erty. What the company is entitled to ask is a fair return
upon the value which it employs for the public convenience.
On the other hand, what the public is entitled to demand is
that no more be exacted from it for the use of a public high-
way than the services rendered are reasonably worth.

Mr. Justice Brandeis, who has strongly criticized the method adopted in Smyth v. Ames for determining the basis upon which a fair return is to be reckoned, said in his dissenting opinion in Southwestern Bell Telephone Co. v. Public Service Commission (1923), 262 U. S. 276, 290:

The so-called rule of Smyth v. Ames is, in my opinion, legally and economically unsound. The thing devoted by the investor to the public use is not specific property, tangible and intangible, but capital embarked in the enterprise. Upon the capital so invested the Federal Constitution guarantees to the utility the opportunity to earn a fair return. Thus, it sets the limit to the power of the State to regulate rates. The Constitution does not guarantee to the utility the opportunity to earn a return on the value of all items of property used by the utility, or of any of them. The several items of property constituting the utility, taken singly, and freed from the public use, may conceivably have an aggregate value greater than if the items are used in combination. The owner is at liberty, in the absence of controlling statutory provision, to withdraw his property from the public service; and, if he does so, may obtain for it exchange value.

But so long as the specific items of property are employed by the utility, their exchange value is not of legal significance.

The investor agrees, by embarking capital in a utility, that its charges to the public shall be reasonable. His company is the substitute for the State in the performance of the public service; thus becoming a public servant. The compensation which the Constitution guarantees an opportunity to earn is the reasonable cost of conducting the business. Cost includes not only operating expenses, but also capital charges. Capital charges cover the allowance, by way of interest, for the use of the capital, whatever the nature of the security issued therefor; the allowance for risk incurred; and enough more to attract capital. The reasonable rate to be prescribed by a commission may allow an efficiently managed utility much more. But a rate is constitutionally compensatory, if it allows to the utility the opportunity to earn the cost of the service as thus defined.

The best discussion of rate-making to be found in the reports is the masterly opinion of Justice Hughes in the Minnesota Rate Cases (1913), 230 U. S. 352. See also Georgia Railway & Power Co. v. Railroad Commission of Georgia (1923), 262 U. S. 625. As to the various factors which may enter into the value upon which the carriers are entitled to a fair return, see Cleveland, C. C. & St. L. Ry. v. Backus

(1894), 154 U. S. 439; Cumberland Telephone & Telegraph Co. v. Memphis (1908), 187 Fed. 875 (original investment); Illinois Centra! Ry. v. Interstate Commerce Commission (1907), 206 U. S. 441 (expenditure for permanent improvements); Railroad Commission of Louisiana v. Cumberland Telephone & Telegraph Co. (1909), 212 U. S. 414 (depreciation fund as part of capital); Omaha v. Omaha Water Co. (1910), 218 U. S. 180; Cumberland Telephone & Telegraph Co. v. Louisville (1911), 187 Fed. 637 (going value); Consolidated Gas Co. v. City of New York (1907), 157 Fed. 849 (franchise value); San Diego Land & Town Co. v. Jasper (1903), 189 U. S. 439; Public Service Gas Co. v. Public Utility Board (1913), 84 N. J. Law, 463 (present value of plant); Knoxville v. Knoxville Water Co. (1909), 212 U. S. 1; Willcox v. Consolidated Gas Co. (1909), 212 U. S. 19; C. H. Venner Co. v. Urbana Waterworks (1909), 174 Fed. 348; Steenerson v. Great Northern Ry. (1897), 69 Minn. 353 (present cost of reproduction).

The regulation of rates, particularly of carriers, is comprehensively treated in Beale and Wyman, Railroad Rate Regulation (2nd edition). On the making of rates, see Noyes, American Railroad Rates; Hammond, Rate Theories of the Interstate Commerce Commission. On questions of valuation see Floy, Valuation of Public Utility Properties; Foster, Engineering Valuation of Public Utilities and Factories; Hayes, Public Utilities: Their Cost New and Depreciation; Wyer, Regulation, Valuation, and Depreciation of Public Utilities; Whitten, Valuation of Public Service Corporations, and Supplement; H. W. Edgerton, Value of the Service as a Factor in Rate Making, Harvard Law Review, XXXII, 516; R. L. Hale, The Supreme Court's Ambiguous Use of "Value" in Rate Cases, Columbia Law Review, XVIII, 208; R. H. Whitten, Fair Value for Rate Purposes, Harvard Law Review, XXVII, 421.

On the Kansas Court of Industrial Relations, one of the most interesting and valuable efforts yet made for the purpose of saving the public from the disastrous results of industrial disputes, see Henry J. Allen, The Party of the Third Part: The Story of the Kansas Industrial Relations Court; J. H. Bowers, The Kansas Court of Industrial Relations; H. Feis, The Kansas Court of Industrial Relations, Its Spokesmen, Its Record, Quarterly Journal of Economics, XXXVII, 705. The whole law governing business affected with a public interest is fully and admirably treated in Wyman, Public Service Corporations. See also an able article by C. K. Burdick, on "The Origin of the Peculiar Duties of Public Service Corporations" in Columbia Law Review, XI, 515, 616, 743.

Table of
of Cases

In this table of cases are included (1) the principal cases of which the body of the collection is composed; (2) all the cases which are described or from which extracts are given in the principal cases; (3) all the cases cited in the editor's notes. The names of the principal cases and the pages of this volume on which they may be found are printed in italics.