One has only to call to mind such examples of competing lines as those of the Denver and Rio Grande between Denver and Salt Lake, the Union Pacific between Cheyenne and Ogden, the Lackawanna and New York Central between New York and Buffalo, or many others, to realize that there are, on all roads of this nature, many other factors than the actual cost of operating through trains between the termini, which determine the through rates.
One would hardly suppose that at this late date any one believes that it is proposed to use only the value of the purely physical property of railroads as a basis for rate regulation, yet the New York Sun, a paper of national prominence and usually most ably edited, devoted a column of its editorial page[[20]] to a discussion intended to show that rate regulation, based on physical valuation alone, was an impossibility.
In addition to citing the example given above, the following is put forward as the reductio ad absurdum of the argument for rate regulation based on physical valuation. It is said:
"Suppose there are two bridges over the Ohio, the cost of the construction of each being the same, one between Cincinnati and Newport and the other twenty miles below where there is nothing but a village on either shore.... On what basis would the proponents of physical valuation, as the determining value in rate making, adjust a toll charge on these respective bridges?"
The example is far-fetched, and in no way applicable to the question of the adjustment of rates on railroads, but inasmuch as it is seriously put forward from a responsible source, it seems worth while to consider it.
Assuming, as apparently the propounder does, that the proposition is uncomplicated by any questions of franchises, public rights in the land on which the bridge and its approaches are built, etc., then there is no question but that the owners of either bridge have a perfect right to charge what toll they please. On the other hand, suppose the permission of the War Department, or some other governing body, had to be obtained in order to build piers in the river, or even to build the bridge at all; the argument used in asking for this permission is that the bridge is needed as a public convenience; or it is desired to occupy certain streets for the approaches, again is used the argument of public convenience, and so on. These privileges are granted on the tacit understanding, at least, that the public convenience is to be served, and the Courts rule that, in such cases, in consideration of the equity which the public has in the property by reason of the rights granted, a fair return on the value of the property, but no more, should be the basis for establishing the rates of toll. Would the Sun claim that the value of the rights and franchises given by the public in such a case, be included in the value of these bridges, and that a higher total income should be derived from one bridge than the other because the value of the streets on which the approaches had been built is greater in one case than the other; or that a greater income should be derived in one case than another because the cities furnish more people than the villages? Is there any particular reason, except for the slightly larger depreciation and cost of maintenance, and, bearing in mind the fact that both bridges cost the same, why, if there is ten times as much traffic on one bridge as on the other, the toll should not be proportioned accordingly, to provide the same income on each?
If the Sun had imagined a bridge built by private individuals, with their own money, between two villages, the inhabitants of which, at the time the bridge was built, having been willing to grant almost any franchises or privileges in order to get the bridge, the villages in course of time growing to large cities, and the old bridge having been replaced by a heavier modern structure, the example might have been more nearly comparable to the railroad situation. In this case, the original toll, of say 10 cents a head, may have, in the early days, only barely returned a meager rate of interest on the investment, or even for some years resulted in a deficit. Would the Sun uphold the owners of the bridge if, since the villages have grown to cities, they still insisted on collecting the original toll, if it could be shown that a new bridge could be built and would be a paying investment with a toll of, say, 2 cents, except for the fact that the original bridge was built in the only location where it was practical to build a bridge at all? Or is it reasonable to say that the foresight and energy of the owners of the bridge, even though it may have been one of the principal factors in enabling the villages to grow into cities, entitle them to capitalize their enterprise on the basis of a 10-cent toll? It cannot be denied that the energy and foresight of the original builders should be recognized in fixing the rate of toll, but there is a limit to the value of this, and it is because of the feeling on the part of the general public that the capitalization of similar intangible values on the part of the railroads and other public service corporations is too large, which, whether true or not, has caused the present agitation against them. If the capitalization is reasonable, there must be some way to demonstrate the fact, and it seems as if a properly made physical valuation, with due allowance for the intangible values, is at least a step in the right direction.
The Sun states in its editorial that:
"The scheme of physical valuation, as a basis for rate making, is flatly rejected as unworkable by practically all the ablest railway authorities of the country, and that the only true measure of value is the earning capacity."
To quote only one, namely: Dr. Emory R. Johnson, who is generally regarded as an authority and not by any means predisposed in favor of the public as against the railroads, it is found that he states in his "American Railway Transportation" that: