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railway valuation as a panacea for all the ills of the present railway situation, in so far as it involves the incidence of rates upon the shipping public," and regarding panaceas with misgiving Mr. Reynolds analyzes this one. The superhuman task of rate-making, he says, is sorely in need of a rule of thumb of easy application. This fact and the " very general superstition that under the guise of freight tolls the railways levy tribute on the public for the payment of dividends on watered stock" have tended to make this new doctrine popu lar. In simplest terms the rule of thumb is " that a railroad is not justified in adopting a schedule of rates which as a whole produce a revenue more than sufficient to defray the running expenses and yield ' a fair interest return upon the fair value of the property employed in the enterprise.' ' Dodging the difficulty of deciding what a "fair interest return " is by assuming for the discussion that it would be six per cent and ignoring utterly that of determining the " fair value " the author concedes for the sake of argument that the rule proposed is of sub stantial assistance in deciding the " reason ableness of the rates of public service cor porations whose operations are in their nature localized within a single jurisdiction, and whose activities are in other respects less complex than those of the great railroads." "After the filing of the referee's report as to the ' fair value of the property devoted to the public use ' in such cases, and making allow ance for running expenses and depreciation, it needs only the application of the multipli cation table, using our agreed six per cent as the multiplier, to arrive at a conclusion as to the reasonable total revenue to be allowed a defendant company. Then to learn whether an individual rate is reasonable it is only necessary to divide the total revenue by the total number of units sold within the period under investigation. The quotient represents the reasonable rate and if the prevailing rate is higher it can be reduced so as to conform to that quotient without resulting in confisca tion within the meaning of the Federal con stitution." This method utterly breaks down when applied to the great railroad systems. Take a two-cent-fare law, for instance, within a single state. We find the fair valuation of the
system and separate the passenger from the freight receipts, but two questions loom up. What is the value of the portion of the prop erty devoted to passenger business and what proportion of the total disbursements is to be attributed to it? The sponsors of the panacea have not worked out this detail. Various methods all arbitrary, have been adopted. Some divide the unassignable dis bursements in the ratio indicated by the gross revenues of the two branches of the business, others on a " wheelage " basis and still others on the basis of locomotive mileage. The Interstate Commerce Commission has mani fested its preference for a division in the pro portion which the respective train mileage bears to the total mileage of train earning revenue. Each side in a litigation will adopt the method which will make the best showing in support of its contentions and neither will be able to give any logical reason for the basis adopted. "The second case may be well illustrated in an attempt to use the fetich in order to deter mine the reasonableness of a single rate, as for example the carload rate on wheat from Buffalo to New York. Giving a referee's valuation of each of the half dozen trunk lines at a figure different from the other five, and a report as to the annual expenses and revenues of each line varying in the same manner (as would necessarily be the case), we do not need the experience of litigation to assure us that the rate would not be different on any one line from what it was on all the others. The one element of competition would prevent any application of the theory discussed in the introductory paragraphs of this article. But such a case aside, it is so apparent as to be axiomatic that such a formula is of no practical use in determining how a reasonable aggregate revenue of a company should be distributed among the nine or ten thousand articles of commerce moving in railroad traffic in shipments vary ing as they do one from another in value, bulk, risk of carriage, weight, distance carried, expense of handling, volume of traffic, and numerous other characteristics influencing the rate." "These two cases indicate that the scope of the proposed test is limited to those cases where the reasonableness of the total revenues
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