must be expended to keep the road-bed and other permanent structures and the rolling stock in a going condition, but a certain other amount, although necessary to keep the property good in the long run, may be laid out sooner or later according to the will of the management. For example, rails must be relaid but the time of relaying can usually be varied for a considerable period. So in the renewal of a bridge or a culvert there is a leeway of years usually. A car or an engine can be used after good economy would require its abandonment. The building of station can be postponed almost indefinitely. From these considerations it results that the management can without taking from or adding to the items which are actually needed to keep the property good vary for a particular year or even for a series of years by several hundred dollars per mile the cost of operation and thereby the net results.

"In addition to this the amount charged to maintenance may be greatly varied by the manner in which the accounts are kept. A new car is purchased in the place of an old one. It is largely more efficient and more expensive. What part of it shall be charged to maintenance and what part to permanent improvement? So of the replacement of rails, bridges, culverts, depots and whatever enters into the construction and equipment of a railroad. Some railroads carefully separate what is properly maintenance from what is strictly an addition; others are liberal in the making of these distinctions, charging more to maintenance and renewal and less to betterment, while still others charge all improvements against operating expenses. The general tendency in all parts of the country is to charge more to operation than formerly."

§ 414. Expense of equipment and maintenance.

As the public service company is obliged to provide a sufficient equipment for the proper accommodation of the public, and to keep all its appliances and premises in good condition, the cost of maintaining the equipment is of course to be repaid from the

rates.

Thus, in the case of a ferry, the court in passing on the reasonableness of a rate considered that the owner of the ferry "is compelled, in the operation of the ferry, to keep for the accommodation of the public two large boats for the transportation of vehicles, a waiting boat, a large flat outside waiting boat, for convenience in getting in and out of skiffs, four skiffs, a large reflecting lamp, that throws light across the river; and that she owns, and is compelled to keep in repair and free from mud, the approaches to the ferry on both sides, and employ regularly two men, and frequently three or four additional hands to perform the necessary work."8

415. Cost of rolling stock.

The expense from use of rolling stock constitutes one of the heavy items in the operating charges of a railroad. As has been pointed out, this is a charge which tends to increase rather than diminish. In a recent proceeding before the Interstate Commerce Commission the ground was gone over in a thorough manner, as the following extract will show:9 "One of the most important items which enter into the expense of railroad operation is the cost of equipment. For the purpose of arriving at some satisfactory opinion on this subject the Commission examined in this proceeding the first vice-president of the American Car and Foundry Company and in another similar proceeding the general manager of the construction department of the Pullman Company. The testimony of these gentlemen agrees.

"The cost of building a car also of necessity varies with the changes in cost of materials and labor which have been about the same in the car shop as in other railroad operations. What should be especially noted, and what largely accounts for the apparent great increase in price is the fact that the car of to-day differs radically from the car of ten or twelve years ago. The

8 Troutman v. Smith, 105 Ky. 231, 48 S. W. 1084 (1899).

9 Rates from St. Louis to Texas Points, 11 I. C. C. Rep. 238 (1905).

capacity of the modern car is much greater. The coal car of 1892, which sold for $600, had a capacity of 25 or 30 tons. The coal car of 1902, which sold for $1,100, was a steel car with a capacity of 50 tons. This increase in capacity has been secured without a corresponding increase in the weight of the car. Taking the increase in capacity at 100 it was said that the corresponding increase in weight would be approximately 75. This adds, as will be more fully explained later, to the efficiency of the car by increasing the amount of paying freight in comparison with the dead weight. There are also many improvements in the construction of cars which add to the ease and convenience of operation but which also add something to the cost of the car."

"The evidence as to the cost of locomotives is less complete than in case of cars. Engines, like cars, are of much greater capacity than formerly, and they are also equipped with many improved devices which are supposed to add to the value in actual operation. In units of tractive power, the difference is less when given by the engine. Even when so measured we are inclined to think that they were distinctly higher in 1902 than in 1892. The ownership of the various locomotive works of the United States has been so adjusted within the last few years that 'suicidal competition' no longer exists; and this fact is easily observed in the price which railways are compelled to pay."

S416. Cost of supplies.

The articles which a railroad company has occasion to buy are very numerous. Some of these are extensively used, others only in limited quantity. Evidently no general average can be constructed which is reliable without knowing the quantity which is used of cach article. "An advance in the price of coal would be of vital consequence to a railway and would be in no wise offset by a corresponding decline in feather dusters." These are general questions considered in passing upon the reasonableness of rates. The prices of almost all supplies used in railway construction and operation have advanced phenomenally in recent years.

"It seems unnecessary to enter into a consideration of this aspect of the case in much detail, but this general observation may be made: Between May, 1900, and May, 1902, some articles had declined, others advanced. Steel rails, for example, had fallen in price, ties and other lumber had increased. On the whole it fairly appears that there was between those two dates a distinct increase, though not great, in the average cost of railway material."10

417. Salaries of officials.

The reasonable salaries of officials must, of course, be paid, as part of the annual charges; but these salaries must not be fixed at an extravagant amount. If a group of stockholders who controlled a majority of the stock could vote themselves enormous salaries and deduct the amount from the receipts of the company before making a return to capital, the highest possible rates might be justified, and the rights of the public be ignored. This question was considered, and well discussed, by Mr. Justice Brewer in Chicago and Grand Trunk Railway v. Wellman:111 "It is agreed that the defendant's operating expenses for 1888 were $2,404,516.54. Of what do these operating expenses consist? Are they made up partially of extravagant salaries,-fifty to one hundred thousand dollars to the president, and in like proportions to subordinate officers? Surely, before the courts are called upon to adjudge an act of the legislature fixing the maximum passenger rates for railroad companies to be unconstitutional, on the ground that its enforcement would prevent the stockholders from receiving any dividends on their investments, or the bondholders any interest on their loans, they should be fully advised as to what is done with the receipts and earnings of the company; for, if so advised, it might clearly appear that a prudent and honest management would, within the rates prescribed, secure to the bondholders their interest, and to the stock

10 Re Advances in Freight Rates, 9 I. C. C. Rep. 382 (1902). 11 143 U. S. 339, 36 L. Ed. 176, 12 Sup. Ct. 400 (1892).

holders reasonable dividends. While the protection of vested rights of property is a supreme duty of the courts, it has not come to this: that the legislative power rests subservient to the discretion of any railroad corporation which may, by exorbitant and unreasonable salaries, or in some other improper way, transfer its earnings into what it is pleased to call 'operating expenses.' We do not mean to insinuate aught against the actual management of the affairs of this company. The silence of the record gives us no information, and we have no knowledge outside thereof, and no suspicion of wrong. Our suggestion is only to indicate how easily courts may be misled into doing grievous wrong to the public, and how careful they should be to not declare legislative acts unconstitutional upon agreed and general statements, and without the fullest disclosure of all material facts."

§ 418. Estimating labor cost.

seems.

Estimating labor cost is by no means so simple a process as it In one important case before the Interstate Commerce. Commission 12 recently this matter was examined rather elaborately, as the railways affected claimed the right to advance rates by reason, for one cause, of the increase in wages. On that point the Commission said in part: "The railroads insist that this advance in the per diem wages does not represent the actual increase in the cost of the labor itself for the reason that owing to the regulations and requirements of the various labor organizations that labor is less efficient. For illustration, a station agent formerly did the work of a telegraph operator whereas to-day two persons must be employed. Without expressing any opinion as to the reasonableness of these regulations and requirements we are inclined to think that the claim is well taken and that there has been for various reasons a loss, as compared with ten or twelve years ago, in the quantity of work which a day's labor means.

12 Rates from St. Louis to Texas Points, 11 I. C. C. Rep. 238, 251.