railway rate problem that it is justifiable to make rates according to what the traffic will bear. This is a factor in the situation undoubtedly; for the management in order to get business enough to carry on its service with economy and profit must to some extent make some concessions to the low grade commodities which it will inevitably recoup from the high grade freight. And yet this is clearly a principle which can only be justified under strict limitations; and, indeed, any considerable concession to the principle of charging what the traffic will bear is dangerous. The public service company is acting primarily for the benefit, not for the exploitation of the public. To allow a carrier, for instance, to charge what the traffic will bear is to foster an unjust increase of railroad rates in particular cases. To assert that the self-interest of carriers may be safely relied upon to prevent unjust exaction is to deny the necessity of any public service law.2

§ 1075. Making rates compared with levying taxes.

It is a common statement in the discussion of rate making that the situation is the same as in the levying of taxes. This may be used as a figure of speech but it is loose talk at best. There is a certain truth in the principle of charging more against valuable goods than against cheap goods as has been conceded; but that the carrier can, in analogy to taxation, throw the burden upon the more valuable goods and relieve the cheaper goods in direct proportion to their respective values cannot be admitted. The duty of the carrier is to move all goods at a reasonable price for the service rendered, a matter not to be determined upon any ad valorem basis. It is clear, at any rate, that the charge is not necessarily limited to the advantage

1 Tift v. Southern Ry., 138 Fed. 753 (1905).

2 But see Interstate Com.

Comm. v. Chicago G. W. Ry. Co., 141 Fed. 1003 (1905).

1

which the customer derives from the service; and the fact that the rule does not work both ways makes one suspicious of it. When the price of a commodity goes up the railroads certainly have no right to raise their charges in proportion to the prosperity of their shippers. Nor could a water company justify a greater charge for water against a man who lives in a costly house than against a house of less value in the market. It is needless to add that such taxation without representation is opposed to the genius of the American people; and indeed, the government has not authorized any such private corporations to be taxgatherers for their own benefit.

2

§ 1076. Service of unusual value.

That the service in question will be of unusual value to the particular patron is no reason why he should be called upon to pay more than any other member of the public should pay. If it were attempted to extend this theory of charging what the traffic will bear to other public services its oppressive character would be obvious. Suppose a water company should charge particular householders individually what they would pay rather than have their service cut off. It is obvious as a Maine judge has pointed out that in many instances householders would pay several hundred per cent more than some others would pay who have their own sources of supply. And as a Federal judge recently said, if lumber will bear the advance, that is no reason why it should. That business will still be done at the rate charged is no evidence that it is not unreasonable when a public service is in question, although doubtless it would be in the case of a private

1 Tift v. Southern R. R. Co., 138 Fed. 753 (1905).

* Preston v. Water Commissioners, 117 Mich. 589, 76 N. W. 92 (1898).

3 See Brunswick & T. Water Dist. v. Maine Water Co., 99 Me. 371, 59 Atl. 537 (1904).

4 Tift v. Southern Ry. Co., 138 Fed. 753 (1905).

business. The monopolistic conditions which characterize public employment would result in extortionate prices being possible, while in a private business the asking of an unreasonable price would simply result in a refusal to do business, since the party quoted the outrageous price could resort to a competitor. The ordinary postulates of political ecomony are applicable only to private businesses where the law of competition prevails. In the case of public business the law of the land must be invoked to keep charges down to a reasonable level.

§ 1077. Service not worth usual amount.

Conversely the managers of public service, who are on the outlook for all the business they can get at whatever price the business will bear, claim the right to make extraordinary reductions to those of their patrons who find the service of less value to them than it would be to the average customer. Thus railroads make extraordinarily low rates for certain commodities of such an inferior grade that at the average freight rate it would not move at all, so disproportionate would the freight charge be to its actual value. Sometimes the railroads go further, and make a lower charge to these who are going to utilize the commodity in further manufactures and those to whom it is of sufficient value in its present shape.1 This same problem of getting additional business by quoting a price to certain customers which will make it worth while to them, is coming up in the other public services as well. Thus the proprietors of gas works claim the right to make lower rates to those who utilize the supply for fuel. It

1 According to Hoover v. Pennsylvania R. R. Co., 156 Pa. St. 220, 27 Atl. 282, 36 Am. St. Rep. 43, 22 L. R. A. 263 (1893), such reductions may be made. But according to Lumber Co. v. Railroad, 136

N. C. 479, 48 S. E. 813 (1904), such reductions constitute illegal discrimination.

A gas company may make a lower rate for fuel gas. State v. New Orleans Gas Light Co., 108

may often be that there are such substitutes for fuel gas that unless a much lower rate than the average is charged the business cannot be got. This argument in itself is no justification for making disproportionate rates against other members of the public who have no cheaper substitute. It may be said for allowing these practices, that provided it is understood that no business shall be done unless there is some margin above the bare cost of operation such additional business will benefit those who must pay the fixed charges to some extent by reducing the average cost of their service. It should be noted, however, that no court has ever suggested that a company which neglected its opportunities to make more money by such discriminating rates was doing wrong.

§ 1078. Average cost always modified.

2

In the determination of rates upon the basis of proportionality the average cost of service must play an important part. The ton-mile cost of moving freight on the railroad in question must be considered always.1 But the average cost of service is at best only a standard with which to make comparisons. As a practical matter some factors are present in every particular case which will either raise or lower the actual cost in its relation to the average cost. Thus the establishment of a ton-mile rate as a standard merely brings rates down to the narrowest point of scrutiny, and for that purpose is valuable; but it excludes consideration of other circumstances and conditions which enter into the making of rates, no matter how compulsory or imperious they may be, and it cannot,

La. 67, 32 So. 179 (1902). But it need not do so. People's Gaslight Co. v. Hale, 94 Ill. App. 406 (1900).

1 See particularly, Atlantic C. L. Ry. Co. v. Florida, 203 U. S. 256,

51 L. ed. 174, 27 Sup. Ct. 108 (1906).

2 See further Seaboard Air Line Ry. Co. v. Florida, 203 U. S. 261, 51 L. ed. 175, 27 Sup. Ct. 109 (1906).

therefore, be accepted as altogether controlling in determining the reasonableness of rates. A particular rate is thus the 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.