The Commoner.
BBPTEMBER 15, 1011
emanated from the states and not from tho
general government.
"Rate-making is a legislative function," de
clares the author of the opinion. What nonsenso
to say that rate-making is a legislative function,
and then proceed as a court to declaro every
rate so made void for one or all the reasons in
the catalogue. What rate fixed hy a' state legis
lature has been upheld by a federal court? What
is the name of the judge of the federal district
or circuit court who has yet found a legislative
made rate which he has seen fit to uphold?
Judgo McPherson held that the effect of tho
Missouri law was to confiscate tho property of
the railroads. Judgo Vandevanter held tho
same, as to the law of Arkansas. Judge San
born, sitting with others, held that tho Oklahoma
law was taking railroad properties without just
compensation, and now reiterates the same thing
with reference to the law of Minnesota.
The facts are, these acts by tho legislatures
are being struck down as fast as they reach the
federal judiciary. In very recent years rate re
ductions in North Dakota, South Dakota, Ar
kansas, Missouri, Oklahoma, and Minnesota have
all met a similar fate. These states constitute
an empire in extent and contain a population
of over ten million people. Are these peoplo
Ignorant, malicious, or anarchistic? No, they
are intelligent, fair-minded, and patriotic as
any people on earth. It is a condition and not
a theory that confronts them. These peoplo
know and have known for a third of a century
that they have been victimized by the public
carriers. They know that they have been, and
now are, even with the reduced rates in effect,
the victims of still extortionate freight rates as
compared to adjoining states. These peoplo
know, as do all the people of the country, that
the railroads have never prospered in their his
tory like they have in the last two years. Yet,
in the face of this well known fact, every legis
lative act designed to prevent extortionate rates
has been stricken down by the federal courts on
at least one of the two grounds that it was
either non-compensatory or confiscatory. This
results from tho adoption of an erroneous
(method of valuing railroad property and of ap
portioning operating expenses as between state
and interstate business.
I am informed that tho railway commission
of Minnesota spent about $100,000 in making a
physical valuation of tho railroad properties.
Every rail and every tie was taken into con
sideration. Tho results of this valuation were
presented to the referee in the Minnesota cases
in the form of evidence. What did he do with
it? He brushed it aside and took In its place
the testimony of real estate men, introduced by
the companies, as to the value of their terminal
properties. These real estate men from Minne
apolis and St. Paul fixed the values so high that
any rate could be proved confiscatory because
it would not permit a' return based on such
valuation. The circuit court adopted the find
ings of this referee and declared him "a master
learned in the law." I don't call him that. I
want this "master learned in tho law" to state
the reason why he saw fit to reject the testi
mony offered by the state based on a large ex
penditure of state funds in obtaining a physical
valuation' of Minnesota railroads, and then adopt
the testimony of two real estate men brought
forth by the railroad companies, which I under
stand to be a fact. An explanation of why it
was necessary to reject the testimony of the
state and adopt that of the companies on this
point would bo more helpful and Instructive than
a repetition of such generalities as the one
which reads "that which is not supreme must
yield to that which is supreme." Is It any
wonder that the Wall Street Journal declares
that this decision is "invaluable," which means,
of course, that it Is exceedingly precious?
There is no doubt but that the testimony pro
dueled by the Minnesota railroad commission
was tho fairest and most equitable, concerning
the value of railroad properties, which was in
troduced before the referee who tried the case.
This was acknowledged by tho greatest authority
in America on the subject of railroad construc
tion and maintenance. I refer to Mr. Julius
Kruttschnitt, of Chicago. In testifying in the
Chicago, Rock Island & Pacific Railway com
pany case, on July 12, 1910, which case is now
pending In tho federal court of this state and
involves the validity of our two-cent passenger
fare law and the freight rate reduction law,
which were passed by tho legislature of 1907,
this distinguished expert said:
"I have been making a study of this question
of railroad valuation for a number of years, and
particularly in the last two years, and I have
obtained the reports of those state commissions
that havo valued railroad properties and have
studied them and aftor looking over all of them
It seemed to mo that tho plan adopted by tho
Minnesota stato commission was the fairost of
any that has been brought to my attention. Tho
plan is contained in a circular, as I remember
it, of Mr. Dwight Morgan who was tho oxpert
oraployed by them to make tho valuation, and it
seemed to me to bo tho moat comprehensive,
most logical, and fairest to both interests of
any that I know of. It seemed to mo to bo
particularly free from attack if used in defend
ing railroad suits, becauso Mr. Morgan was an
employe of a state body and certainly could not
bo accused by tho public of prejudice or partisan
ship, and I havo found very few of his views,
If any, that I could not pretty cordially iudorso
and accept as my own."
These federal courts havo in part adopted tho
revenuo theory for assigning tho valuo of rail
road property in a state to tho various classes
of business and in apportioning operating ex
penses. This is a theory sponsored by tho rail
roads, and when fully applied is so vicious in
its nature that it enables the companies to do
feat any rate established by a stato. Had tho
Minnesota rates been twice as high as fixed by
tho legislature, still under this revenuo theory
the companies would have been ablo to provo
them confiscatory.
With tho revenue theory applied In tho
manner urged by the companies, the stato plays
a game with the cards stacked, or tries a law
suit with tho jury packed. To illustrate tho
viciousness of tho revenue theory, let me assume
that the entire revenue of ono railroad for one
year in Nebraska is $100,000; of that amount
$20,000 represents tho earnings on the stato
business and $80,000 tho earnings on tho inter
state business. I also assume that the entire
operating expenses amount to $80,000. Nov,
the revenuo theory when applied apportions tho
operating expenses according to tho earnings of
stato and interstate business. It then follows
that $20,000 of state revenuo is one-fifth of tho
total $100,000 earnings and $80,000 interstate
Is four-fifths thereof. Now, under the theory,
in order to get the amount of operating expense
to be charged to the stato business It Is neces
sary to take one-fifth of the total operating ex
penses, to-wit, $80,000, which is $16,000, and
four-fifths thereof, or $64,000, represents tho
interstate. Tho fallacy inherent in this method
is strikingly apparent, because tho factors aro
unequal, the state rates being much higher than
tho interstate rates.
The vice of tho revenuo theory Is easily per
ceived when the state rates aro increased so as
to permit a greater revenue therefrom.
Referring to the illustration above, let mo
double the state rates so that the revenue there
from becomes $40,000 Instead of $20,000, and
let the interstate rates and tho revenuo there
from remain the same. Then I have a total
revenuo amounting to $120,000. Now, I appor
tion the operating expenses according to tho
revenuo theory. $40,000 is one-third of tho
total and $80,000, the interstate revenuo, is
two-thirds. One-third of the operating expenses
is $26,666 two-thirds, and two-thirds is $53,
333 one-third, the amount of expenses assigned
to the interstate business. Observe that in the
first instance the amount of expenses assigned to
the interstate business was $64,000, whereas now
it is only $53,333 one-third. The interstate
business has gained the neat little sum of $10,
666 two-thirds the difference between the two.
This is accomplished without changing any of
the figures In the original illustration, except to
double the state rates and thereby secure a
larger state revenue. So, if tho state rates' are
multiplied by four, the gain to the Interstate
becomes more astounding.
This Is the "revenue theory," which it is de
clared "appeals more persuasively to the reason
as tho more just and equitable." I can not
understand how it appeals to the reason of any
man. If it Is to be characterized as "just and
equitable," then I do not understand the mean
ing of those words when used in that sense. No,
this theory does not appeal to the reason. Reason
abhors It. Justice and equity condemn It. I
have heard of shell games and faro tables, and
gaming devices designed to catch their victims
coming and going, but I never learned of ono
which is any more certain of its victim than the
"revenue theory" when it Is used to its full ex
tent as the basis for establishing a stato rate
reduction act confiscatory. It will destroy any
legislative-made rate. There is no escape, be
cause .it is a device which steals away the earn
ings produced by the state rate and appropriates
them to tho benefit of the interstate rate.
Instead of characterizing this "revenuo
theory" as just, oquitnblo and rossonablQ, and
declaring it tho proper mothod by whlah to ap
portion operating expenses an contended for by
the railroad companies, I sny it In a cold-blooded
confidenco game, vicious and criminal in its
ofToct upon a people already too long outraged
by oxtortlonato railroad rates.
Tho railroads In Arkansas Missouri, Okla
homa and Minnesota havo successfully reported
to this device. Tho circuit court of appeals
somewhat reluctantly has approved in part this
so-called thoory, and uses it as a Justification
for declnring stato rates confiscatory and In
striking down stato acts doslgned to glvo tho
people relief. Is It nny wonder that tho corpora
tion press from coast to coast hails this decision
as "a clear victory for the railroads?" I can
not bclicvo that theso courts comprehend tho
results of the revenuo theory or realize tho dis
astrous consequences which will Inevitably fol
low Its adoption. If they did, this thoory would
receive their condemnation rather than their
approval.
In tho Minnesota caso the court assumos that
tho rates, both passenger and freight, flxod by
the railroads prior to the Minnesota reductions,
were lawful rates becauso tho companies had
filed their schedules with tho intorstato com
merce commission. Tho companies havo boon
carrying passengers over this samo territory for
a third of a century at three cents per mllo.
During that time tho Improvement in facilities
and equipment havo enabled them to lessen tho
corresponding operating expenses, and in tho
meanwhilo this territory has quadrupled in
population. If those rates fixed by tho com
panies thirty years ago were compensatory, what
must they now bo under present conditions?
This plea of railroad confiscation is a fiction.
It has no basis in fact; it never had. No man Is
ablo to call to mind a single illustration of rail
road property subjected to anything approach
ing confiscation. Tho history of this union does
not afford a single instance of this dlro calamity.
It belongs to tho domain of tho imagination.
When the property of a railroad company a half
milo In length has suffered anything approxi
mating confiscation, it will ba time to treat this
contention seriously. No good citizen wants to
confiscate or oven injure tho property of an
other. I do not stand for any policy that will
deprive tho railroads of reasonable returns upon
their Investments. This they should havo, no
more, no less. All I ask is that tho method
adopted in determining this question shall bo
fair and just as botweon tho railroads and tho
people. As the law ofilcer of this state, I pro
test against the method which some of tho
federal courts have in part approved. It Is so
palpably unjust and inequitable that I shall con
demn and fight it to the end.
A WISCONSIN PIIOI'IIECY
In June, 1873, according to tho Philadelphia
North American, Edward J. Ryan, chief justice
of the supreme court of Wisconsin, gavo this
prophetic warning to the graduating class of
the University of Wisconsin:
"There is looming up a new and dark power.
I can not dwell upon the signs and shocking
omens of its advent. Tho accumulation of In
dividual wealth seems to be greater than It ever
han been since the downfall of the Roman em
pire. The enterprises of tho country are aggre
gating vast corporate combinations of un
exampled capital, boldly marching, not for
economic conquests only, but for political power.
Wo see their colors, we hear their trumpets, wo
distinguish JJie sound of preparation in their
camps.
"For the first timo in our politics, money is
taking the field as an organized power. It Is
unscrupulous, arrogant and overbearing. Al
ready here at home, ono great corporation has
trifled with the sovereign power and Insulted tho
state. There is grave fear that It and its great
rival havo confederated to make partition of
the state and share it as spoils.
"Wealth has its rights. Industrious wealth
has its honors. This it is the duty of the law
to assert and protect, though wealth has great
power of self-protection and influence beyond
tho limits of integrity. But money as a political
influence is essentially corrupt; it is one of the
most dangerous to free institutions; by far the
most dangerous to the free and just adminis
tration of the law. It is entitled to fear if not
to respect.
"The question will arise, and arise In your
day, though perhaps not fully In mine: Which
shall rule, wealth or man; which shall lead,
money or intellect; who shall fill public station,
educated and patriotic freemen or the feudal
serfs of corporate capital?"
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