It is plain that a railroad company may have nothing to do with the principle of equalization, and shippers whose original disadvantages remain have no legal redress. "The complainants introduced considerable testimony to show the cost of producing corn and wheat in northwest Iowa, for the purpose of demonstrating that at the present rate it was not possible for the farmer in that section to embark in this industry at a profit. Very little has been said in reference to this aspect of the case upon the argument, and probably very little could be consistently said. If the farmer cannot, in a given locality, raise and ship produce to market at a profit upon the existing freight rate, that is usually no reason why the carrier should be compelled to accept less than a reasonable sum for its service." 10

488. Competition as a factor affecting the particular rate. But while the "law of increasing returns" cannot be pressed too far, it contains an element of truth which may be considered in fixing a particular rate. If traffic may be acquired by a specially low rate which would otherwise be lost, to acquire the traffic would benefit rather than burden other traffic of a different kind, since if under the law of increasing returns it is remunerative, the profit thus earned will tend to diminish the rates charged on the remaining traffic. On this ground competition may be considered as a factor in fixing rates. If a carrier is carrying goods from two stations, at one of which there is competition, the rate at the station where the competition exists may fairly be reduced, so far as is absolutely necessary to secure the traffic, provided the reduced rate remains a remunerative one under the law of increasing returns. If the rate were not reduced, ex hypothesi, the traffic would be lost, and the profit realized upon it must be exacted from the non-competitive traffic; if on the other hand the rates were reduced equally all over

10 Prouty Com. in Grain Shippers' Assoc. v. Illinois Cent. R. R., 8 I. C. C. Rep. 158 (1899).

the road, the carrier could not earn a fair return from his whole schedule, since we are assuming that the necessary competitive rate is so low as to be profitable only as a result of the law of increasing return. The same result will follow if the competition affects not a particular station but a particular class of goods. It is therefore always fair even to the shipper who does not get the benefit of the competition to consider competition as a factor in reducing the rate.11

§ 489. Conclusion as to proportionate rate.

As a result of these considerations, the conclusion may be drawn that a proportionate rate must be established for each article of traffic. This rate will be fixed according to the share of the entire burden of charge which ought reasonably to be borne by that particular article. In determining the reasonable share of the burden to be borne by an article, various considerations must be weighed, and the rate when finally established will be determined as a result of all such considerations. It must be clear, therefore, that the establishment of the particular rate is not, like the establishment of the general schedule of charges, a matter which can be tested by a mathematical formula. The division of rates among the particular commodities involves judgment and experience; it is not an exact division, but only the closest possible approximation to fairness.

Thus in speaking of the requirement of the Federal Interstate Commerce Act of 1887, section 1, that rates should be reasonable and just, the Interstate Commerce Commission has said: "The words reasonable' and 'just' as used in the Statute, as applied to rates, are each relative terms. They do not mean to imply that the rates upon every railroad engaged in interstate commerce shall be the same or even about the same. The conditions and circumstances of each road surrounding the traffic and which enter into and control the nature and character

11 Competition as a factor is discussed in §§ 530-537, infra.

of the service performed by the carrier in the transportation of property, such as the cost of transportation, which involves volume or lightness of traffic, expenses of construction and of operation, competition in some respects of carriers not subject to the Law, rates made by shorter and competing lines to the same points of destination, space occupied by freight, value of freight and risk of carriage to carrier, all have to be considered in determining whether a given rate is reasonable' and 'just.'" 12

§ 490. Classification the method of establishing the particular rate.

The division of rates is accomplished by the classification of all articles into certain groups, and then fixing the rate for each group. In classification, as will be seen, all the factors which have been discussed are considered; and it is by affecting the classification that such factors usually influence the particular rate. The classes having been established, it is necessary next to determine the difference of rate between the classes, which may be effected by establishing a certain proportion between the various class rates. Finally, it remains to fix the charge according to the length of journey; and this may be done by fixing the rate between individual stations, or by grouping the stations, and fixing the rate with reference to an entire group.

§ 491. All factors enter into the determining of a particular

rate.

A particular rate thus is a resultant of many factors. While there are certain economic forces which must be recognized as playing a legitimate part in the establishment of a particular rate, it is the office of the law to interfere to prevent the working out of these forces in an oppressive way. For experience

12 New Orleans Cotton Exchange v. Illinois Cent. R. R., 2 Int. Com. Rep. 777, 3 I. C. C. Rep. 534 (1890).

has shown that the regulation of rates cannot be safely left to natural processes, but the law must often be called upon to prevent the distribution of the burden of rates in a disproportionate manner. But in a conservative handling of the rate problem, these economic conditions are taken into account and allowed some scope. Thus in one proceeding in passing upon rates upon corn, the Interstate Commerce Commission said: 13 "What part of the whole burden of maintaining the roads must the corn pay? How much shall be apportioned to corn and agricultural products and how much to the machinery used? How much on the necessaries and comforts used? We think no better rule applicable to the matter under investigation than that applied by railroads themselves, in accordance with which rates are so adjusted as to secure the largest interchange of commodities. This rule is approved by its frequent application in the movement of western grain through the voluntary action of the roads. Put such a rate on corn as will encourage and warrant its movement if such a rate is fairly remunerative. While rates should not be so low as to impose a burden on other traffic they should have reasonable relation to cost of production and the value of the transportation service to the producer and shipper. In the carriage of the great staples which supply an enormous business, and which in market value and actual cost of transportation are among the cheapest articles of commerce, rates yielding moderate profit are both justifiable and necessary. The rates which we have determined upon as reasonable have been arrived at on this basis."

13 Re Rates upon Food Products, 3 Int. Com. Rep. 93 (1890).

CHAPTER XVII.

LEGAL LIMITATIONS UPON MAKING PARTICULAR RATES.

TOPIC A- -CERTAIN LIMITATIONS FUNDAMENTAL.

§ 500. Rates must be fair to the company and to the public.

501. Limitations within which rates must be made.

502. Unreasonable regulation forbidden.

503. Value of the services constitutes maximum limit of charge.

504. Company cannot make unreasonable rates.

505. Reasonable rates not necessarily profitable.

506. Company cannot justify exorbitant profits.

507. Application of these principles to passenger fares.

TOPIC B- -BASING RATES UPON COST OF SERVICE.

§ 508. Difficulties in dividing joint costs.

509. Cost of service different for different railroad systems.

510. Cost of service different for different parts of the same system.

511. Cost of service estimated from special expenditures in moving

goods.

512. Rule of proportionality in sharing costs.

513. Law of decreasing costs.

514. Cost of service a principle applicable to passenger fares.

TOPIC C-RATES REASONABLE IN THEMSELVES.

§ 515. External standards of reasonableness.

516. The carrier is entitled to reasonable compensation.

517. Current rates for other transportation.

518. Evidence inadmissible unless conditions are similar.

519. Comparison of rates between different localities unjustifiable. 520. Discussion of Cotting v. Kansas City Stock Yard Company. 521. Discussion of Canada Southern Railway v. International Bridge

Company.

522. Principles of usual rates peculiarly applicable to passenger fares.