U. S. 578, 1. c. 597, 41 L. Ed. 560, the court said that in determining the question of reasonableness its duty was to take into consideration the interests both of the public and of the owner of the property.

$126. The capitalization of railroads as basis for rates.It was claimed in the Nebraska Rate case, supra, that a railroad was not entitled to charge excessive rates for the purpose of paying dividends upon excessive capitalization. The court said that it was true that it was not the cost but the present value of railroad property which was to be considered, and that the apparent value as represented in the stock and bonds of the company was not alone to be considered; but that in ascertaining value the original cost of construction, the amount expended for permanent improvements, the amount and market value of its stock and bonds, the present as compared with the original cost of construction, the probable earning capacity of the property under the particular rates prescribed by the statute, and the sum required to meet operating expenses, were all matters for consideration and to be given such weight as might be just and right in each case, with due regard for the rights of the public as well as for the interests of the railroad company. In this case the enforcement of the state rates was enjoined without prejudice to the right of the state commission to apply to the court for the discharge of the injunction thereafter if changed conditions would admit of the reduction without depriving the railroad of just compensation.

In the Minnesota Rate case, 186 U. S. 257, 46 L. Ed. 1151, the court said that each case must be determined by its own considerations, and that while the rule stated in the Nebraska Rate Case was undoubtedly sound as a general proposition, that railroads were entitled to have fair return upon the capital invested, it might not justify them in charging exhorbitant charges in order to pay operating expenses if the conditions of the country did not permit it. It sometimes happened that for the purposes of ultimate profit and for the purposes of building up trade, railroads carried both property and passengers at an evident loss, and that while it might not be within the power of a State Commission to compel such a tariff, it might not, on the other hand, be claimed that the rail

roads would in all cases be allowed to charge grossly exorbitant rates as compared with rates charged by other roads, in order to pay dividends to stockholders.

In the Kansas City Stockyards case, 183 U. S. 79, 46 L. Ed. 92, the Kansas statute regulating charges in public stockyards was held invalid, three of the judges concurring in an opinion by Justice Brewer, holding that the statute deprived the company of its property without due process of law, while the other six judges held that it was discriminative in denying the equal protection of the laws. The opinion of Justice Brewer said that a classification which was not based upon the character or value of the services rendered, but simply on the amount of the business done by the party, cutting down his profits because from the whole aggregate of his business he was enabled to make such profits, although he made the same charge that others in the business got, and which was perfectly reasonable so far as the value of the services was concerned, was unsound and invalid.

In a case before the United States Circuit Court in Texas involving the Texas state rate, (Metropolitan Trust Co. v. Railroad Co. et al, 90 Fed. Rep. 683,) the court took a more liberal view of the basis for estimating the value of property for the purpose of determining the reasonableness of rates. It said that the state authorities should take into consideration the betterments and replacements made necessary by the growth of traffic, and also the permanent establishment and good will of the road should be considered and determined with reference to the value upon which a return would be realized. The court assumed that the cost of replacing the physical structure of a road was too narrow a basis upon which to determine its value, as it may have been constructed at a time when the conditions of the country were such as to give no immediate expectation of reasonably profitable earnings.

$127. Through rates and local rates.-The distinction between the through and local services of a company and the reasonable right of the carrier to make the local rates greater than the proportionate part of a through rate over the same distance has been distinctly recognized in the decisions of the Supreme Court. The question was raised in the State Rate cases, as the intrastate rates subject to state regulation are as

a rule local rates, while the interstate rates not subject to state regulation are through rates.

Thus in the South Dakota Rate case, 176 U. S. 167, 44 L. Ed. 417, the court said that it was erroneous to determine the reasonableness of local rates without finding the cost of doing local business, and said it was obvious on a little reflection that the cost of moving local freight is greater than the cost of moving through freight, and equally obvious that it is almost, if not quite, impossible to determine the difference with mathematical accuracy, and that upon such difference the opinions of experts familiar with the railroad business was competent testimony and could not be disregarded.

On the rehearing of this case in the Circuit Court, 110 Fed. Rep. 473, the master to whom the case was referred reporting that the business in the state was honestly, economically and efficiently conducted and the net earnings therefrom in the state did not realize enough to pay interest on the mortgage debt, the court held that rates reducing such net earnings were unreasonable aud should be enjoined.

In the Minnesota Rate Case, 186 U. S. 257, 46 L. Ed. 1151 it was claimed by the carrier that the sum of two admittedly reasonable local rates could not be unreasonable as a through rate between two designated points. But the court said that the practice of railroads in this country was almost universally to the contrary, and that a through tariff is almost always fixed at a sum less than the aggregate of local tariffs between nearby cities upon the same road, saying:

"Doubtless the fixing of a lower through tariff is dictated largely by a desire of each road to get as much mileage as possible out of its patrons, as well as by the desire to meet competition of other lines doing business in the same territory; but in addition to this there is an increased cost of local business over through business in the additional fuel consumed and the increased wear and tear of the machinery on each train involved in the stopping at every station."

The Supreme Court also considered, before the passage of the Interstate Commerce Act, the question of the reasonableness of the charges made by the Union Pacific Railway Company to the government for compensation in transporting the mail, troops and supplies. See Union Pacific Ry. Co. v. United States, 104 U. S. 662, 26 L. Ed. 884; Union Pacific

Ry. Co. v. United States, 117 U. S. 355, 29 L. Ed. 920. In the first of these the court held that the court or jury was authorized to look over the entire field of services in determining what was fair and reasonable charges, and that the compensation should be determined upon consideration of all the facts, and not exceeding the amount paid by private parties for the same kind of service, and in the other case that the court could not affirm as a matter of law that the service rendered in transporting a local passenger between two points was identical with that in transporting the same passenger for the same distance in passing over the whole line.

In Augusta S. R. Co. v. Wightsville & S. R. Co., 74 Fed. Rep. 522 (1896), the United States Circuit Court for the northern District of Georgia, discussed the distinction between. through and local rates, holding that a carrier was not justified in exacting local rates where the service belonging to local rates was not offered, especially when this was done for the purpose of diverting traffic or stifling a competitor. It was held, therefore, that the rates charged were unreasonable for the service rendered. For discussion of through and local service and rates by the Commission, see 4 I. C. C. R. 251 and 3 Int. Com. Rep. 272.

$128. The Commission on through and local rates. The Commission, in a number of cases, has discussed this essential distinction between through and local rates. Through rates and through billing are matters of agreement among carriers engaged in interstate commerce, but when they have been established and until finally abrogated or changed, they are required by the statute to be kept open to public use. See infra, section 6; 9 I. C. C. R. 182. The total rate for the through carriage over two or more lines, whether made up of different established locals or of through and local rates, or upon a less proportionate basis, it is the through rate that is subject to scrutiny by the regulating authority; how the rate is made is only material as bearing upon the legality of the aggregate charge, and how any reduction may be accomplished is a matter for the carriers to determine among themselves. 5 I. C. C. R. 324, and 4 Int. Com. Rep. 120, 121. Through rates are not required to be made on a mileage basis, nor local rates corresponding with the divisions of a joint through rate over

the same line. Mileage, however, is usually an element of importance, and due regard to distance and proportions are to be observed in connection with other considerations; they are material in fixing transportation charges. 3 I. C. C. R. 252 and 2 Int. Com. Rep. 604; 8 I. C. C. R. 377. A rate is none the less a through rate in law because the initial carrier charges its local rate as part of the through rate and the remaining lines charge an agreed rate made by percentages. Through rates admit of a great variety in the forms they assume, and when reasonable and fairly adjusted in their relations to local business, are greatly favored in law because they furnish cheaper rates and greater facilities to the public, while at the same time they give increased earnings to a large number of carriers. 2 I. C. C. R. 553 and 2 Int. Com. Rep. 393. The relation of the proportion of the through rate to the rate over the same distance along the same line must be reasonable and avoid unjust discrimination. See infra, section 3. See also 2 I. C. C. R. 25 and 2 Int. Com. Rep. 32. (As to basing points in the adjustment of through rates, see infra, section 3.)

Divisions of joint rates are usually less than the corresponding locals, and almost without exception are not greater. 9 I. C. C. R. 17. A local rate, which presumably includes terminal expenses is prima facie excessive as part of a through line composed of two or more carriers. 6 I. C. C. R. 1. While there is no mileage requirement in the act, other than what may be involved in the long and short haul rule in section 4 and the general requirement of reasonableness, as a rule in the transportation of freight by railroads, while the aggregate charge is continually increasing the further the freight is carried, the rate per mile is constantly growing less, making the aggregate charge less in proportion every hundred miles after the first, arising out of the character and nature of the service performed and the cost of the service, and thus staple commodities and merchandise are able to bear the charges from and to the most distant portions of the country. 1 I. C. C. R. 480 and 1 Int. Com. Rep. 764; 2 I. C. C. R. 315 and 2 Int. Com. Rep. 199. On this general rule as to local rates; 3 I. C. C. R. 450, and 2 Int. Com. Rep. 721; 1 I. C. C. R. 152 and 1 Int. Com. Rep. 356; 6 I. C. C. R. 488; 8 I. C. C. R. 277; 2 I. C. C. R. 584, and 2 Int. Com. Rep. 414; 7 I. C. C. R. 323.