Some of the carriers' witnesses contended that heavy repair costs were entailed by the keeping in service of old equipment which their financial condition precluded them from scrapping and replacing by new cars. But it seems not unlikely that while the transition period during which light and heavy equipment are jointly used may necessitate unusually heavy repairs, the repairs normally demanded by the heavier equipment may be larger than had been estimated when its use was projected.

Apart from the question reserved for later discussion of the carriers' practices under the Commission's accounting rules prescribed in 1907, it can not be affirmed with any degree of certainty that the increased charges for maintenance of equipment are excessive or undue. They seem rather to be a consequence of the general tendency to introduce heavier equipment, of the contemporaneous use of equipment, old and new, and in measurable degree attributable to the carriers' interpretation of the demand for transportation facilities of greater carrying capacity and of greater tractive power than formerly in vogue.

Miscellaneous items.-The showing of previous statistical tables of increased costs of labor, taxes, and maintenance is paralleled by a study of the trend of various miscellaneous items, such as enginemen and engine-house expenses, fuel, water, road trainmen, train supplies, loss and damage, injuries to persons, and clearing wrecks. Save for the expenses of road trainmen, which for the whole period 1901-1914 are relatively constant, each of the items above enumerated shows a pronounced tendency to increase. Quantitatively, fuel is the most important of the items here studied. The relative percentages of increase are indicated in the following table, No. 9:

TABLE 9.-Ratios of certain accounts to operating revenues, western and southwestern railroads: 1901-1914.

1 Names of roads included shown in Table 8. Adjustment for consolidation of large subsidiaries has been made in this table.

TABLE 9.-Ratios of certain accounts to operating revenues, western and southwestern railroads: 1901-1914-Continued."

1 Names of roads included shown in Table 8. Adjustment for consolidation of large subsidiaries has been made in this table.

Unless material modification is required by considerations arising from changes in accounting, or considerations due to financial maladministration of certain carriers included in the groups of roads here studied, the conclusion is substantiated that the attested increase in the operating ratio since 1901 must be attributed primarily to increased costs, each operating in different degree, but practically all in the same direction, incurred by the roads in the handling of traffic.

Corrections necessitated by accounting methods since 1907.-The accounting rules prescribed by the Commission in 1907 required the carriers to report the amounts charged to depreciation. The contention of the protestants is that, conformably to the rules but in contradistinction to the previous practices of many of the carriers, charges for depreciation thereafter were made against operating expenses where previously such charges either were not made at all or not made with the same amplitude as after 1907. In order to test approximately the extent to which the operating ratio may have been affected by such practices, table No. 10 was prepared. Its net outcome is to indicate that the operating ratio may have been increased by this cause from 1.05 per cent in 1908 to 1.61 per cent in 1914.

35 I. C. C.

TABLE 10.-Effect of accounting for depreciation on operating ratio, 23 representative

roads: 1908-1914.

1 Chicago & Alton; Chicago & North Western Railway; Chicago, St. Paul, Minneapolis & Omaha Railway; Chicago, Burlington & Quincy Railroad; Chicago Great Western Railroad; Chicago, Milwaukee & St. Paul Railway; Illinois Central; Minneapolis & St. Louis Railroad (including Iowa Central Railway); Minneapolis, St. Paul & Sault Ste. Marie Railway; Missouri Pacific Railway; Wabash Railroad; Chicago, Rock Island & Pacific Railway system; Atchison, Topeka & Santa Fe Railway; Gulf, Colorado & Santa Fe Railway; International & Great Northern Railway; Kansas City Southern Railway; Missouri, Kansas & Texas lines; New Orleans, Texas & Mexico Railway; St. Louis, Brownsville & Mexico Railway; St. Louis, Iron Mountain & Southern Railway; St. Louis & San Francisco Railroad; St. Louis Southwestern Railway; Texas & Pacific Railway.

In proportion to the amounts in the third column of figures.

It is not possible in a table of this kind to take account of all factors, such as improvements charged to operating expenses prior to July 1, 1907, and the practice with respect to charging and crediting the reserve account during 1908 and 1909.

This Table No. 10 indicates only the degree to which the operating ratio may have been increased by reason of accounting as regards depreciation. If, prior to 1907, the improvements, additions, and betterments were charged even in part to operating expenses and since 1907 such items have been charged against capital account, there would be an offset to the increase of the operating ratio traceable to depreciation accounting since 1907. The accounting rules of the Commission, it is alleged by the protestants, allow a certain latitude of construction by the carriers whereby when improvements such as reballasting or laying of new ties are made, some part thereof may be charged to operating expenses. While admitting the possibility of such practices, the moderate increase since 1907 in operating expenses under maintenance of way and structures and the few specific instances where betterments were covered by charges to operation would seem to render it unlikely that any very appreciable effect from this particular accounting practice has affected the operating ratio since that date. Similarly it was urged that car and locomotive reconstruction affords an opportunity within the Commission's accounting rules to charge what are essentially betterments to operating expenses. As indicated previously, we are of opinion that the increased cost for maintenance of equipment is mainly to be ascribed to other causes. The increase in the operating

ratio has been a real and not an apparent increase, and is due mainly to augmented operating costs properly charged.

There remains to be mentioned the possibility that particular carriers by reason of financial mismanagement reflected in their operating methods have been uneconomical and wasteful in expenditure, and have thus unnecessarily increased their operating ratios. It does not appear that any uniform relationship can be traced between the present level of the operating ratios of carriers whose financial administration has been culpable and of the remaining carriers. Similarly, instances of notable increases in the operating ratio do not seem to be confined to roads such as the Rock Island or the Frisco. The negative conclusion reached in this connection is but confirmatory of the fact that the general increase in the operating ratio is traceable to deep-seated underlying causes which have affected carriers generally through increased operating costs.

It may be urged that the financial experience of carriers in this period has been that of industry generally; and unquestionably it is true that they often encounter and should be expected to encounter the same ups and downs of financial fortune as affect industry at large. A complete comparison of the relative prosperity of the carriers as against industries in general is not possible from data of record. But there is force in the consideration that public service industries are under some disabilities from which private industries are exempt. The former may not discontinue operation even though net earnings decline or vanish; nor may they meet rising costs with as free a hand as other industries which advance their prices without the possibility of governmental restraint. Transportation, moreover, unlike many branches of manufacture or commerce, is a quasi public function, indispensable to industry generally. So long as the service is intrusted to corporate administration and the funds supplied by private investors, revenues sufficient to afford a return which will adequately remunerate the investment and secure the facilities required by the community have a justification which does not equally attach to every branch of private undertaking.

RETURN ON INVESTMENT.

The rates at present under consideration may be gauged in a measure by comparing recent additions to the carriers' road and equipment with the concomitant changes in their net operating income. The only continuing inducement to invest additional capital in any line of industry is the prospect of net returns. If experience discloses that the return expected is small, the incentive to further investment will correspondingly decrease. If experience demonstrates that increased investment fails, over a term of years, to yield an increased

return, the inference is either that the investment was ill judged and not calculated to serve the public, or that the price of the service has not been sufficient to allow an adequate return.

In the subjoined table, No. 11, there is indicated the increase in cost of road and equipment for a six-year period, from 1907 to 1913. There is similarly indicated the net operating income less rentals for each brace of terminal years, 1907 with 1908, and 1913 with 1914. The addition of increased income affords a percentage return upon increased investment which for the 41 roads in the carriers' exhibit amounts to 1.2 per cent, and for the 26 roads in the Commission's compilation, to 0.7. It is, of course, true that the additional investments referred to have been added to or blended with the carriers'. preexisting property, and that no separate or physically distinguishable return can be traced specifically to the last $1,000,000,000 added to road and equipment..

TABLE 11.--Comparison of increase in net cost of road and equipment with increase in operating income (less net rentals for lease of road), for a six-year period.1

1 Roads as in Table 1. Investment and corresponding mileage of A., T. & S. F. Ry. Co. as interpreted by that company in its annual report.

In The Five Per Cent case, 31 I. C. C., 351, at page 363, it was said: The carriers have stated repeatedly in testimony, in argument, and upon their briefs, that the return upon the funds invested in railway facilities since 1903 has been entirely inadequate and that no return at all has been received upon the funds so invested since 1910. This is not an accurate statement of the facts. The revenues actually received by the carriers have been earned by the whole investment; and it is not correct to say that a part of the investment made since a given date has earned no return.