedly phrased
in the dicta of the Court.* Unfortunately, however,
these dicta have always been obifer. The nearest ap-
proach to an exception to this statement may be found in
the Gill case, which was a suit between a railroad and a
private citizen, in which no public officers were involved.
The company’s contentions were admitted in the demur-
rer of its opponents; but, deciding that these contentions
were not sufficient to prove the schedule unreasonable, the
Court sustained it, adding, moreover, an expression of
its reluctance to declare rates void when “the company’s
case depended on allegations admitted in the demurrer of
a party who in no adequate sense represents the public.”
Aside from this, the numerous declarations of the
Court, that the rights of the public are not to be ignored,
that rates must be just to the public as well as to the rail-
road, and that therefore earnings must not be higher than
what is fair, regarding the question from the point of
view of the public as well as the corporate interest, have
all been uttered as obiter dicta.
IV. Closely related to the principle just mentioned are
certain other circumstances and conditions recognized by
the court as important in determining the reasonableness
of a railroad's income. Indeed, they may be regarded as
more definite applications of the general and somewhat
* 169 U. S. 543.
* 164 U. S. 596, 598; 169 U.S. 547; 173 U. S. 687; and 174 U. S.
754-6.
* 156 U. S. 666.
403] The Doctrine of Judicial Review 77
abstract principle that the rights of the public must be
considered. These are the considerations which pertain
to the industrial condition of the country through which
the road is built. - -
In a recent case the broad and very general rule has
been laid down that when the condition of the country is
such that rates high enough to pay operating expenses
would be exorbitant, the legislature may impose lower
one.” At first blush this declaration seems a little start-
ling, but when it is remembered that the force of the rule
depends upon the meaning given to the word “exorbi-
tant,” apprehension is speedily abated. No definition of
the term was given in that case, nor has one been given
since. The exact or even approximate meaning of the
dictum is therefore still undetermined.
In other cases, however, the Supreme Court has been
more specific. In the Reagan cases it held that a road
which was unwisely built, in localities where there is not
sufficient business to sustain a road, may not be entitled
to earnings sufficient to remunerate those who have put
money into it.” And in the Covington case it was held
that when competition of new lines has so reduced busi-
ness that earnings sufficient to yield a profit on the busi-
ness would necessitate rates unjust to shippers and the
public, the company must be content with smaller earn-
ings.”
Such are the circumstances and conditions which, ac-
cording to the dicta of the Supreme Court, are to be con-
sidered in determining what a reasonable income is, in
the case of any particular railroad; such are the consider-
ations which must decide the question as to whether the
general rule shall prevail—that a railroad is entitled to
revenue sufficient for all expenses and for dividends as
* Minneapolis and St. Louis Rd. Co. v. Minnesota, I86 U. S. 268.
* I54 U. S. 412.
* 164 U. S. 596.
78 American AEconomic Association [404
well—and which furthermore determine the amount of
dividends which may be regarded as reasonable, if any
are allowed. This matter decided, a court's task is prac-
tically done. It has but to compare the earnings thus
decided to be reasonable with the earnings possible under
the rates in question. If the former are less than the
latter the rates are valid; if greater, the rates will clearly
general rule shall prevail—that a railroad is entitled to
deprive the company of a part of its reasonable income,
and to that extent will deprive it of property. In the
absence of just compensation, therefore, the rates will be
held unconstitutional and void.
In looking over this summary of “circumstances and
conditions '' one cannot but be impressed with the inad-
equacy of the principles which have so far been announced
by the Court as controlling the question of reasonableness
in earnings. Their inadequacy arises from two prin-
cipal causes: first, their small number, and second, the
vagueness and generality of some of them. At this point
the doctrine of judicial review is in need of considerable
elaboration, and of much more definite and detailed state-
ment. It is to be hoped that litigation will soon make
necessary the further development of this phase of the
doctrine and will lead to its more thorough, more precise,
and more concrete exposition. At the present time one
of the crucial tests in determining the validity of rates—
reasonableness of earnings—is but poorly understood;
and public control of railroad rates must therefore find
its progress retarded until the subject is fully illumined.
For this weakness in the doctrine of judicial review,
however, the Supreme Court is not to blame. For up to
the present time but few points in connection with that
subject have been presented to the Court for its decision,
and therefore what principles we find in the reported cases
are for the most part voluntarily tendered by the Court to
promote a better understanding of a difficult subject.
405] The Doctrine of /udicial AEeziew 79
What, now, is the doctrine of judicial review P. We
have seen the crude form which it took in the Minnesota
case, and we have considered its evolution as it may be
traced in later cases. It remains now simply to state
what, as the result of the whole discussion, we may re-
gard as the doctrine of judicial review. The following
is offered as a formal statement of the doctrine:
I. Although railroad companies are quasi-public in
character they are entitled to the protection of the Four-
teenth Amendment. Therefore:
I. They cannot be deprived of property without due
process of law. But to deprive a railroad of the reason-
able income from its property without just compensation
is to deprive it of property without due process of law
within the meaning of the Amendment. Rates, then,
which are calculated to reduce a railroad's earnings be-
low the point of reasonableness are repugnant to the Con-
stitution, unless compensation is made by the state for the
property so taken.
2. They cannot be denied the equal protection of the
laws. But if they are deprived of property without just
compensation while other persons receive such compensa-
tion for property appropriated by the State, they are de-
nied the equal protection of the laws. -
II. There may, then, be a question raised as to the
constitutionality of rates established by the state. This
question it is, of course, competent for any court, and
especially for the courts of the United States,” to decide.
Its determination necessarily involves a consideration of
three minor questions:
I. Whether the rates in question do deprive, or if they
have not been put in force, whether they are calculated to
deprive the railroad of those reasonable returns from its
business to which it is entitled;
- -
* 156 U. S. 657.
8o American AEconomic Association [406
2. Whether the state has made any provision for re-
imbursing the railroad for such loss of property as may
be involved, and
3. Whether such compensation is just and adequate.
Should the first question be answered in the affirmative
and the other two in the negative, or should the first two
be answered in the affirmative and the third in the nega-
tive, the rates must be held to be repugnant to the Consti-
tution, and must be restrained. Otherwise they must be
sustained. In deciding the first question the courts de-
termine the eſſect of the rates on earnings, and also the
reasonableness of the company's earnings according to
the principles and methods set forth in this and the last
chapter. -
It may be well to conclude this inquiry into the evolu-
tion of the doctrine of judicial review by setting forth a
few miscellaneous considerations which may be found in
the opinions of the Court. That the presumption is
always in favor of the rates has, of course, been recog-
nized, and in recent decisions there has been a well-
marked tendency to specifically state that fact. On the
authority of the Wellman case it may be said that rates
should not be overthrown in a friendly suit, or upon
agreed and general statements of fact, or upon the testi-
mony of two witnesses. In the Tompkins case it was de-
cided that the proper procedure is for a court to appoint
a master whose duty it is to fully find all facts needed by
the court in the determination of the case.*
In Smyth v. Ames the Court definitely commented on
the idea so often implied in popular discussion that it is a
strong argument against rates in One state to show that
rates are, in general, lower in neighboring states. That
little if any weight should be attached to such a conten-
tion is clearly inferable from the foregoing exposition of
* 176 U. S. 167.
4O7] The Doctrine of Judicial Review 8T
the methods of the Court, for we have seen that the effect
of rates is to be determined as to each railroad, with
respect to its earnings and expenses on purely local busi-
ness. In the case just referred to, however, the Court
made inference unnecessary by quoting with approval the
explicit statement of Mr. Justice Brewer in the court
below:
“To enforce the same rates in both states might result
in great injustice in one while in the other it would only
be reasonable and fair. . . . A mere difference of rates in
two states is of comparatively little significance.” ”
The question has occasionally arisen as to whether a
court, in setting aside rates as unconstitutional, may sub-
stitute in their place others which in its opinion are con-
formable to the Constitutional requirements. This power
the courts have never asserted. In fact they have defi-
nitely disclaimed it. “The courts are not authorized,”
said Mr. Justice Brewer in his opinion in the Reagan
cases, “to revise or change the body of rates imposed by
a legislature or a commission; they do not engage in any
mere administrative work.” And twice in the same
opinion he reiterated the substance of this remark.” The
true distinction which determines the answer to this ques-
tion is most clearly drawn in the Interstate Commerce
Commission v. Cincinnati, etc. R. Co.: “It is one thing
to inquire whether the rates which have been charged and
collected are reasonable—that is a judicial act; but an
entirely different thing to prescribe rates which shall be
charged in the future—that is a legislative act.” ” It is,
then, beyond the scope of judicial authority to substitute
valid rates for those which have been declared invalid.
Still another question has arisen in cases involving a
state law which provides that the rates shall not be con-
* 169 U. S. 539.
* I67 U. S. 479, 499.
"154 U. S. 397, 399, 400.
82 American AEconomic Association [408
clusively reasonable, but that the railroad may test their
reasonableness in the state courts. In the presence of
such a law, may a suit be brought at once in a federal
court? Such were the provisions of laws involved in
both the Reagan and Smyth cases. There could be but
one answer to the question, however, and it was given
clearly by Mr. Justice Brewer in the Reagan case:
“No legislation of a state, as to the mode of proceeding
in its own courts, can abridge or modify the powers exist-
ing in the Federal Courts, sitting as courts of equity. So
that if in any case, there should be any mistaken action on
the part of a State, or its Commission, injurious to the
rights of a railroad corporation, any citizen of another
state, interested directly therein, can find in the Federal
court, all the relief which a court of equity is justified in
giving.” 88 *
We have now concluded our study of the growth of
the doctrine of judicial review and are ready to consider
the effect which that doctrine has had on the efficiency of
state railroad control.
* I54 U. S. 395.
CHAPTER V.
THE RESULTS OF THE DOCTRINE.-I.
We are now to undertake an investigation of the influ-
ence which the doctrine of judicial review has exerted on
Our American system of railroad control, in order to
discover whether it has strengthened or weakened the
efficiency of that control. In this inquiry we shall con-
sider, first, its effect on the state's power to reduce rates;
second, its effect on the state's power to enforce the rates
it has established; and third, its effect, as a resultant of
the other two, upon the spirit and ideas of railroad com-
missions. -
Before coming to these precise questions, however, we
shall do well to reflect for a moment upon the spirit of
the law which has shaped the doctrine of judicial review,
and which directs its application; for it will serve to illu-
mine our entire discussion of this subject to recall at the
outset the general attitude of the law and of the courts in
all cases which involve both public and private interests.
The attitude of the courts is determined by the fact that
they are charged with the duty of interpreting and apply-
ing a law in which the individualistic spirit of the age has
been firmly crystalized. In our modern regime the indi-
vidual is the central figure. His importance, his dignity,
his sanctity, his rights, and his liberties are everywhere
recognized. His use of a free ballot is supposed to guard
civil rights and to shape aright the course of government;
his pursuit of his individual self-interest is supposed to
secure industrial justice and welfare; his freedom of
conscience, of thought, of will, and of action is not to be
lightly infringed. “All men are created free and equal,”
409] 83
84 American Economic Association [4Io
says our Declaration of Independence, “ and are endowed
by their Creator with certain inalienable rights. . . . To
Secure these rights, governments are established among
men.” The only limitation upon them is that they shall
not, in their exercise, encroach upon the equal rights of
other individuals.
It is true that this is a theory which has been gradu-
ally losing its hold both upon the minds and upon the
hearts of men. So pernicious have been some of its
results, especially in the world of industry, that the in-
quiry now 1s whether it has not passed the zenith of its
usefulness, and whether it is not now necessary to modify
it by an assertion of the social duties and responsibilities
of individuals, and accordingly, by the enactment of laws
restricting the individual for the general good. In this
inquiry different minds have pursued different courses,
have gone different lengths, and have, of course, reached
different conclusions. Socialists would have us abandon
the theory of individualism entirely and substitute there-
for a theory of social duty, to be applied by the state.
Long since, more conservative minds suggested factory
legislation. Some thirty years ago, the consensus of
public opinion demanded regulation of railroads for the
public good. To-day there is agitation for municipal
Ownership, trust regulation, and other limitations upon
private enterprise. This view is not intended to be com-
plete. Its purpose is merely to recall the fundamental
theory upon which our society is based, and some of the
modifications of it which have been urged by many from
time to time. -
But while observing the gradual departure from the
theory of individualism in industrial economics we must
always remember that the law under which we live grew
up with the growth of the individualistic theory and has
received its stamp. The history of the English law is a
4II] The Results of the Doctrine 85
record of the successful struggle of the individual, first
for recognition, and then for supremacy. Indeed our
law is permeated, saturated, with the theory of individual
rights. Two centuries ago English law had been shaped
to that theory, while in our country it no less lies at the
basis of our law; and its dignity has been recognized in
the bills of rights of our state constitutions, and in most
of the Amendments to the Federal Constitution. Such
limitations as the state may impose on private rights are
regarded as exceptions to the general rule, repugnant to
the spirit and genius of the law, and therefore to be con-
fined within strict bounds. Moreover—and this is a point
of deep significance—for almost all purposes the law
considers those artificial persons, corporations, as indi-
viduals entitled to the legal rights and privileges of nat-
ural persons.
This is the law which our courts are established to
interpret and apply. “The primary duty of the courts,”
said Mr. Justice Brewer, in deciding Railway Co. v. Dey,
“is the protection of the rights of persons and prop-
erty.” ". And again, speaking for the Supreme Court in
the Wellman case, he said, “the protection of vested
rights of property is a supreme duty of the courts.” This
duty, it must be admitted, has not been neglected. In
railroad rate cases its demands have been . faithfully
obeyed.
Such being the character of the law in which our judges
are trained, and such being the acknowledged duty of the
courts in its application, it is but natural that the profes-
sional sympathies of judges should all be with the rail-
roads. Not that the judges, as men, are callous to the
abuses which for a third of a century have irritated the
general public, sometimes beyond the point of endurance;
* 35 Fed. Rep. 872.
* 143 U. S. 346.
86 American Economic Asssociation [412
but nevertheless, as judges, they must apply a law which
is in thorough sympathy with private persons, their prop-
erty and rights, and which knows almost nothing of the
“ public welfare "except as it is to be secured through the
assertion and maintenance of individual rights. If it be
true, as is Sometimes stated, that judges are disposed to
subordinate the public weal to individual advantage, it is
because they have entered fully into the spirit of a system
of law which allows no other course. -
In the light of these general observations, let us pro-
ceed to inquire the effect of the doctrine of judicial
review, as developed and applied under our legal system.
and first to notice the manner in which it has affected the
power of the states to reduce rates.
Low rates are not, of course, the only ideal of railroad
regulation. Doubtless the most important thing is pro-
portion, that is, a proper adjustment of rates as among
the various commodities and the various localities. But
given this adjustment, the lower rates are, the better.
There can be no doubt that the public interest demands
that, so long as the due proportion is not disturbed, rates
shall be as low as possible. A commission, therefore,
being charged with the duty of advancing the public
welfare, must require reductions in railroad schedules
which are too high to be in accord with the public inter-
est. And the efficiency of a commission must depend in
no small measure on its ability to accomplish the reduc-
tions which are demanded by considerations of public
utility. Now how great is its ability in this regard P
Clearly, if its action in the matter of rates were final
and binding upon the companies, its power of lowering
rates would be absolute. There would be no obstacle to
prevent it from meeting in the most complete manner the
requirements of the industrial situation. We have seen,
however, that its rates are subject to review by the courts,
413] The Results of the Doctrine 87
and the consequence of judicial review has been to seri-
Ously impair a commissioner's power to reduce rates.
While it is impossible to measure with exactness the ex-
tent to which this power is impaired, it is possible to see
that the limitation placed upon the commissions’ activity
in this particular is very great. And in order that this
may clearly appear, let us consider at length three reasons
why the doctrine of judicial review, as practically applied
by the courts, stands in the way of public reduction of
rates. These reasons may be stated as follows:
I. The doctrine fixes an improper limit beyond which
reduction of rates cannot be carried.
II. The methods employed by the Supreme Court in
determining the effect of rates on earnings are such as to
make that effect seem more disastrous than is the fact.
III. The principles recognized by the Court in deter-
mining reasonableness of income are unduly favorable to
the railroads, and afford no adequate protection to the
interests of the public.
These propositions we shall take up in order.
I. The first limitation upon the state's power to re-
duce rates is found in that part of the doctrine of judicial
review which requires that rates shall be high enough to
permit the railroad company to secure reasonable earn-
ings. A state cannot lower rates so as to reduce earnings
below that point without making adequate compensation
to the company for all earnings, below the point of rea-
sonableness, which are so taken. For to take any part of
a railroad's “fair returns'' is to deprive of property,
an act which, under the Fourteenth Amendment, must
be accompanied with proper reimbursement.
This phase of the doctrine of judicial review is cer-
tainly subject to criticism, and the criticism touches a
point so vital as to call in question the entire doctrine.
The vulnerable point is the distinction made between
88 American AEconomic Association [414
earnings above the point of reasonableness, and earnings
below that point. In effect the Court declares that above
that point earnings are not property; but below it they
are property; for the state may freely appropriate earn-
ings above that point without violating the constitutional
provision protecting property, though to take any below
that point is declared to be a violation of it. This dis– .
tinction is ingenious, and in making it the Court has
perhaps saved from annihilation the state's right of rate
control, but whatever merit may be claimed for it on that
account, it may be admitted that it is a distinction which
is artificial and which cannot be supported by reason.
For, if income from property is itself property at all,
Surely all income must be property. To divide income
into two parts—“property" and “not-property "-giv-
ing One part the protection of the constitution, and leav-
ing the other defenseless, is an extraordinary proceeding.
No one has ever thought of making a similar division in
the case of any other kind of property. If the state were
condemning a person's lot, it would not divide the lot
into two parts and say: “one of these parts is property,
and for it you may have compensation; but the other is
not property, and for it, therefore, no payment will be
made.” Such a proceeding is unheard of, even in the
case of property belonging to a quasi-public corporation.
It cannot be imagined that the state, in taking any such
property, would divide it into two parts and say: “one of
these parts is property, and for it compensation will be
made, but no payment will be made for the other because
it is not property, since you are a quasi-public corporation
and, your property being devoted to a public use, a part
of it has ceased to be property” But the absurdity is
more clearly seen when such a distinction is applied, not
to real estate or equipment but to the income of railroads.
Suppose the state were to seek in the treasury of a rail-
415] The Results of the Doctrine 89
road company the earnings it had received from the
Operation of its road, and were to attempt to appropriate
those earnings. There is not the least doubt that if the
appropriation were permitted at all, the courts would
require the state to reimburse the company for every
cent of the earnings taken. The wildest stretch of the
imagination cannot picture the courts saying to the state:
“ a part of these earnings are reasonable, and hence are
property, and if you take them you must recompense the
company; but the rest of the earnings are not property,
because not reasonable, and you can have them for
nothing.” Yet this is just what the Supreme Court has
said in regard to depriving a railroad of its income
through the agency of low rates. The distinction is
clearly without warrant and must be given a place among
the pure fictions of the law.
It is evident from the absurdity of this distinction,
which the Court has found it necessary to maintain in
order to prevent judicial review from practically denying
the established legislative power of rate control, that
somewhere in the reasoning of the Court there is an
error which is fundamental and which vitiates the whole
process. That error, it is believed, consists in the actual,
though not professed, transfer of rate regulation from
the basis of the police power, where it has always been
held to rest, to the basis of the eminent domain. While
continuing to insist in words that rate control is an exer-
cise of the police power, the Court has in fact treated it
as if it were a phase of the power of eminent domain.
The Court has apparently looked upon it as a means
whereby the state may take property (in the form of
income) for public use, and has consequently subjected
it to the ordinary rules of eminent domain, requiring
just compensation for property appropriated. It is be-
cause of this change of base that the Court has been
90 American Economic Association [416
driven to the dilemma of holding either that all income is
property, which practically denies the ancient legislative
right of control, or else that none of it is property, and
hence that all of it is beyond constitutional protection,
which the judicial mind is unwilling to concede. From
this dilemma our jurists have extricated themselves by
advancing the extraordinary idea that a part of income
is property and a part is not. But they would have saved
themselves from getting into the dilemma, and so would
have spared themselves the necessity of resorting to this
untenable fiction, had they actually continued to regard
rate control in the light of their own repeated assertions,
as a phase of the police power. For viewed as a part of
the police power, rate regulation is, of course, not sub-
ject to the rules applying to the condemnation of prop-
erty. It is the exercise of an entirely different sovereign
power, subject to entirely different rules and restraints.
If the court should really so regard it, there would be no
question of appropriation or compensation to consider,
no inquiry as to the effect of rates on earnings would
have to be made, and hence no classification of income.
But, it may be objected, though rate regulation is a
part of the police power, is it not true that in its exercise
the income of the railroad may be decreased, which
would amount to a deprivation of property, income being
regarded as property? True;—from the control of rates
many consequences may flow, and among other results,
the income of a company may be reduced. But that is a
consequence which also flows from other police regula-
tions which the state may adopt. Railroad rate control
is not peculiar in that regard. Yet no one thinks of
subjecting other police regulations to the rules of emi-
ment domain. Thus the legislature may pass laws requir–
ing railroads to put in cattle guards at highway crossings,
or to equip each passenger car with an ax, saw, and ham-
417] The Results of the Doctrine 9 I
mer, or with drinking water, or to substitute, within a
given time, automatic couplers of a certain type for the
couplers in use. Any of these requirements would nec-
essitate an expenditure of money and consequently would
reduce the net income of the company by increasing
expenses while the improvements were being installed.
In effect, if one wishes to think of it in this way, it
amounts to an appropriation of property for a public pur-
pose. A portion of the income, instead of being devoted
to paying Operating expenses, or interest on bonds, or
dividends on stock, must be expended in a manner re-
quired for the benefit of the public. Thus income is
affected just as truly,–though in a somewhat different
way—through these measures as through rate control.
A railroad company may be deprived of income just as
truly through police regulations requiring an expenditure
of money for the public welfare, as though those requir–
ing a reduction in rates.
Nevertheless a railroad company is not permitted to
object to ordinary police regulations on the ground that
its “reasonable income * is threatened. A case can be
imagined where a railroad could show that its existing in-
come was no more than reasonable, and where the courts
would so hold. In such a case to enforce a law requiring
the installation of new couplers or other equipment would
so increase the expenses of the company that the income
would no longer be reasonable. Its existing income
being just barely a reasonable one, to require expendi-
tures from it for the public good would be in effect to
deprive the company of a part of its reasonable income.
But could the company demand compensation for the
sum so taken P Of course not. In passing upon police
regulations a court does not consider their incidental
effect on earnings. It makes no difference whether the
road can earn a reasonable income under them or not.
92 American Economic Association [418
A company in the last stages of insolvency is just as sub-
ject to them as the most prosperous of roads.”
In short the state is permitted through police regula-
tion, to appropriate earnings for the public benefit with-
out any obligation, under the Constitution, to provide
compensation. But the police power differs from emi-
ment domain in that the appropriation of property is not
direct, but is incidental and resultant. The direct and
immediate effect of a police regulation is always the
establishment of some condition or method or other regu-
lation which the public safety or welfare or comfort
demands. And its indirect or consequent effect on in-
come is not regarded as a deprivation of property such
as is contemplated in the law of eminent domain. There
is no valid reason why an exception to this rule should
be made in the case of that form of police regulation
called rate control. It is a perfectly legitimate exercise
of the police power and should certainly be treated in the
same way as other police regulations,—at least it should
not be subjected to more stringent restraints.
Two objections to this view of the case might conceiv-
ably be raised, neither of which, however, it is believed,
is well taken. In the first place it may be said that there
is a difference between rate control and other forms of
*It should be noted that the validity of a police regulation is not a
matter which is personal to certain individuals within the class
affected, but rather is a quality of the regulation itself. A factory
act applying to factories of a certain class is never valid as to some
and void as to others. Its validity is determined on its own merits,
irrespective of its financial effect on certain factories, and if it is
held to be a valid exercise of the police power, it is binding on all
the persons coming within its terms. Yet a general schedule of rail-
road rates may, under the present judicial doctrine, be held void as
to one road but binding upon another, perhaps a competing line.
This unfortunate consequence is, of course, a result of bringing into
rate cases the rules of eminent domain, instead of judging rates on
their merits, as a police measure designed to promote the public
welfare.
419) The Results of the Doctrine 93
police regulation, in that the latter are of real benefit to
the company. The railroad is in possession of equip-
ment which proves of decided advantage to it. For
example, its automatic couplers and cattle guards de-
crease accidents, with their losses of property and subse-
quent damage suits, while passenger car equipment
encourages patronage by the greater security and comfort
offered to travelers. But two replies may be made to
this objection. One is that public regulation of rates
also is of advantage to the company. It does away with
law suits to recover damages for overcharge, for a com-
pany is never guilty of extortion so long as it keeps within
the maximum fixed by the state. Moreover, it tends to
increase the popular favor in which the roads are held
and to encourage traffic. The development of industry
resulting from efficient public regulation is in itself of
great advantage to the roads. But while this answer to
the objection can be made, a better one, and one fully
sufficient, is this: that the benefit which a police regula-
tion confers on the road is not the reason why the courts
do not subject the regulation to the law of eminent do-
main. The reason is simply that it is not an exercise of
that power. The second possible objection is that a
regulation of rates necessarily affects income; but that
in the case of other police laws the company may recoup
whatever expense is involved, by raising its rates and so
increasing its earnings. The reply to this objection is
that a company is not able thus to manipulate its earnings.
It is at many points subject to competition, and so is not,
commercially speaking, free to raise its rates. And an
increase of rates at any point might simply have the effect
of decreasing traffic, so that earnings would be but
slightly increased, if at all. Moreover, it may be that
the state has prescribed rates and they are in force, so
that the company is without legal power to raise its rates,
94. American AEconomic Association [420
and thus without the means wherewith even to try to
recoup the expense forced upon it. Even here the atti-
tude of the courts is just the same. A railroad cannot
claim exemption from police regulations because it is
unable to make up the expense through the manipulation
of its rates.
We conclude, therefore, that since rate control is an
exercise of the police power and not of the eminent
domain, it should not be subjected to the law of eminent
domain; that, accordingly the test of its validity should
not be, as is now held by the courts, its effect on Llue in-
come of the company. t
Does this mean that the legislative power of rate con-
trol is absolute and without limit? No. It simply means
that the legislature is subject to the same limitations that
it is in exercising other forms of the police power. In
other words, the validity of rate control is to be deter-
mined just as the validity of other police regulations is
determined. The same test that is applied to them
should be applied to it. The question upon which the
validity of a cattle-guard, or automatic coupler, or drink-
ing water law hangs, Lor, for that matter, a factory act,
or sanitary legislation, or an inspection law—is whether
a sufficient public interest demands the law. Upon that
same question should the validity of rate regulation de-
pend. It should be a question of public welfare. And
therefore just as a court sometimes sets aside a police
law because its enactment is not justified by the public
advantage to be secured through its operation, so rates
made by public authority might be set aside on the same
grounds. But this is vastly different from saying that
their effect on earnings should be the conclusive test in
determining their validity.”
“Of course it is perfectly conceivable that the effect of rates on
earnings might be one of the points considered by a court. It might
be made a question whether the public interest demanded certain
421] The Results of the Doctrine 95
If the view of the matter here suggested were to com-
mand acceptance, judicial review would be transformed.
Instead of being what it now is, it would become a
judicial investigation designed to apply to rate control
the same test which is judicially applied to other police
regulations. And beyond a doubt this would result in
giving to legislatures and commissions much greater free-
dom of action in rate matters than they enjoy under the
present doctrine. The full measure of their proper
authority, of which they have been largely deprived by
the courts, would be restored to them. And that it is
their proper authority is made more evident by the fol-
lowing consideration. A state may, of course, and fre-
quently does employ the police power to control private
persons in matters of private concern. In such cases,
as has been said, the regulation stands or falls according
to whether the public interest, welfare, safety, health,
morals, comfort, or, sometimes, even convenience, de-
mand it. If that is the only limitation placed upon the
legislature in its control of private persons in their man-
agement of private matters, surely no more stringent
limitation should be placed on it in its regulation of the
management of public business by quasi-public corpora-
tion. Indeed there is evidently much ground on which
to contend that legislative authority should be even more
extensive over public than over private business. It
would certainly seem that the government should have
more control over property devoted to public use than
over property retained for purely private use. It is not
an immoderate suggestion, therefore, that the authority
rates, if they reduced income so much that bare operating expenses
could not be paid, for in that case the road might have to suspend
operation. Dut cwen if the effect of rates were so considered, the
limitation on legislative action would be decidedly different from
what it is at the present time.
96 American AEconomic Association [422
in the first case should be barely equal with that in the
second.
That a broader governmental power over rates would
render more precarious the earnings from railroad prop-
erties is evident, but that, of course, is simply one of the
hazards which one must contemplate in going beyond the
boundaries of private enterprise, into the uncertain field
of public activities. A forcible judicial expression of
this idea may he found in the words of Mr. Justice
Brewer, uttered obiter, in Cotting v. Kansas City Stock
Yards Company.” In entering a public business, said he,
a person “expresses his willingness to do the work of the
state, aware that the state in the discharge of its public
duties is not guided solely by a question of profit. It may
rightfully determine that the particular service is of such
importance to the public that it may be conducted at a
pecuniary loss, having in view a larger general interest.
At any rate, it does not perform its services with the
single idea of profit. Its thought is the general public
welfare. . . . Is there not force in the suggestion that
as the state may do the work without profit, if he volun-
tarily undertakes to act for the state he must submit to
a like determination as to the paramount interests of the
public?”
In this connection it is instructive to notice that in
other ways persons embarking in a public business must
assume the risk of losing much or even all of their in-
vestments. Such dangers exist,-have been permitted
by the courts to exist even since the adoption of the Four-
teenth Amendment. Thus, it has been held that a state
may grant a franchise to one railroad to parallel an al-
ready existing road. The value of the older property
may be impaired by competition with the new road, yet
* 183 U. S. 93.
423] The Results of the Doctrine 97
it is held that the owners have no vested rights which
can prevent its construction and operation. So also the
value of a turnpike may be practically annihilated by the
State through a franchise permitting a parallel railroad.
Yet it has been held that the Fourteenth Amendment
does not command just compensation in any sense which
would require the state to compensate the turnpike com-
pany for the property so taken.” When the public wel-
fare demands more efficient means of transportation, the
owners of existing roads must expect to suffer; and the
courts, aside from declining to relieve them, have not even
claimed that any one but the legislature should be the
final judge of the public necessity of the new improve-
ment. A power such as this is one which properly be-
longs to the state to enable it to deal with property
devoted to a public use in a manner conducive to the
welfare of the community, and one of which the state has
been deprived, so far as rate regulation is concerned by
the doctrine of judicial review.
We thus conclude the discussion of our first reason
why the doctrine of judicial review has seriously impaired
the legislative power to reduce rates. It has fixed a
limit beyond which reduction cannot be carried, and that
limit is an improper one. By basing rate regulation on
eminent domain rather than on the police power, it has
prevented the legislatures and commissions from exer-
cising the authority that is their right, and has thus sub-
jected them to a serious restraint.
II. But this is not the only reason why the judicial doc-
trine has impaired the power of the state to reduce rates.
The present judicial limit on legislative action is, as we
have seen, the point of “reasonable income.” But while the
* For further illustrations see Cooley's Principles of Constitu-
tional Law, 3rd ed., p. 370.
*
98 American AEconomic Association [424
Court has repeatedly declared that this is the proper
limit, it has, nevertheless, adopted principles and methods
in the trial of rate cases which do not permit a state to
fix rates so as to reduce income even to the point of rea-
sonableness. In other words, the Court employs prin-
ciples and methods which unduly favor the railroad and
unduly restrict the state; and thus the legislature cannot
exercise even the limited authority which the Court has
in general terms allowed it. Rates may be made which
will not actually reduce the income below the point of
reasonabletless, yel Llle Coul L 111ay 11Ull that they will—
so erroneous is the way in which it determines that point.
In the further elucidation of this contention, let us con-
sider the methods by which the Court determines the
effect of rates on earnings. We shall see that those
methods inevitably make that effect appear more favor-
able to the railroads than is really the case.
As we have already seen," the Court begins with the
rule that the effect of rates upon earnings shall be deter-
mined on the basis of past business. That is, the judicial
estimate of earning capacity of the road under the new
rates is arrived at on the assumption that the rates will
neither increase nor decrease the traffic, but that the
traffic will remain the same that it was for a period of
time prior to the establishment of the rates.
Extraordinary as this assumption is, it is one which,
as we have seen from our review of the cases, the courts
have repeatedly recognized as legitimate. It need hardly
be said that in this matter the courts have failed to take
into consideration one of the most fundamental char-
acteristics of the railroad business. For it is a matter of
general knowledge that, usually, a reduction in rates
results in an increase of business. At this stage of the
railroad controversy no argument is needed to prove this
* Supra, p. 58.
425] The Results of the ZXoctrine 99
contention, nothing beyond a mere appeal to those gen-
eral facts of which all are cognizant. Curiously enough,
it was even admitted, with innocent frankness, by Mr.
Carter, of counsel for the railroads in Smyth v. Ames.
In arguing that there are sufficient protections against
the danger of extortion, he said, “ Moderate charges
yield more profit by the greatly increased business they
draw. A sound policy perfectly well known to railroad
managers, advises them that it is better to tempt and
draw out a large traffic by low prices than to try to make
a large profit on a small business.”
In spite of this universally accepted fact, however, the
courts have definitely settled that the effect of lower rates
may properly, for judicial purposes, be determined on the
assumption that increase of business will not result from
the decrease in rates. It must, of course, be admitted
that compensating circumstances may occasionally pre-
vent an increase in traffic, but such an occurrence is out
of the ordinary. The rule remains that a reduction in
rates, other conditions remaining the same, always tends
to augment the volume of business. For the courts, then,
to proceed upon the assumption which it does, is to unduly
favor the railroads. It enables them to make a stronger
case than they could were the correct assumption to be
made. Upon this principle the judicial view must always
be that rates will more seriously affect the earnings of
the companies than would be true in nineteen cases out
of twenty. As a matter of fact, to put the rates in oper-
ation might not reduce either gross or net earnings at all,
or might reduce them but slightly. Yet, in contemplation
of the courts, earnings would be diminished exactly in
proportion to the reduction in the rates.
Of course it may be urged that this is the only definite
test which the courts can apply; that to attempt to esti-
* I69 U. S. 506.
©
†|
;
IOO American Economic Association [426
mate the probable increase in traffic resulting from a
decrease in rates would involve the courts in speculations
in which they could never have the guidance of reliable
principles.” Let this be granted as true; let it be con-
ceded that the courts can find no other test. Neverthe-
less that fact does not make the test a good one, nor one
adequate to the needs of rate cases, nor does it affect the
fact that the test gives to the railroads an undue advan-
tage as against the public.
No more favorable is the view which must be taken of
the next step in the procedure of the Court. After de-
claring that the effect of rates upon earnings must be
decided on the basis of past business, the Court goes on
to hold that that effect must further be determined by
applying to past earnings the percentage of reduction in
the rates.49
If the effect of the new rates upon earnings were to be
determined at all on the basis of past business, it would
seem that the correct method of arriving at the result
would be to apply freight rates to past tonnage, and pas-
senger rates to past passenger traffic. This would give
the maximum earnings which could be secured by the
railroad under the new rates, on the condition, assumed
by the courts, that traffic would continue unchanged.
Instead of this method, however, the courts determine the
percentage of reduction made by the new rates in the
rates in force, and then assume that future earnings will
equal past earnings reduced in the same proportion. For
“It is said that it cannot be determined in advance what the
effect of the reduction of rates will be. Often times it increases
business, and who can say that it will not in the present case so
increase the volume of business as to make it remunerative, even
more than at present? But speculations as to the future are not
guides for judicial actions; courts determine rights upon existing
facts.”—Mr. Justice Brewer in Chicago, etc. Ry. Co. v. Dey, 35 Fed.
Rep. 881.
* Supra, p. 58.
:: s: ::: :- *
:
§ .* o r
a “ * ty & ©.
427] The Results of the Doctrine IOI
example: Suppose that past earnings were $1,000,000,
and that the new rates are 80 per cent. of the old rates.
It is assumed by the courts that earning capacity under
the new rates will be $800,000.
Now, here, again, is an assumption which gives the
railroads a distinct advantage in suits involving rates.
For the basis of the whole process is the reduction made
by the new rates in the old schedules. Yet the old
schedules, of course, contain only the nominal rates estab-
lished by the railroad. As a matter of fact, in very many
cases, the actual rates charged are lower than those named
in the schedules. Discriminations, rebates, drawbacks,
preferential advantages, all awarded, usually, under the
veil of secrecy, are not yet, unfortunately, things of the
past. The past earnings of the company, therefore, have
been derived, not by charging the rates fixed in the sched-
ules, but by charging rates which average considerably
less than those scheduled. When the courts, then, com-
pare the new rates with the old nominal ones, they dis-
cover a percentage of reduction greater than the percent-
age of reduction made by the new rates in the old actual
ones. The assumption, therefore, that the earning
capacity of the road will be reduced in proportion to the
greater percentage, is clearly wrong. It makes the com-
pany’s criminal practices a source of advantage to it, and
of disadvantage to the public, in the trial of rate cases.
For example, let us make the same assumption, made
above, that past earnings were $1,000,000, and that the
new rates are 80 per cent. of the old nominal rates. In
such a case the courts hold that the maximum earning
capacity of the road under the new rates will be $800,000.
Suppose that the nominal rate per mile was $.OI ; the
new rate is, then, $.008. Now, it is evident, from the
merest knowledge of railroad practices, that the earnings
of $1,000,000 were not secured by charging an average
I O2 American AEconomic Association [428
of $.OI for each of I,OOO,OOO ton miles. As a matter of
fact, the actual average rate charged was less than $.oſ.
It might have been $.OO9, or $.OO8, or $.OO7, or even less.
But in order to deal generously with the railroad, let us
assume for the moment that it was as high as $.OO9.
Then, the earnings of $1,000,000 were secured by charg—
ing $.OO9 for each of III, III, III ton miles. The actual
traffic, therefore, being III, III, III ton miles, to put in
force a rate of $,008 would give an earning capacity of
$888,888.88. This indeed, is less than the former earn-
ings, but, or Llle Ollier land, it is over $88,000 greater
than the earning capacity which the Court assumes the
railroad would possess under an $.OO8 rate.
Now let us alter our last assumption, and suppose that
the actual average rate which earned the receipts of
$1,000,000, was low, say $.OO7. Then the $1,000,000
were earned by charging $.OO7 for each of I42,857, 142
ton miles. But to apply to that tonnage a rate of $.OO8
would give an earning capacity of $1,142,857. This is
greater by $142,857 than the old earnings, and is
$342,857 greater than the earning capacity reached by
the processes of the Court.
Thus it appears that the earning capacity determined
by the courts is always less than that which the railroad
will actually possess under the new rates. Furthermore,
it appears that the earning capacity of the road under the
new rates, if it will abstain from discrimination, may
even exceed the actual amount of earnings received under
the old rates.
This practice of the courts, then, is always unfair to
the new rates, since it makes out their effect upon earning
capacity be to more disastrous than it will be, except in
the purely hypothetical case of a road which has not
deviated from its nominal rates. As an item in a test of
reasonableness, it is, therefore, clearly inadequate, and
429] The A’esults of the Doctrine Io 3
unduly favorable to the railroads. Under this practice,
the more flagrant a company’s violations are of the laws
against discriminations, the more complete is its immunity
from public regulation of its rates. In any event, a rail-
road is able to make out before the Court a stronger case
than it has in fact.
True, in the Reagan cases, it was laid down that a
railroad's right to profitable compensation is limited,
inter alia, when it has indulged in “unjust discrimina-
tions resulting in general loss.” Accordingly the way
is opened for the state to attempt to prove the unjust dis-
criminations of which the road has been guilty. But
satisfactory evidence upon such matters is, of course,
almost impossible to get; and even were it secured, it is
not certain to what extent and in what way the courts
would make use of it. So far as the question of the
effect of rates upon earning capacity is concerned, no fair
or correct result can be secured by the method now em-
ployed by the courts. As said above, if past business is
to be the basis of the calculation at all, the correct
method would seem to be the application of the new rates
to past tonnage, or past passenger traffic. Without dis-
cussing this point farther, however, it is sufficient for our
present purposes to note that the method now employed
by the Court may often result in the suspension of rates
which, while looking toward the public welfare, are not
really calculated to impair the earning capacity of the
railroads, to say nothing of reducing it to the point of
“reasonable returns.”
III. Beyond this, however, it may be urged that the
judicial conception of “reasonable income * is not ade-
quate. At least it may fairly be said that the principles
which the Court has laid down as the controlling consid-
erations in determining reasonableness of income, have
* Supra, p. 74.
I O4. --- American AEconomic Association [43o
so far proven unduly favorable to the railroads, and have
not, as yet, given proper expression to the interests of
the public. Let us recall what these principles are.
Briefly stated, the Court has held tº that a railroad's
earnings must be sufficient, in general, to pay all expenses,
including interest on bonds, and yield a reasonable divi-
dend upon stock, but that the reasonableness of the divi-
dend, and, indeed, a railroad's right to any dividend at
all, is dependent upon a large number of considerations.
These considerations, we have also seen, may be grouped
into four classes—one pertaining to the base upon which
the rate of profit shall be reckoned, the second to the
management of the road, another to the rights of the
public, and the fourth to the industrial condition of the
community.” The enunciation of these limitations upon
a railroad's right to compensation is a most interesting
feature of rate cases. At first blush it might seem that
they are admirably calculated to aid in restoring the
proper balance between the public and private interests.
Yet it cannot escape observation that almost all of them
are simply obiter dicta, and investigation shows that the
Court has often forgotten them, either in determining
procedure or in deciding special cases. -
A few instances of this kind will serve both to explain
and to enforce the point. In the Reagan cases is laid
down the doctrine that the failure of rates to yield profit-
able compensation is not conclusive of reasonableness
when, inter alia, the railroad has indulged in unjust dis-
criminations resulting in general loss. And yet, as has
just been seen, the Court has employed a method of de-
termining the effect of new rates, which enables a rail-
road to take refuge under the very shelter of its own
discriminations, and from that safe retreat, protected by
* Supra, p. 70.
* Supra, p. 72.
431] The Results of the Doctrine Io 5
the strong bulwark of the law, to defy legislatures and
commissions. Again, the Reagan cases also recognized
a limitation when a road was unwisely built, in districts
where there is not sufficient business to sustain a road.
Yet such was the case with almost all, if not all, of the
roads involved in those very cases. The International and
Great Northern had never been able to pay the interest
on its bonds, and had been in a receiver's hands for three
years. Of two other roads the Court speaks as follows:
“The St. Louis Southwestern Railway Company is
called by counsel for defendants, in their brief, ‘a reor-
ganized bankrupt concern.' It would seem to be a railroad
which was unwisely built, and one whose operating ex-
penses have always earceeded its earnings. Counsel say
that ‘it is familiarly known as a “teazer,” and, if it ever
passes beyond this interesting but unprofitable stage, even
its friends will be surprised.’ We are not advised and we
can hardly be expected to take judicial notice of what is
meant by the term “teazer,” but it is clearly disclosed by
the record that this was an unprofitable road. . . . The
Tyler Southwestern Railway Company has a short road
of ninety miles, and also appears to be a reorganized
bankrupt concern,' and one whose road has been Operated
with constant loss.” +*
Here are cases which clearly, by the admission of the
Court, come under the general limitation expressed in
the body of the opinion. Yet the limitation was entirely
ignored. After making the statement quoted above, the
Court continued, “it will not do to hold that, because
the roads have been operating in the past at a loss to the
owners, it is just and reasonable to so reduce the rates as
to increase the amount of that loss.” Here, then, one
who has read, a few pages back in the opinion, the gen-
eral rule laid down by the Court, finds the hopes aroused
by it most rudely dashed.
Further evidence may be found of the Court's tendency
“I54 U. S. 403.’
I oë American Economic Association [432
to ignore the limitations upon a railroad's right to profit-
able rates. It is worth while mentioning that the Court
in the Reagan cases specifically denied two claims which
were allowed in general terms in later cases. The Cov-
ington case limits the railroad's right when competition
of parallel lines so diminishes business as to make profit-
able rates exorbitant, and the last Minnesota case further
limits that right when the industrial condition of the
country is such that profitable rates would be exorbitant.
Yet in the Reagan cases the Attorney-General showed
that there were four lines in competition with the Inter-
national and Great Northern, reducing its share of the
traffic; alleged that there had recently been a commercial
depression; and offered evidence to show that the price of
products was so low that rates would have to be lower
than those charged by the railroads in order to permit the
farmers to market their produce with any profit. All
this was not gladly received by the Court, as tending to
support the rates which are “presumed to be reasonable.”
On the other hand it was summarily dismissed, and given
no weight whatever in the case. We are accordingly
left in grave doubt as to whether the court meant much if
anything by its later dicta in the Covington and the last
Minnesota cases. At any rate, it is evident that the play
of the Court’s sympathy for individual as opposed to pub-
lic rights, operates to seriously limit the limitations, as it
were, which it has recognized upon the rights of the rail-
roads. The view of the railroad industry which has been
taken by the Court since the Granger cases requires the
limitations to be stated; but the predilections of the judges
create a tendency to disregard them. As statesmen, or
publicists, the judges might recognize the full force and
importance of those limitations; but as lawyers or judges,
they almost inevitably forget them.
It is true that as yet the Court has not been put to a
433] The Results of the Doctrine Io'7
Severe test, and consequently it is not clear to just what
extent it will go. For, up to the present time, counsel
for the states have shown comparatively slight disposi-
tion to urge upon the Court the limitations it has recog-
nized, or to introduce evidence in such matters. The
Court by its repeated declaration and affirmation of its
dicta, has offered an opportunity the significance of which
has apparently not been fully appreciated by the repre-
sentatives of the public. But the treatment which those
dicta have received in the cases where they have been
urged, as we have just seen, forbids any very sanguine
hope that they hold much promise of better things for
public control.
But it is not only because the Court tends to ignore in
special cases the rules it has laid down in general terms,
that they are not available for the cause of the public wel-
fare. A further reason is that many of the limitations
upon the rights of the railroads are so vague in character,
and involve considerations so difficult to establish, that
the public can derive little advantage from them. One
illustration of this fact is to be found in the limitation
which is recognized to exist when the management of the
road has not been prudent and honest. But how difficult
must it always be for state officers to secure satisfactory
evidence upon such a point! The secrecy which enshrouds
many railroad operations, and the possibility of manipu-
lating accounts makes difficult even the discovery of im–
prudence and dishonesty, to say nothing of Securing
evidence which will be satisfactory at law.
Again, the courts have, in general terms, given recog-
nition to the rights of the public. In the Gill case the
Court was hesitant to declare rates unreasonable when,
among other things, the claims of the railroad were
admitted in the demurrer of a party who in no ade-
quate sense represented the public. In the Reagan
Io9 American Economic Association [434
cases it was said that the right of the road to compensa-
tion is limited, among other things, by “matters affecting
the rights of the community in which the road is built.”
And in the Covington and Smyth cases, it was stated
that the rights of the public are not to be ignored, that
rates must not be more than the services are worth to the
public, that, in short, rates must be just to the public as
well as to the railroad.” But what are the “rights of
the community,” or the “rights of the public,” and how
are they to be established? How is it to be determined
what a railroad's services are worth to the public? How,
indeed, is it to be discovered what rate is just to the pub-
lic as well as to the railroad? And, when the interests
of the public and of the railroad clash, which is to prevail?
It need hardly be stated, in view of the preceding discus-
Sion, what the coloring is which must necessarily prevail
in the Court’s answers to these questions. The rights of
the public are indeed difficult to establish. Generally
speaking, the public has rights, which must not be invaded
by the railroads. But specifically, what rights? To be
exempt from the high rates necessary to compensate a
railroad for losses due to its discriminations, or neces-
sary to make profitable a road unwisely built, or neces-
Sary to sustain as many competing roads as may chance
to divide the traffic P. We have seen what answers the
Court has given to these questions. The vague “rights ''
of the public have vanished with the appearance of a
practical test.
But there is still another “limitation ” upon the right
of the railroad to compensation, namely, the industrial
condition of the community, which is too vague and gen-
eral to mean much in practice. Here again, it may be
asked, how is the industrial condition of the community
* 154 U. S. 402.
"I64 U. S. 596-8; 169 U. S. 544-7. And see also, I73 U. S. 754–6.
435] The Results of the ZXOctrine Io9
to be established at law, and just what “industrial condi-
tion * will justify a reduction of a road's earning capac-
ity? Is it not inevitable that counsel for the state should
find it difficult to secure satisfactory evidence in such a
matter? The limitation is in general terms. In specific
cases how much would it amount to? Probably not
Inuch. The only points ever argued by the states, have,
as we have already seen,” been summarily rejected by
the Court.
The fact unfortunately seems to be that the euphoni-
ous generalities in which the Court has bound up the
industrial welfare of the American commonwealths are
more beautiful for contemplation than they are efficacious
in use. To discover the practical meaning which is em-
bodied in them, and to obtain recognition of it by the
courts, is one of the difficult problems which now con-
fronts the commissions, and one in the performance of
which the attitude of the judiciary up to the present time
gives little encouragement.
In these three ways, then—by placing an improper
limitation on the legislative power to reduce earnings
through regulation of rates, by employing erroneous
methods in determining the effect of rates on earnings,
and by setting up inadequate standards of reasonableness
in earnings—has the Court practically destroyed the
state's power of rate reduction. The doctrine of judicial
review is therefore of great importance in the develop-
ment of the railroad problem. But, more than that, it is
of significance as a notable triumph achieved by the prin-
ciple of individual interest over that of the public welfare.
Under whatever constitutional pressure the courts may
have been in announcing the doctrine, it is felt that it is
a movement against the current of the times, and that it
must result, in part, in deepening the conviction already
“Supra, p. 106.
I IO American Economic Association [436
growing in the minds of men, that the proper balance be-
tween the public and the private interests in industrial
action has been much disturbed, and should be speedily
restored. -
CHAPTER VI.
7%e A’esults of the Doctrine. —//.
The course of our investigation as outlined at the be-
ginning of the last chapter now leads us to consider the
effect of the doctrine of judicial review upon the ability
of a commission to enforce its rates. The conclusion
that will be reached is, indeed, suggested by the discus-
sion in the last chapter, but nevertheless deserves separate
statement and elucidation. It may be said, therefore,
that as a consequence of the application of the doctrine of
judicial review no little restraint is placed upon the en-
forcement of rates by public agencies. A ready mode
of escape has been provided for the railroads, and one of
which they have not been slow to avail themselves. The
power of the state to make its rates effective has been
very seriously impaired.
The reasons for this fact are two in number: first, that
rates made by public authority may be immediately sus-
pended by injunction; and second, that the suspension of
rates for a few roads may and usually does permit the
escape of all the other roads in the state. These state-
ments both demand explanation, but as the second can be
disposed of somewhat briefly, it will be considered first.
The effect of injunction suits brought by a few roads
in a state extends far beyond the interests of those roads,
for such suits are usually sufficient to settle the matter
for all the other roads in the state. If a few companies
secure injunctions, the others may safely ignore the rates.
There are many reasons why this is so. After losing a
number of cases under its rates, the commission will
437 * I I I
II 2 American AEconomic Association [438
hardly dare to attempt an enforcement against the re-
maining roads; knowing that, even should it do so, the
chances are that the rates will also be held unconstitu-
tional as to them. Moreover its inclination to bring suit
for enforcement is weakened, not only by the prospect of
defeat, but by the fact that the final result may be so long
postponed that even should it be favorable, the commis-
sion will perhaps no longer care to enforce the rates, be-
cause of changed conditions in industry. The most
powerful consideration, however, is, that public policy
would no doubt forbid that a comprehensive schedule of
rates designed for all or many of the roads in the state
should be enforced against only a part of them. And a
further fact of no little practical importance is that the
commission may lack the financial means to prosecute so
many suits through so many Courts." For all these
reasons it is evident that judicial review may permit many
roads to escape the operation of a commission's rates
without even submitting their cases to the courts. The
tremendous significance of this fact itself furnishes the
emphasis to which the fact is entitled. -
But while this is clearly true, exception may perhaps
be taken to the first statement, that a commission’s
power of enforcing rates is impaired by judicial review
because rates may be immediately suspended by injunc-
tion. To this it may be objected with apparent justice
that the courts will not suspend any and every rate sub-
mitted to them, but that only such rates as, after judicial
* “The trial of the St. Paul case so completely occupied the time
of the commission and their attorneys, and exhausted the meagre
appropriation for the expense of litigation it has been impossible to
proceed with the cases of other railroad companies. . . . The funds
appropriated for litigation expenses, together with about $1,561.27
which had been provided from private sources, had been expended
in the trial of the St. Paul case.” Report of Railroad Commissioners
of South Dakota for 1898, pp. 18, 19.
439] - The Results of the Doctrine II 3
inquiry, are found to be unreasonable will be subjected
to equitable restraint. And it may be added with still
greater show of justice, the unreasonable rates ought to
be suspended. -
This is a contention which on its face seems plausible
enough, but which is nevertheless not sound. The dis-
cussion of the last chapter in part discloses its weakness.
Manifestly the force of the contention must depend upon
the meaning given to the word “unreasonable.” If it is
true that the judicial standards and tests of reasonableness
are proper and adequate then it follows that the suspen-
sion of rates is wholly justifiable. But if, on the other
hand, those standards and tests are erroneous, then it
follows that the suspension of rates may sometimes be
wrong, and may be an unjust restraint upon the power of
the state.
Now are the judicial standards and tests of reasonable-
ness wholly commendable? We have tried to show in
the preceding chapter that they are not. The Supreme
Court has read into the Fourteenth Amendment a mean-
ing which has resulted in an improper limitation being
placed on the reduction of rates by a state, in the re-
quirement that rates must always yield a reasonable in-
come. But even if it be conceded that the limitation is
entirely fair and just, the fact still remains that rates
which keep within the limit are not always enforced, but
that, on the contrary, many of them may be declared
invalid and may be suspended by the courts. This fact,
of course, results from the methods and principles laid
down by the Supreme Court for use in rate cases. We
have seen that the methods of the Court are such that it
must always determine that the effect of rates on earn-
ings will be much more disastrous than will in fact be the
case. Thus many rates may be suspended which are
really calculated to yield all the revenue required by the
II.4 American Economic Association [44o
Court. Such rates a commission cannot enforce. But,
moreover, we have also seen that the principles upon
which reasonableness of income is determined are such
as unduly to favor the railroad and give no adequate
expression to the public interest. Thus, under the doc-
trine of judicial review, many other rates may be sus-
pended which, while not yielding all of the earnings
demanded by the Court, are nevertheless calculated to
afford what should properly be regarded as a reasonable
income to the railroad companies. Such rates, also, a
commission cannot enforce.
But this is not all. We may go farther and say that
not only may inherently “reasonable '' rates be suspended
because of the inadequate methods of the courts, but that
many rates which conform perfectly to judicial standards
may also be suspended. This somewhat startling state-
ment is explained by the familiar fact that the courts
regularly issue temporary injunctions in rate cases on a
merely prima facia showing—that is, without being con-
vinced or, indeed, without having evidence to convince
them, that the rates ought to be declared invalid.
It is not proposed to suggest a sweeping condemnation
of the temporary injunction. Its use, in general, is un-
doubtedly desirable. It serves to preserve intact the
rights of the parties to a suit until a complete investigation
can be made. All that is contended here is that there are
sufficient reasons why the use of the temporary injunction
in rate cases cannot be approved. At least three such
reasons suggest themselves.
I. The temporary injunction is inappropriate in rate
cases because rates made by public authority are acts of
legislation. They are statutes, whether made by the
legislature or by a commission under a delegated legis-
lative power. But it is a fundamental rule of Constitu-
tional Law that all statutes are presumed to be constitu-
44.1] The Results of the Doctrine * I I5
tional, and will be so held until the contrary is shown
beyond all reasonable doubt. “To be in doubt is to be
resolved, and the resolution must support the law.””
That this rule applies to railroad rates there can be no
doubt, for the fact has been repeatedly declared by the
Court. Yet one cannot fail to observe the inconsistency
between this rule and the use of the temporary injunc-
tion. In one breath the Court declares that the uncon-
stitutionality of rates should not be determined in a prima
facie case; yet in the next breath it decrees a writ of
injunction, involving the determination of their constitu-
tionality upon a merely prima facie showing. The judge
has not a “clear and strong conviction * of their inval-
idity. On the contrary he does not know whether the
rates are constitutional or not, for a merely prima facie
showing has been made. He is always “in doubt";
otherwise he would decree a perpetual rather than a tem-
porary injunction. But being in doubt, he ought to be
resolved that the rates are valid; and therefore he ought
to refuse to issue a restraining order until the case has
been fully tried and his doubt is removed. The use of
the temporary injunction, then, is in direct conflict with
the fundamental rule of law which is designed to guard
the deliberate judgment of the legislature from ill-con-
sidered interference by the judiciary.
2. A second reason for believing that the temporary
injunction cannot properly be granted in rate cases is to
be found is the nature of the interests involved. A rate
case in a controversy between the public and a corpora-
tion chartered for a public purpose. It is true that in
such a case the railroad may be threatened with injury
for which there is no adequate remedy at law—a situa-
tion which ordinarily furnishes ground for equitable
interference. But with this fact should also be weighed
& 4
* Cooley: Const. Law, 3rd Ed., p. 172.
II 6 American AEconomic Association [442
the important consideration that the railroad is a quasi
public concern, and that because of that fact it owes to
the public certain duties which the public is entitled to
exact of it. The case is different from most of the in-
stances in which injunctions are sought, the significant
characteristic being the public nature of the obligation
owed by the railroad. Is not this a characteristic which
should control a court in the exercise of its equity juris–
diction? Even admitting that the granting of a perpetual
injunction after full hearing is a proper method of pro-
cedure, it is hard to agree that public control of a quasi
public corporation should be thwarted by a writ issued
upon only probable cause. Is the public interest in
railroads so slight that it should be defeated by a merely
prima facie showing P Or, to put the converse, is the
private interest of the railroad company so great that a
merely probable case is sufficient to exempt it from pub-
lic control P
3. A third reason for condemning the use of temporary
injunctions in rate cases is the fact that when the courts
have once recognized that the company is entitled to
relief from the rates until a final hearing has been had,
the “temporary '' suspension of rates becomes for all
practical purposes permanent. For after the Suit has
been disposed of in the trial court, at least one court of
appeal remains, and in that the temporary injunction may
be continued. An apt illustration of the abiding nature
of the temporary may be found in the case of Chicago,
Milwaukee, and St. Paul Ry. Co. v. Tompkins,” the his-
tory of which is as follows:
On August 26, 1897, the South Dakota Railroad Com-
mission promulgated a schedule of rates to take effect on
September 15, 1897. The day after the announcement
of the rates several companies brought suit in the United
* 176 U. S. 167.
443] The Results of the Doctrine II 7
States Circuit Court, and secured an order, returnable
On September 6, to show cause why a temporary injunc-
tion should not be granted. The Commission appeared
and resisted the application, but the injunction was never-
theless granted. On July 7, 1898, the court decided the
case in favor of the Commission and refused to issue a
perpetual injunction. But the St. Paul road promptly
perfected an appeal to the Supreme Court, which immedi-
ately ordered the temporary injunction continued pending
the final decision of the case. In other words, the orig-
inal presumption that the rates were valid, supported, as
it was, by the decision of the circuit court affirming their
validity, was not enough to save them from “temporary”
suspension by the Supreme Court. About two years
later the latter court remanded the case with instructions
—the rates being still “temporarily ’’ suspended, and at
last in August, IQoI, the trial court rendered the final
decree.* Thus had the rates been “temporarily ’’ sus-
pended for almost four years.
The lesson of this case need hardly be suggested. The
theory that a prima facie showing is sufficient to warrant
a temporary injunction, coupled with the theory that a
railroad company may make such showing even against
the decision of a trial court as well as the inherent pre-
Sumption that rates are valid, practically annihilates all
possibility of rate enforcement. For a rate to be sus-
pended for four years—it matters not that the suspension
is “temporary”—is to destroy practically all possibility of
its usefulness. In these days of changing industrial con-
ditions it is seldom true that rates made to suit the needs
of the times four years ago are applicable to conditions
of to-day.
But this is not all that may be said as to the power of a
* C. M. and St. P. Ry. Co. v. Smith, IIo Fed. Rep. 473. The final
decision was in favor of the railroad. See Supra, p. II2, footnote.
II 8 American AEconomic Association [444
commission to enforce its rates. Not only may the rail-
roads secure the suspension, “temporary,” if not per-
manent, of practically every rate at all inimical to their
interests:"—under the practice of judicial review they
are much encouraged and strongly tempted to contest
such rates in court. The reason for this incentive to
seek judicial shelter are numerous, but only a few can be
mentioned.
In the first place it is obvious that they are impelled to
litigation through a realization of the facf flhaf their
chances of success are excellent. As we have seen, it is
easy for a railroad to establish its case; it is difficult for a
state to establish its case. For the former has the signi-
ficant advantages of a tribunal which is professionally
sympathetic to it, of the protection of a Constitutional
provision which has been interpreted as fixing a close
limit to state action, and of principles and methods used
in the interpretation and enforcement of that provision
which are exceedingly favorable to the corporate inter-
ests. And no one knows so well as the railroad counsel,
how favorable those methods and principles are to them.
Added to the probability of ultimate success, however, is
the fact that “temporary '' relief can be secured in the
case of practically any rates which the companies would
care to contest, and that this temporary relief may be
extended over a considerable period of time. All that a
company has to do (practically speaking) is to keep a
case in the courts, in order to be legally exempt from the
rates.
Another motive impelling a railroad to bring suit is to
be found in the fact that the suit may operate to force a
compromise. Fearing the outcome of the action, and
* An exception to this statement may, under the Minneapolis and
St. Louis Case, be found in the instance of special rates made for
isolated commodities. As to general schedules it holds true.
445] The A’esults of the Doctrine II 9
the ultimate failure of all its work, a commission may be
induced by a suit or even the threat of a suit to propose
or accept an increase in its rates. But compromised rates
are never thoroughly satisfactory to any one but the rail-
road : they are satisfactory to the road, for otherwise it
would reject the compromise and carry the case through;
but they cannot be wholly satisfactory to the rest of the
community, for, being compromised they cannot be
specially adapted to the public needs. This evil is all too
Common, and seriously impairs a commission's power to
enforce its rates.
Still another motive which may inspire a road to sue
for an injunction, is that one result of a suit must be to
tie the commission's hands so long as the case is in the
courts. Let a commission promulgate a schedule of
rates, the road, by simply taking a case through the
courts, practically prevents the board from taking any
other action as to rates during the three or four or five
years in which the case is dragging from one tribunal to
another. It means just so many years of immunity from
public regulation.
A final reason which impels a road to resort to judicial
adjudication of the rates, is a desire to reap the advan-
tages which come with a triumph over the commission.
The very facts that the courts stand ready to test the rea-
sonableness of a commission's rates, opens to the railroads
a means of discouraging the commission and perhaps of
bringing it into disrepute. Of course, no commission
establishes rates without allowing the railroads a full
opportunity to be heard and to introduce evidence. Often
the rates are fixed as the result of a complaint brought by
some shipper or locality and in such cases the roads are
summoned to appear in answer to the complaint. The
roads realize, however, that if the commission’s ruling
goes against them, they have recourse to the courts; they
I 2 O American AEconomic Association [446
know, moreover, that the courts are favorably disposed
to them—much more SO than the commission. Accord-
ingly it is to their interests to have the case tried by the
courts rather than the commission. They therefore have
a strong motive for making only a perfunctory showing
before the commission, concealing the real strength of
their case. When the commission rules against them,
however, and they appeal to a court, they open their case
with full force, and make their best showing. The pub-
lic's case is an old story to them, for it has come out very
fully in the proceedings before the commission, and they
have had time to work up a defense to it. Their own
case, however, is new to the public officers. For this as
well as other reasons the suit goes in their favor, the in-
junction is granted, and the commission is defeated,—
perhaps discouraged, and discredited. It may be that,
had the commission been in possession of all the evidence
introduced in court, it would never have made the rates
which it did. But, in any case, so much has it been
mindered and crippled by the right of judicial review.
But it may be said in reply that the temptation to bring
suit must always be weakened by the consideration that
indiscriminate litigation must result in occasional defeats
for the railroads, which will tend to arouse popular feel-
ing and create a prejudice in the courts against the rail-
roads. Unfortunately there seems to be little strength
in this contention. From what has already been said it
is evident that defeats for the roads must be very occa-
sional. But even should they be fairly frequent it is
hardly probable that the roads would be damaged by such
prejudice as would be aroused. So far as the public is
concerned probably the only feeling would be one of
gratification at the defeat of the railroads. And So far as
the judiciary is concerned, it cannot be imagined that our
federal judges could be turned by feeling or prejudice
from the path of legal justice.
447] The Results of the ZXoctrine I 2 I
Judicial review has, then, practically destroyed a com-
mission's power to enforce its rates, both because of the
incentive given to the railroads to contest the rates and
because of the treatment accorded them in the courts. Do
Serious consequences flow from this loss of power?
Inevitably so. Some of them deserve special mention.
I. One consequence is that a commission cannot adapt
its rates to changing industrial conditions. This, of
course, in itself would be well-nigh fatal to its efficiency.
Our modern industrial community is far from static;
conditions change from time to time, sometimes grad-
ually, Sometimes suddenly. And since transportation is
a factor lying at the very basis of all other industry, it
follows that transportation rates should be adjusted to
meet the needs of business. It was chiefly for this rea-
Son that the policy of legislative rates was early aband-
oned. It was found that a schedule of rates made by a
legislature would, at many points, get out of accord with
industrial conditions before its next session, after a lapse,
in most states, of two years. Accordingly the making of
rates was delegated to a commission which, being in
continual Session, could make such prompt adjustments
in rates as might appear to be necessary. But the doc-
trine of judicial review has rendered the expedient futile.
A commission may make rates, it is true, but the immedi-
ate enforcement of them, which is a prime desideratum
in public control, is an impossibility. At least temporary
suspension is practically inevitable, whether the rates are
fair or not, and we have learned what “temporary ''
means. Thus does judicial review prevent a commis-
sion from fulfilling a supremely important object of its
existence.
2. Another consequence of a commission's inability to
enforce its rates is that the evil of instability in rates is
enhanced. We have already had occasion to mention this
} 22 American AEconomic Association -- [448
evil." and to say that the public welfare demands that
railroad rates should be stable, except when they are bona
fide altered to meet changing industrial conditions. It
might seem that public control of railroads, and especially
control through a regulative commission, would offer
exemption from unstable rates. And indeed there can be
no doubt that commissions, if able to enforce their rates,
could in a reasonably satisfactory manner accomplish
this object. But if conditions were bad when roads could
in a system of public control which struggles under the
burden of judicial review, where, in the main, the rail-
roads still fix the rates, but where the intervention of a
commission Occasionally works changes, and where.
moreover, the commission’s rates may be carried to the
courts and made the subject of almost endless litigation,
—leaving both carrier and shipper in doubt as to their
legality. Nor should it be forgotten that during the long
period of litigation, the railroads are practically free to
manipulate rates at their pleasure. Thus is the situation
complicated and the evil of instability rendered greater
than it would be had no commissions ever been appointed,
and such is the way in which judicial review has affected
the power of a commission to discharge this important
phase of its duty.
3. In the third place, as a consequence of the loss of
power both to reduce and to enforce rates, the commis-
sions have become unable to make rates on the principle
of public utility. The railroad rate problem is more than
a mere matter of the correction of specific abuses. Such
work is valuable, of course, but it touches merely on the
borders of the problem. The heart of the matter is the
promotion of the public welfare by such a regulation of
*Supra, p. 9.
449) The Results of the Doctrine I 23
rates as will provide the conditions for a healthy and
vigorous and well-proportioned industrial life. Rates
should be adjusted among commodities and among local-
ities with reference to sources of raw materials, centers
of manufacturing, location of markets, and so forth, the
aim being to produce the highest degree of industrial
well-being. Railroad rate-making offers a powerful
engine for the public good, and the rate problem will not
be solved until that engine is used to its best advantage.
But it is painfully evident that the commissions, limited
and restrained as the now are, find themselves utterly
unable even to approach this broader and more signifi-
cant phase of the problem set before them. And herein
do we find one of the most melancholy consequences of
judicial review. .
We have now considered the effect of the doctrine of
judicial review upon a commission's power to reduce
rates and its power to enforce its rates. It will serve to
illumine and enforce the conclusions which have been
reached, to quote from a letter received by the author
from One of the youngest and most vigorous of the state
commissions:
“In answer to your question, ‘To what extent and in
what way, has this power of judicial review been a source
of embarrassment to you, as railroad commissioners, in
the exercise of your power to fix rates?’ beg to say that
this power to review the rates made by a railroad com-
mission, assumed by the Courts, has been the source of
Some embarrassment to this Commission, as it has to al-
Imost all State Commissions. In the the State Courts we
have had to compromise two suits, rather than allow them
to go to trial, fearing the final decision of the Court would
be delayed to such an extent as to render the order fixing
rates useless, brielse fearful of a perpetual injunction’s
being granted, estopping this Commission from future
action. . . . Unquestionably, the effect of such decisions
makes a Railroad Commission extremely cautious as to
I 24 American AEconomic Association [450
the rates which it establishes, and certainly is a barrier in
the way of their making many rates which in their minds
are reasonable, just, and necessary. I may say, however,
that with the exceptions noted, this Commission has been
remarkably free from litigation over its orders, and has
not suffered to a great extent from Court decisions. The
suggested trend of the decisions has, though, put the
Commission on its guard, thus rendering its work less
efficient than it might be, were these apparent difficulties
of judicial interference removed.”
But what now, to proceed to the last step in our in-
quiry, has been the consequence of this deprivation of
power both to make and enforce rates, upon the attitude
of the commissions toward the problems which have been
given to them to solve? What has been the effect of
judicial review upon the spirit and ideas of the commis-
sions? While it cannot be said of all of the state com-
missions, as to a large majority of them it is a fact that
the gradual growth of the doctrine of judicial review.
and the gradual development of the methods employed
by the courts, have gradually paralyzed the commissions
by destroying their will as well as their power. Under
the burden of judicial review the commissions have be-
come discouraged from the task of rate regulation; most
of them pay relatively slight attention to the matter of
rates, confining themselves largely to the other and much
less important duties imposed upon them. Some have
practically desisted from rate making. Some esteem
their duty done when they attempt to arbitrate the few
cases, between carrier and shipper, which are brought to
their attention, but which form only a microscopical part
of the great question of rates. This relaxation of effect,
this growing indifference to the most important of all
their functions, has been conspicuous in recent years," and
* Though somewhat less so within the last year or two, since Presi-
dent Roosevelt began to rekindle popular interest in the rate problem.
451] The A’esults of the ZXactrine I 25
is a discouraging feature of the railroad problem of
to-day.
But a far more disheartening fact is that some commis-
sions have come to the point where, forgetting the real
nature and the real necessities of public control, they
consciously or unconsciously adopt the theories of the
courts. Respect for the law as pronounced by the courts,
aided by the presence of an excessive number of lawyers
upon the Commissions has no doubt gone far to accele-
rate the growth of the conviction that, after all, the prin-
ciples and methods of the courts must be just and wise
and beneficent. How far that is true we may judge
from the discussion in this and the preceding chapter.
But the result of this conviction has been that insofar as
such commissions attempt to fix rates at all, they for the
most part adapt them for review by the courts. Some
of them say they welcome review by the courts, believing
that such review is salutary, and that they would not
wish to enforce a rate which, according to judicial stan-
dards, is unjust. Thus they make their rates according
to judicial methods, practically ignoring the real public
interests involved, making no effort to remedy the seri-
ous difficulties of their situation, and all this they do
with the impression, more or less sincere, that it is right.
Of no commissions does this seem to be so true as of
the older ones. Said one of these in writing to the
author: - -
“It is provided by law that the rates promulgated by
this Board are only prima facie evidence in the courts of
this state as to what reasonable rates should be. The
Board has not felt that this provision of law has been a
hardship upon the shippers of the state, but rather a safe-
guard preventing unreasonable exercise of the rate mak-
ing power. The Commissioners have never had any
hesitancy in fixing a rate which they believed reasonable,
and since the great cases of 1888 and 1889 there have
I 26 American AEconomic Asssociation t [452
been no contests in this state involving the reasonableness
of the Commission’s Schedule or amendments made there-
to from time to time. Of course, future events may
change the Opinions expressed in this matter, but from the
experience of this Board up to the present time, the Com-
missioners could hardly suggest any change in the condi-
tions in this state that would be more equitable and just
to all interests involved.”
A more astonishing statement, however, was received
from a commission which a number of years ago was
most vigorously contesting the doctrine of judicial re-
view. One senterice of its lettel leads:
“This Commission rather invites a review of their
work by the Courts, and we do not feel that it in any way
embarrasses us or causes us to hesitate in making an order
fixing what we deem to be reasonable rates.”
And the closing sentence of the letter is almost pathetic
in its ingenuousness:
“The length of time required to get a final decision
in matters of this kind is the only feature of the law that
causes any embarrassment.” -
Thus has judicial review not only fettered the hands
of the commission: it has tended to destroy their will as
well. It has, moreover, in many quarters corrupted the
very idea of public control, perverting the views and
distorting the vision of those upon whose soundness of
judgment and keenness of insight the public is relying
for its protection and welfare.
It is desired, in concluding this branch of the subject,
to make a practical application of the general ideas in-
volved in judicial review to the attitude which railroad
companies habitually assume toward proposals for rate
control. All movements in Congress to endow the Inter-
state Commerce Commission with power to regulate
rates have been vigorously resisted by the railroad lobby,
which has never been more strenuous in its opposition
than it is at the present time. So also the introduction
453] The Results of the Doctrine 127
of a bill providing for rate control in any state legislature
—as in Wiscºnsin during the recent legislative Session—
has always been a signal for sturdy and stubborn resist-
ance on the part of the companies. Now how is this
conduct to be explained? In view of the guarantee which
judicial review offers the railroads, that rates must always
yield a reasonable income, and especially in view of the
definition which the courts have given to the term reason-
able, and of the judicial methods employed in rate cases—
a definition and methods exceedingly favorable to the
corporate interests—what possible interpretation can be
placed on the railroads’ conduct except this: that it is a
confession that rates are now unreasonably high—unrea- .
sonably high even according to judicial standards of rea-
sonableness—and that, moreover, the companies desire
to maintain them where they are? What else can explain
the determined opposition of the roads? If rates are now
reasonable, and if the railroads intend to maintain them
on a reasonable basis, surely they have nothing to fear
from governmental regulation. If their schedules are
fair, even according to the liberal theories of the courts,
the government cannot touch them. Why, then, this
resistance? -
It may, indeed, be pointed out that the corporate op-
position is always directed with special force against a
provision often inserted in rate laws to the effect that the
rates shall be in full force and effect pending a review by
the courts. Under such a provision, it may be claimed.
the roads, even if they could ultimately prove the unrea-
sonableness of the commission’s rates, would have to
suffer the loss due to operating the rates while the suit
was in the courts. But the discussion offered above shows
clearly enough that there is no force in this contention.
The railroads have nothing to fear from a statutory pro-
vision of this sort. For in rate cases they repose on their
I 28 American AEconomic Association [454
constitutional rights, and to these rights statutes must al-
ways yield. Under the Constitution their property cannot
be taken by the public without just compensation; conse-
quently rates So low as to deprive of property are, in the
absence of compensation, invalid. But now the courts
have held that a railroad is entitled to immediate relief,
by injunction, from rates which seem calculated to de-
prive of property, for, such is the judicial argument—
were it to be compelled to operate the rates pending judi-
cial investigation, it would have no adequate remedy at
law for the injury it had suffered, should the rates finally
be found to be unreasonably low. Beyond a doubt the
right of the road to equitable relief is fully established.
For a legislature, therefore, to enact that rates shall be in
force until found invalid by the courts, is an attempt to
deprive the railroad of its constitutional right, and such
an enactment must consequently be unconstitutional. If
the only effective means of enforcing a constitutional
right is through a suit for immediate suspension of rates.
a statute forbidding immediate suspension must certainly
be a denial of the right, and hence must be repugnant to
the Constitution. Accordingly the federal courts have
never hesitated to grant injunctions even when the state
statutes provided that rates should be effective pending
judicial review, and there is no reason to doubt that the
same policy would be pursued in regard to federal legis-
lation, should occasion arise. Under the law as it now
stands, therefore, the railroads have no reason to fear a
Congressional enactment of the kind under discussion.
From all of which we conclude that under the doctrine
of judicial review a railroad cannot be compelled to oper-
ate, either temporarily or permanently, a rate which does
not conform to judicial standards of fairness, standards
which, we repeat, tend decidedly to the advantage of the
railroads as against the public. What else, then, can
455] The Results of the Doctrine I 29
railroad opposition to the creation of rate-making com-
missions mean, other than an admission of a desire to
charge unreasonably high rates, or a denial of the obli-
gations which railroads owe to the public?
CHAPTER VII.
REMEDIES.
Our study so far has attempted to disclose the nature
of judicial review, and its effect upon the efficiency of
railroad rate control. It remains now to inquire what
means may be suggested to overcome the difficulties which
the doctrine has raised. Those difficulties, as has been
shown, are chiefly two—the inability of a commission to
reduce rates, and its lack of power to enforce them. Ac-
cordingly this chapter will consider three classes of ex-
pedients—those suggested to relieve both difficulties,
those designed to permit greater freedom in reducing
rates, and those proposed to make enforcement possible.
I. First, then, as to suggestions for correcting both of
the difficulties. Perhaps the most obvious measure is a
constitutional amendment. Conceivably a provision
might be added to the Constitution which would affect the
Fifth and Fourteenth Amendments insofar as their rela-
tion to railroad control is concerned, and this could
doubtless be so framed as to restore to the legislative
department of government the power which it possessed
under the decision in Munn v. Illinois. The exact form
which such an amendment should take, however, it would
be fruitless to consider at the present time, for the pro-
ject is without a shred of feasibility. A constitutional
amendment is a modern miracle, and it would be folly
to rely upon it. The suggestion may therefore be dis-
missed with mere mention. .
It will be observed that the above plan is designed to
remove from the railroad the protection of the Constitut-
I3o 456
457] A’emedies. I3 I
tional amendments. A further plan, however, may be
suggested which, while according to the roads the full
benefit of the Constitution, would nevertheless obviate
the difficulties interposed by judicial review. This ex-
pedient is suggested by the very nature of the Constitu-
tional provisions. In effect, that instrument has been
interpreted as providing that no railroad company can be
deprived of its property without just compensation—in
other words, no company can, by reduced rates, be de-
prived of any part of its reasonable income unless just
compensation is made by the state. But if compensation
is provided, then such deprivation may be freely made.
This statement suggests the nature of a plan which, if
executed, would meet with at least a fair degree of ade-
quacy the demands of the situation. The trouble with
government-made rates has not been that they have been
so low as to deprive of property; the kernel of the diffi-
culty has been, as we have already seen, that they have
been imposed in the absence of any provision for com-
pensation by the state in case they should prove destruc-
tive of property. In view of this fact the courts have
brought the injunction to the relief of the railroads, hold-
ing that they should not be compelled to operate the rates
and then recoup their loss through multifarious and un-
profitable suits for damages against their patrons.
The difficulties, then, of judicial review would be rem-
edied were the state (or federal) government to adopt
Some such plan as the following:
The Commission would, as now, be empowered to fix
rates, and each railroad would be required to operate
them as soon as directed by the Commission; but it would
also be entitled to bring suit after an adequate period—
perhaps one year—the object of the suit being to disclose
whatever loss it had incurred by reason of the rates. For
the purpose of trying these cases the state might well
I 32 American Economic Association [458
create a special court, composed in part of lawyers, and in
part of men whose experience in business or public affairs
would specially qualify them for the work. If no such
court were created, however, the suits should be insti-
tuted in One of the higher courts of the state, and in either
instance the Commission should be made, on behalf of the
state, the party defendant.
In such cases as these the object of the railroad would
be the same that it is now in a suit for an injunction—to
show that the rates are so low as to deprive them of a
reasonable income on their business. The difference
would be that, whereas the courts must now estimate the
future effect of the rates on the basis of past business,
under the plan suggested the actual effect of the rates for
an adequate period of time would form the basis of their
conclusion. Should the court decide that the railroad
had not earned a reasonable income under the rates, its
further duty would be two-fold:
I. To determine the exact amount of the loss which
should be attributed to operating the rates in question.
This sum being thus fixed, unless either party elected to
appeal the case, (for, of course, the right of appeal at
least to the United States Supreme Court would always
exist) the railroad would be entitled to collect it from the
state treasury on warrant of the proper officer of the
court. Just compensation would thus be made by the
state for the property which it had taken in the public
interest.
2. The Court should also be required to indicate in its
Opinion the exact vice of the rates in question. Its
judgment, of course, would not operate to suspend the
rates, but its conclusions as to their defects would be of
great service to the commission in determining whether
any revision of the schedules would be advisable.
459] - A’emedies. I 33
..,’
Before proceeding to indicate the advantages of such
a plan as that just outlined, there are certain apparent
objections which it would be well to consider.
(I) In the first place it may be objected that the rail-
roads would be compelled to rely on the good faith of the
state; and that, if the legislature should fail to make pro-
vision for the payment of the damages, the companies
would be without means of recoupment. To this it is
sufficient to reply that the good faith of a state is not
contemptible security; that it is the only thing which any
of a state's creditors have to rely upon; also that it would
be hard to imagine a state treasury so depleted as to be
unable to meet the warrants that would be presented.
But a conclusive answer is that should any action be
taken by the state which would preclude the payment of
damages, the companies would of course be entitled to
sue at once for an injunction to restrain the enforcement
of the rates. There seems, therefore, to be little force
in this objection.
(2). But it may be contended that the scheme here pro-
posed would be expensive to the state. The best answer
is that the state would receive a consideration in return
for its money. The economic and social benefits which
would result from the application to railroads of the
principle of public utility would be worth buying, if they
could be procured in no other way.
But, on the other hand, it is believed that the actual
amount which the state would be compelled to pay in
damages would be much smaller than one would at first
suppose. Several considerations lend support to this
conviction. In the first place, the commission, realizing
that the exact effect of its rates might be disclosed to the
public, and that a mistake due to too radical action would
result in a drain on the state's finances, would be inclined
to proceed with all due care and prudence. More im-
portant, however, is the fact that the plan we are discuss-
I34 American AEconomic Association [460
ing would deprive the railroads of many of those undue
advantages which we have seen that they now enjoy as
against the public. For example, the effect of the rates
on earnings would not be determined by the court, as at
present, on the basis of past business—a basis always
unfair to the rates; but rather would their actual effect
have been observed. Moreover the system would per-
mit the practical application of the Court’s theories con-
cerning the rights of the public, the industrial condition
of community, and so forth, theories which have for the
most part found expression only in obiter dicta. The
Court would not have to rely upon conjecture, but could
observe the actual effect of the rates on the public welfare
and in relation to industrial conditions. Thus a stronger
case could be made out for the state than is possible under
the present system. And, finally, since the railroads have
to make their case on the basis of facts, it would be com-
paratively easy to detect the existence of doubt in their
allegations, and doubt would have to be resolved in favor
of the rates. There would be no suspension of rates by
temporary injunctions, on the presentation of a merely
probable case. Such are some of the more important
reasons for the belief that the suggested plan would not
prove expensive to the state in a very serious degree.
(3). But it might be urged that under the proposed sys-
tem it would be possible for a road for which a low rate
was prescribed to throw traffic temporarily to a higher
rate line, thus showing smaller earnings and, apparently,
substantial injury as a result of the rates, entitling it to
compensation by the state. This objection, however, is
not a serious one, and for many reasons. First of all, it
is to be presumed that in many cases a Commission would
make the same rate for all roads performing the same
service, so that all would have an equally strong motive
to get rid of traffic. But even should the commission's
461 | A'emedies. I 35
rate not apply to all competing lines, or should different
rates be fixed by the commission for different lines, such
practices as are here suggested could be discouraged by
being penalized, if that seemed necessary. Certainly
they would be regarded by the Court as sufficient cause
for the diminution of damages claimed by the road, and
the loss of traffic by a low rate road with corresponding
gain by a high rate road would properly be taken as evi-
dence of the practice. But would the motive to throw
over traffic be strong in any case? It is believed not.
For if the process were accompanied by a secret agree-
ment whereby the receiving road should pay a bonus on
Such traffic, the amount so paid would have to appear
among the receipts on the other company’s books some
time or other, and it is not likely that the latter would be
content to wait for it until the termination of its suit.
Moreover, such a contract could be made void and unen-
forceable at law. But it is not probable that such a secret
agreement would be omitted from the deal between the
roads, for certainly no company would esteem that it had
anything to gain by substituting for the immediate cer-
tainty of receipts from traffic the uncertainty of damages.
which, if secured at all, could be gained only by a suit at
law. All points considered, it is hard to see that the
effectiveness of the proposed plan would be in any meas-
ure frustrated by any such attempted evasion. It is
highly improbable that even a penal provision would
prove necessary.
(4). Finally it might be claimed that it would be unjust
to compel the companies to wait so long for their com-
pensation. This, however, cannot be admitted. Cer-
tainly, if the state goes so far as to concede a right to
compensation, the least which it can expect of the com-
pany is that it shall wait until that right can be estab-
lished, and that then, like all other persons to whom a
I 36 American AEconomic Association - [462
right of action has accrued, shall be content to await
the outcome of legal proceedings. -
So far we have confined our discussion to objections
which might conceivably be offered to the plan we have
proposed. What now may be said of its advantages?
Obviously its chief merit is that it meets one of the im–
portant requirements of the situation. It is a plan which
enables the state to prescribe rates made upon the prin-
ciple of public utility. The commission is not embar-
rassed by the necessity of considering the effect of its
rates upon railroad earnings. It can proceed with an
eye single to the general welfare of the community,
knowing that for any real financial injury suffered as a
consequence of the rates the roads find satisfaction in the
state treasury. Further it is a plan whereby rates may
be made immediately effective. The adequate provision
made for compensation for all loss removes the case from
the equitable jurisdiction of the courts, and abolishes the
injunction as a remedy for the roads, which can there-
fore have no legal excuse for not operating the rates at
the time fixed by the commission. The delays in en-
forcing the rates, which go so far toward destroying the
efficiency of the present system, would be unknown.
Another advantage of the proposed plan, and one of
great practical importance, is that it is thoroughly in har-
mony with the Constitution as at present interpreted, in
that it provides compensation for whatever property is
taken by the state. In the minds of many this respect
for private rights would, as a matter of theory also, form
a commendable feature. Those who believe that owners
of property devoted to a public use should receive com-
pensation for loss through public regulation of that use
could find no offence in railroad control under this sys-
tem. The demands of the most radical advocate of pri-
vate rights are fully met.
463] A’emedies. I 37
Other benefits of this plan have already been touched
upon in considering possible objections to it. Suits
brought by the roads would not, as now, throw upon the
courts the necessity of estimating the future effects of the
rates. Rather would the courts have as a basis for their
decision the actual results of a year or so of application
of the rates. No more artificial and inadequate methods
and principles would be needed. And no longer would
the numerous expressions of the courts as to limitations
upon the rights of the companies remain simply obiter
dicta, for often the facts could be found which would
make their application possible. -
Would not such a system require commissions of a
very high grade of ability? Most assuredly. Of course
it is too much to hope that in all states competent com-
missioners would at once be found. But it is believed
that the serious responsibility resting upon the boards
would by a process of selection speedily produce such an
elevation in the competence of their membership as, in
itself, would be a most auspicious event. -
But while this plan has much in it that is worthy of
commendation, it is, after all, but a make-shift. It
recognizes that an erroneous doctrine of judicial review
exists, and simply resolves to make the best of a bad
matter. It would be far better, of course, to have that
doctrine thoroughly revised and reformed, but until that
is done, such a plan as the above is worthy of considera-
tion. -
Possibly one other suggestion should be made before
leaving those measures designed to remedy both of the
evils of judicial review. It is probable that the legali-
zation of pooling and of the consolidation of parallel
lines would relieve the situation to an appreciable extent.
Doubtless one of the reasons why the roads now resist
public control so strenuously is, that the intense competi-
I 38 American AEconomic Association [464
tion which the law compels them to maintain forces them
to discriminate, that is, to accept in many cases a rate
lower than the public schedule. A law, however, giving
to pooling contracts a legal status, and permitting par-
allel roads to consolidate, would tend to do away with
competition and hence with discriminations, and would
enable each company to charge in all cases the public
1ates. With this advantage—to the roads as well as to
the public one of great value—the companics would in all
probability receive in a better spirit the public efforts at
control of rates, and it is not too much to believe that
contests as to their validity would be somewhat less
frequent.
II. We are next to consider such measures as may be
proposed to restore to the commissions a power to reduce
rates. Undoubtedly most of what can be done along
this line must come as a result of renewed and energetic
action on the part of the commissions. The existing
situation behooves them to urge constantly upon the
courts the injustice of the present judicial doctrine,—its
fundamental error in subjecting rate control to the prin-
ciples of eminent domain; but more especially the inade-
quacy of its methods, for example, its methods in find-
ing the earning power of a company under the legislative
rates. But beyond this a wide field for their activity is
to be found in the numerous “circumstances and condi-
tions ° which the Supreme Court has recognized as im-
portant in determining reasonableness of income.* These
* Supra, p. 72.
dicta, pronounced by the Court during the last ten years,
have opened the way for many new departures; and the
duty now rests on the commissions to compel the Court
to apply, or at least more accurately to define its theories.
That the commissions have not thus far seemed to see
this duty is unfortunately true. Perhaps the chief reason
465] A’emedies. I 39
is that for several years—we may say, generally speak-
ing, until after the Smyth case—the commissions were
fighting the theory of judicial review itself. They were
trying to uphold their right to be exempt from judicial
restraint. And when at last the courts positively as-
Serted their right to pass upon rates, the battle seemed
lost. Since then a chronic despondency on the one hand,
or a too willing acceptance of their fate on the other, has
kept the commissions from discovering and utilizing the
germs of opportunity contained in the opinions of the
COL11tS.
To illustrate: the commissions might call up the dicta,
restricting the right of the companies to profitable rates,
which pertain to the management of the roads; in some
cases they might show definitely wherein the management
had not been prudent or honest, and wherein the com-
panies had been guilty of unjust discrimination. They
might show that there had been needless expenditure in
the construction of the road, and so forth. So also they
might take up the dicta regarding the rights of the public
and try to make something tangible of them, putting their
Cases as fairly and as concretely as possible, especially
endeavoring to show that competition of other lines had
so reduced business that a profitable rate would be unjust
to the public. Again they might strive to prove that cer-
tain roads were built unwisely, where they were not
warranted by business conditions; or they might offer
definite evidence to show that the industrial condition of
the community demanded the rates in question.
It was noted, in discussing these dicta, that the courts
were most hesitant to apply them, and that in the few
cases where they have formed a part of the state's con-
tention, the Supreme Court has refused to apply them.
It must be admitted, however, that few of the dicta have
ever been urged with great force, nor have the contentions
I4o American AEconomic Association [466
based upon them been often supported by perfectly ade-
quate evidence. By itself, however, in the absence of
evidence, a court can do nothing about them; unless facts
are presented as a basis upon which to proceed, it cannot
make a concrete application of them. Unless the com-
missions realize this fact, and act accordingly, all the
dicta must forever remain simply dicta. But if the com-
missions care to undertake the confessedly difficult task
of establishing a connection between these dicta and facts
which will make good evidence, it is not unlikely that in
time the doctrine of judicial review will be still further
refined by a new body of rules and principles which will
offer some firm foothold to the agencies of public regula-
tion.
Beyond these mere obiter dicta, however, further op-
portunities present themselves to the commissions. Under
a recent decision of the Supreme Court,” it is possible for
a commission from time to time to re-adjust the rates on
single commodities. Though such re-adjustment might
involve a considerable reduction in those particular rates.
it would be hard for a railroad to prove their invalidity,
for the Court has held that a road is not entitled to the
same rate of profit on all commodities, and, further, that
it is not a sound complaint to say that if the same reduc-
tion were made in the rates on all articles, the company
could not secure reasonable income. This decision enables
a commission, therefore, to effect a gradual revision of
schedules, by dealing with single articles, or a few articles
Only, at any one time. -
A somewhat similar opportunity is presented by the
decision in the Gill case, where it was held that rates
would not be suspended when the company could show,
as a consequence of them, a loss upon only a part of its
road. Under this rule, a commission might make re-
* Minneapolis and St. Louis R. Co. v. Minnesota, I86 U. S. 257.
467] A’emedies. I4I
ductions affecting all commodities, but only on such a
portion of the road that it would be impossible for the
Company to show a general loss on all its local operations
Now, it is, of course, admitted that the utility of these
two expedients could not well be as great as would at
first appear. They offer a means for but lame and halting
progress in public control. A commission would not
always wish to make all the re-adjustments possible under
these two decisions, for such action might not be at all in
accord with the principle of public utility. That is to
say, considerations of the general welfare might, and in
many cases would forbid that rates be lowered on certain
commodities, or between certain points, while rates on
other commodities and between other points remained
unchanged. This is evident, and therefore it is apparent
that the two measures just suggested would have to be
employed with rare prudence and discrimination. They
could never lead to a full expression of the principle of
public utility, nor could they ever produce entirely satis-
factory conditions in the railroad industry. But as oc-
casional expedients, in special cases, they might surely
prove of use to the commissions.
III. We come finally to a consideration of remedies
for the present inability of a commission to enforce its
rates. Perhaps the first thought which occurs in this
connection is that immediate enforcement of rates might
be made possible through an act of Congress regulating
_the procedure of the federal courts in rate cases in such
a manner as to prevent the issue of injunctions. At the
close of the last chapter, however, we indicated our con-
viction that such a statute would be held unconstitutional.
For equitable relief is now granted because it is held to
be the only adequate remedy which the roads would
possess—the only effective means of maintaining their
constitutional rights. Therefore an act which deprived
I 42 American AEconomic Association [468
them of this means would, in all probability, be construed
as denying the constitutional protection to the roads, and
would consequently be declared void. It is practically
certain, therefore, that this suggestion would not be
fruitful of good. If an act were to be passed forbidding
the temporary injunction only, as has recently been pro-
posed by Senator Bailey in the United States Senate,
there would perhaps be some possibility of its validity,
but even that is very doubtful.
Another plan, not, indeed, to secure prompt enforce-
ment of rates, but to remedy the evils resulting from non-
enforcement has been repeatedly suggested and has been
adopted in a few states. It gives to the company the
privilege of refusing to operate the commission’s rates,
but requires that it file with some public officer a bond to
secure the repayment to each shipper of the difference
between the rates charged and the commission’s rate,
should the latter be finally held to be valid. The objec-
tion to this scheme is to be found in the long period of
time required to get a final ruling—a period as long,
frequently, as four or five years. This is time enough
for the company’s rates to do damage which an ultimate
repayment of overcharge could never repair. A business
ruined is not restored by the mere transfer of a sum of
money. -
State statutes have frequently provided for a speedy
trial of such rate cases as may be brought in state courts.
Rate cases are given precedence over others, except, usu-
ally, criminal cases, and the procedure is directed to be of
an expeditious and summary character. Such provisions
regarding the trial of cases in the federal courts would
do something toward securing more speedy enforcement
of rates. So also would the creation of a special com-
merce court, such as has recently been proposed in Con-
gress, and elsewhere. Even under the most favorable
469) A’emedies. I 43
circumstances, however, it must be admitted that the trial
of a case would drag behind the march of industrial
events. Such proposals as these must be looked upon as
remedies which are simply partial, and leave much else to
be done.
One final suggestion is offered. The difficulties pre-
sented by the doctrine of judicial review might be in part
avoided were the schedules imposed by the state to err
more on the side of conservatism than of radicalism.
Much has been lost in the past through too sweeping
changes, too great reductions in rates. An effort has
been made to reach the goal at one bound, the state not
being content to patiently work out, through a period of
years, what it considered a fair standard of charges. The
Nebraska Maximum Rate Law, overthrown in Smyth v.
Ames, furnishes an apt illustration. The Court deter-
mined that the statute lowered existing rates by twenty-
nine and one-half per cent., and this, it must be admitted,
was a large reduction to be made at one time. It will be
recalled that seven roads were involved, each making a
showing for three years. Now, from the figures given
in the opinion of the Court it may easily be computed that
had the statute reduced existing rates only thirteen and
one-half per cent., a very different result might have been
reached by the Court. For in that event according to the
methods of the Court, in sixteen out of the twenty-one
cases the rates would have made possible the payment of
expenses. One road would, indeed, have showed a loss
for each of the three years, and two others a loss for one
year apiece; but in the sixteen cases the average excess of
percentage of receipts over percentage of expenses would
have been a fraction over eleven. Thus in regard to at
least six of the roads that statute would have had more
than a fighting chance, and might possibly have been
upheld.
I 4.4. American AEconomic Association [47.o
These facts illustrate the proposition that more can be
gained by moderate reduction, which the railroads would
hardly venture to contest or would be defeated in contest-
ing, than by Sweeping changes which are almost sure to
meet with judicial condemnation. It is true that such
conservative action postpones the day when, if ever, the
ideal basis of rates can be established, but it accomplishes
Something instead of nothing. It means victory for the
State, instead Uſ (leſeat.
It is obvious from what has been said that the problem
raised by the doctrine of judicial review demands for its
Solution patient, wise, and energetic conduct on the part
of the commissions, and thoughtful consideration on the
part of the public. Upon the commission rests the re-
sponsibility and duty of seizing the opportunities which,
as suggested above, have been offered by the dicta and
rulings of the Supreme Court. This duty should be
discharged and would beyond a doubt be productive of
much good, though, of course, it could never furnish a
satisfactory solution of the problem. After all, some
more sweeping reform is needed. Doubtless the thing
most to be desired is a revision of the judicial doctrine by
the courts, restoring to the legislative department of
government its full and proper authority. In the absence
of this highly improbable reform, however, some other
expedient is necessary to meet the demands of the situa-
tion. The plan of compensation, suggested in this chap-
ter, would perhaps meet them in a more thorough and
generally satisfactory way than any other. While com-
plying with the requirements of the Constitution as inter-
preted by the Supreme Court, and satisfying fully the
most extravagant claims of private rights as against the
public, it would nevertheless give to the commission the
opportunity of adopting public utility as the controlling
principle in rate making, and of giving efficient expres–
471] A’emedies. I45
sion to that principle; and this is the ideal of railroad
control. Industrial well-being can never be a reality so
long as railroads are operated on the commercial prin-
ciple of private advantage; nor is it attainable under our
present conglomerate system where that principle still
controls, though modified in some particulars. It can be
achieved only when the realization that the railroad in-
dustry is a public business of fundamental importance to
society, shall lead to the definite adoption of the principle
of public utility as the guiding and controlling influence
in railroad management. State ownership would make
this possible, but state ownership has very many serious
objections. With a system of private management it
will be possible only when the problem of judicial review
is solved. Under such circumstances, it is easy to per-
ceive the significance of the plan which this work pro-
poses, or of any other which can more readily accomplish
the desired end.
1876.
1883.
1884.
Vºz 1886.
I895.
1896.
1897.
I46
LIST OF CASES.
UNITED STATES SUPREME COURT.
Munn v. Illinois, 94 U. S. II.3.
Chicago, Burlington, and Quincy Rd. Co. v. Iowa, 94 U. S. 155.
Peik v. Chicago and Northwestern Ry. Co.; Lawrence v.
Same, 94 U. S. I64. -
Chicago, Milwaukee, and St. Paul Ry. Co. v. Ackley, 94 U. S.
I79.
Winona and St. Peter Rd. Co. v. Blake, 94 U. S. 180.
Southern Minnesota Rd. Co. v. Coleman, 94 U. S. 181.
Stone v. Wisconsin, 94 U. S. 181.
Ruggles v. Illinois, IoS U. S. 526.
Illinois Central Rd. Co. v. Illinois, Io& U. S. 54I.
Spring Valley Water Works v. Schottler, IIo U. S. 347.
Stone v. Farmers' Loan and Trust Co., 116 U. S. 307.
Stone v. Illinois Central Rd. Co., II6 U. S. 347.
Stone v. New Orleans and Northeastern Rd. Co., II6 U. S. 352.
Wabash, etc. Rd. Co. v. Illinois, II8 U. S. 557.
Dow v. Beidelman, I25 U. S. 680.
Georgia Railroad and Banking Co. v. Smith, 128 U. S. 174.
Chicago, Milwaukee, and St. Paul Ry. Co. v. Minnesota, 134
U. S. 418.
Minneapolis Eastern Ry. Co. v. Minnesota, I34 U. S. 467.
Chicago and Grand Trunk Ry. Co. v. Wellman, 143 U. S. 339.
Budd v. New York, 143 U. S. 517.
Brass v. Stoeser, I53 U. S. 391.
Reagan v. Farmers’ Loan and Trust Co., 154 U. S. 362.
Same v. Mercantile Trust Co., I54 U. S. 413.
Same v. Same, 154 U. S. 418. -
Same v. Farmer's Loan and Trust Co., I54 U. S. 420.
St. Louis and San Francisco Ry. Co., v. Gill, I56 U. S. 649.
Same v. Stevenson, I56 U. S. 667.
Same v. Trimble, I56 U. S. 667.
Covington and Lexington Turnpike Road Co. v. Sandford,
I64 U. S. 578.
Chicago, Burlington, and Quincy Rd. Co. v. Chicago, I66
U. S. 226.
[472
473]
Alist of Cases. I 47
1898.
1899.
I900.
IQOI.
ICO2.
I88I.
I888.
1891.
1892.
I894.
1896.
IQOI.
Smyth v. Ames, I69 U. S. 466; 171 U. S. 361.
Same v. Higginson, I69 U. S. 466; 171 U. S. 361.
Same v. Smith, 169 U. S. 466; 171 U. S. 361.
Lake Shore and Michigan Southern Ry. Co. v. Smith, 173
U. S. 684.
San Diego Land and Town Co. v. National City, 174 U. S. 739.
Chicago, Milwaukee, and St. Paul Ry. Co. v. Tompkins, 176
U. S. I67.
Cotting v. Kansas City Stock Yards Co., 183 U. S. 79.
McChord v. Louisville and Nashville Rd. Co., 183 U. S. 483.
Louisville and Nashville Railroad Co. v. Kentucky, 183 U. S.
503.
Minneapolis and St. Louis Rd. Co. v. Minnesota, I86 U. S. 257.
LOWER COURTS.
Tilley v. Savannah, etc. Rd. Co., 5 Fed. Rep. 641. -
Minnesota v. Chicago, Milwaukee, and St. Paul Ry. Co., 38
Minn. 281.
Chicago and Northwestern Ry. Co. v. Dey, 35 Fed. Rep. 866.
Chicago, St. Paul, Minneapolis, and Omaha Ry. Co. v. Becker,
35 Fed. Rep. 883.
Pensacola, etc. Rd. Co. v. Florida, 25 Fla. 310.
Cleveland Gaslight and Coke Co. v. Cleveland, 71 Fed. Rep.
610.
Mercantile Trust Co. v. Texas and Pacific Ry. Co., and four
other cases (the Reagan cases), 51 Fed. Rep. 529.
Ames v. Union Pacific Ry. Co., 64 Fed. Rep. I65.
New Memphis Gas and Light Co. v. Memphis, 72 Fed. Rep.
952.
Atlantic and Pacific Rd. Co. v. United States, 76 Fed. Rep. 186.
Southern Pacific Rd. Co. v. Railroad Commissioners, 78 Fed.
Rep. 236. -
Chicago, Milwaukee and St. Paul R. Co. v. Smith, IIo Fed.
Rep. 473.
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GIORNALE
DEGLI ECONOMISTI
SON1N1ADIO.
LA SITUAZIONE DEL MERCATO MONETARIO. . x.
DEL COSTO DEGLI SCIOPERI PER LA CLASSE | R- RACHI
LAVORATRICE . . . . . . . . cºi
«º e sº G. MoNTEMARTINI J
NOTE DI METODO SULLA STATISTICA DEGLI
SCIOPERI º º º i de o a º o - A, CARONCINI
IL'ESERCIZIO FERROVIARIO DI STATO IN
ITALIA as º º . F. TAJANI
CRONACA –(Canzenzioni e iquidazioni ferroziarie) F. PAPAFAva
CENNO NECROLOGICO DI ABEL E MORENA . R. DALLA voLTA
DIREZIONE, VITV MONTE SAVELLO, PALAZZO OPSINI
IP O N 1 A
Pag.
I 4
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