accurate; but it seems to me that it is not beyond the fair value of the property, as it is shown to have been built up and constituted, and to exist to-day as a going business concern, and that such rates of fare for the carriage of persons and property as are reasonable, considered with reference to the cost of the carriage and the value of the carriage to the one for whom the service is rendered, cannot be reduced by the force of state law to such a scale as would appropriate the value of this property in any measure to the use of the public without just compensation to the owners thereof, and would deprive the owners thereof of the equal protection of the law guarantied by the constitution of the United States, as cited. § 63. Value as a producing factor-Circuit Judge Simonton in Mathew v. Corporation Commissioners, 1901. In Mathew v. Board of Corporation Commissioners of North Carolina, 106 Fed. 7, decided February 5, 1901, the reasonableness of certain freight rates fixed by the North Carolina Corporation Commission was involved. The special master who heard the case reported in favor of sustaining the rates, and his report was confirmed by Circuit Judge Simonton, who, in the course of his opinion, says (at page 9): The basis of all calculations as to the reasonableness of rates is the fair value of the property used for the convenience of the public,-not its cost, nor the amount of money expended upon it, but its value as a producing factor, taking into consideration its location, character of the country through which it passes, and the reasonable expectation of business coming to it. The railroad company is entitled to a fair return upon the value of the property, ascertained in this way, and it is not entitled to exact from the public more than this. To this question, so difficult in its solution, and so often, after the best effort, unsatisfactory in its result, the special master devoted much consideration. He puts the value of the railroad property a little below, and calls it, in round numbers, $3,000,000. It may have indeed, probably has-cost more than this. But, in estimating the value of the property, we must take, not what was its value in the past, nor what it cost, nor what it would cost to duplicate it, nor its probable future value, but the estimate must be based on its present value. Omet. § 64. Market value-District Judge Trieber in Arkansas Rate Cases, 1911. In re Arkansas Rate Cases, 187 Fed. 290, decided May 3, 1911, United States Circuit Court, is a suit to enjoin the enforcement of freight and passenger tariffs promulgated by the Arkansas Board of Railroad Commissioners. In granting a permanent injunction District Judge Trieber says (at pages 310, 319): By the acts of complainants the court is relieved of a very difficult problem, that of the valuation of the property. In the bills of complaint the railroads only ask for compensatory rates on the basis of valuation according to the assessment of their property for taxation by the state of Arkansas made by the State Board of Railroad Assessors. Its reasonableness is, of course, conceded by the defendants, and therefore there is no necessity for the court to determine what rules should govern in ascertaining what the investments on which complainants are entitled to a reasonable compensation are. It is proper to state here that it is agreed by the parties that the assessments for taxation in the state of Arkansas are on a basis of 50 per cent. of the real value of the property, and that these assessments were made on that basis. For this reason the assessments must be doubled to ascertain the real value of the property. The values of the two roads in this State thus assessed, when doubled, are: Iron Mountain. .$39,986,564 ... The value of every investment or property is measured, to a large extent at least, by the value of its use, not by its use divorced from its value. The value of a railroad for taxation, it has been uniformly held by the courts, may properly be deter mined by the value of its bonds and stocks. Without citing the numerous cases decided by the courts, both state and national, approving this method of assessing railroad, telegraph, and other property of this nature, the following may be referred to: State Railroad Tax Cases, 92 U. S. 575, 23 L. ed. 663; Kentucky Railroad Tax Cases, 115 U. S. 321, 6 Sup. Ct. 57, 29 L. ed. 414; Western Union Telegraph Co. v. Massachusetts, 125 U. S. 530, 8 Sup. Ct. 961, 31 L. ed. 790; Pullman Co. v. Pennsylvania, 141 U. S. 18, 11 Sup. Ct. 876, 35 L. ed. 613; Columbus Southern Railway Co. v. Wright, 151 U. S. 470, 14 Sup. Ct. 396, 38 L. ed. 238; Pittsburgh, etc., R. R. Co. v. Backus, 154 U. S. 421, 14 Sup. Ct. 1114, 38 L. ed. 1031; Adams Express Co. v. Ohio, 166 U. S. 186, 17 Sup. Ct. 604 (41 L. ed. 965), where the court said: Whatever property is worth for the purpose of income and sale, it is worth for the purpose of taxation." And this is the rule sanctioned by the Supreme Court of Arkansas. Wells-Fargo Express Co. v. Crawford County, 63 Ark. 576, 40 S. W. 710, 37 L. R. A. 371. This is evidently the rule recognized and acted on by the railroad assessing board of the state of Arkansas, as shown by the evidence in this case. The main line of the Iron Mountain Railroad is practically a water-level road-no mountains to cross, no rocks to blast or tunnels to excavate, and the leading commercial cities and industries of the state along its line. On the other hand, the White River branch of that road was the most expensive road ever constructed in the state. Miles of it had to be cut out of rock, and tunnels cut through rocky mountains. There are no large cities along its line, and the country but sparsely settled. Owing to the heavy grades and the many curves, made necessary by the topography of the country, it cannot possibly carry as many cars to a train and transport freight as economically as the main line. The state officials, charged by law with the duty of assessing the property, must have taken these facts into consideration when they assessed these railroads. The White River branch, in spite of its great cost, was in 1907 valued by that board at $19,000 per mile, and assessed on the basis of 50 per cent. of its value at $9,500, while the main line was valued at $45,000 per mile, and assessed at 50 per cent. of that sum, at $22,500 per mile. For these reasons, the earning capacity of a railroad is the most important factor to be taken into consideration in determining its value. As shown above, it has been taken into consideration by the assessing officers of the state, and should be taken into consideration for the purpose of determining the apportionment of values in this case. If, by reason of the higher rates allowed by the state tariff, the net earnings of the property are increased, the value of the property is correspondingly increased, and the assessment for taxation made accordingly. The foregoing, while apparently an argument for the general use of market value as a basis of valuation, is in the above connection made with reference only to the apportionment of values as between intrastate and interstate traffic. The statement is made in justification of a revenue basis rather than a ton mileage basis for the apportionment of property value between interstate and intrastate traffic. CHAPTER IV Cost of Reproduction as a Standard of Value for Rate Purposes § 70. Arguments advanced. 71. Fluctuations in railroad costs-Minnesota rate decisions. 72. Trend of recent decisions. 73. Identical reproduction of existing plant. 74. Identical reproduction-Wm. H. Bryan on waterworks appraisals. 75. Equally efficient substitute plant. 76. Substitute plant-Maine water plant condemnations, 1902-1904. 77. Substitute plant-Columbus, Ohio, Electricity Rate Case, 1906. 78. Substitute plant-Spring Valley Water Case, 1908. 79. Substitute plant-Discussion by J. E. Willoughby. 80. Substitute plant-Discussion by C. L. Corey. 81. Cost under present or original conditions. 82. Present or original conditions-Discussion before American Society of Civil Engineers, 1911. 83. Present or original conditions-St. Louis Public Service Commission, 1911. 84. Present or original conditions-Conclusion. § 70. Arguments advanced. Strong arguments have been advanced for the use of cost of reproduction as the standard of value for rate purposes. It is asserted that what the public is entitled to is service at a rate of charge sufficient only to pay a fair return on the investment that would be required at present to furnish this service; and conversely what the company is entitled to receive is a fair return on the capital investment that it or another company would have to expend at present in order to provide the service. A rate of charge measured on this basis corresponds to the present economic cost of the service. Economically considered, the present capital investment is the cost at |