The Topeka state journal. [volume] (Topeka, Kansas) 1892-1980, 1910-10-27
President of Santa Fe Replies to
Governor.
Rates Not Based on Physical
Valuation of Roads.
HOW RATES ARE MADE
Competition, He Says, Enters
Largely into Question.
Explains What Was Done With
That 1O2 Million of Stock.

President E. P. Ripley, of the Santa
F'e Railway company, has written a re-
ply to Governor Stubs open letter.
1t follows:
Chicago, October %. 1910
Hon. w. r. Stubs, Governor of Kan
saS.
My Dear Governor:-I have your let
ter of the 10th inst.
IN reply to my statement that rail-
road capitalization had nothing to do
with hiking rates you ask me to say
how our rates are fxed?'' I will try
TO DO SO, though the subject is a COM
plicated one as every student of the
question has found out.
Our rates as they stand today are a
growth-the result of experience; of
contact with shippers; of conference and
compromises many cases of conces-
sion to public opinion even when we
believed that public opinion to be mis-
taken Also they are the result of COM
petition between ailroads-between
railroads and aterways-between mar
kets and between Northumberland last
", they are in part due to legislation
ana national laws, mostly uninteIli-
gent and passed in time of popular
hysteria. If all these influences COM
bined have not produced a perfect re-
suit are not the public and the law
makers at least in part responsible?
When the early 70s the railroads
first entered Kansas they were an un-
tried and risky venture; they super
seeded the OK and the horse and their
rates were put just low enough to
make the OK and horse teams retire
from business. Even upon very high
rates the projectors were doubtful of
success and in many cases with good
reason. AS population quickly followed
the railroad and the business increased
the rates were reduced by the natural
workings of the influences above named
and the reduction has been going on
practically ever since.
Physical Value Not Considered.
In my forty years experience in the
consideration of the railroad rates L
have not known Of a case in which the
physical value of the railroad property
or its capitalization was given any
consideration. The needs of the com
munity' the value of the property to be
transported, the price at the originat-
ing point and at destination, the ship
per's view of what he can afford 10
pay, the rates prevailing in adjacent
territory, whether by rail or water-and
in general the value of the service, are
the factors which determine the rates,
when not interfered with by the varj-
Gus regulating bodies which oc-
casionally cast stones into the meshes
of the machinery. For instance-the
four trunk lines in Kansas must per
force have the same rates-yet their
capitalization ranges from $4,000 for
the Missouri Pacific to about $4,000
for the Union Pacific. The rates IF
these four mu7t not only be Identical
at the various functions with each 9th
er but also at higher or lower than at
a station twenty miles across country
on the Missouri Pacific.
When we fix our rates from the east
ern seaboard to the Pacific it is simply
a question of what We can get as
against the ocean carriers. We know
T<e-k
which if applied to our whole business.
would ruin us, but SO long as there is
any margin over the probable mere
transportation cost it seems best to
take it because it adds little to our
fixed expenses.
Now in any Of these cases and under
these conditions, can you conceive how
capitalization and value can be taken
into account? The traffic man is a
salesman-he has but one article to
sell. viz: transportation-he does not
know, nor can any one tell him what
will be the cost Of any given transac-
ton; he does know approximately the
average transportation cost and he
hopes not to go below that-but he
frequently makes money for his road
by taking business at less than the
average of all costs.
Have I made it clear that in the in
itial making of freight rates there is
no room for considering either value or
capitalization?
Cases Not Parallel.
You cite the supreme court decision
In the Gas company case, where a 6
per cent return was held sufficient but
in that case the court said that in de-
termining the sufficiency of a particu-
Lar rate of compensation "the amount
of risk in the business is a most i'm
portant factor",-and this factor the
court found was reduced almost to n
minimum In the case of railroads,
however, this element of risk you must
admit, is large and constant You also
ask why the railroads appeal to the
courts alleging that various legislative
bodies are attempting to confiscata
their property | am not a lawyer, but
imagine the idea is that only by al
leging a violation of the federal con-
stitution can the protection of the
United States courts be invoked The
acts of state legislatures and the or
ders or state commissions fixing rates
have been successfully attacked be-
cause the facts in given cases showed
that such rates were plainly con
fiscatory, and hence, it was unneces-
sary to ask for finding as to the linn
its of a reasonable return upon a busi-
ness involving so much risk as that af
railroading.
In the gas case. the court recog-
nized that there was cline of diyi-
sion between possible confscation and
proper regulation, and whenever that
line has to be judiciaIly determined, 1
believe the courts will hold that the
limit of proper regulation has been
passed if any carrier be deprived of
the reasonable compensation it has a
right to expect, considering the value
of the service rendered. regardless of
the exact percentage of profit from its
operations
Further you say: Without knowing
the value of the property owned by a
company and the earnings how could
any court determine that the COM
pany's property is being conf1scated ?'
1t is a matter for the court to deter
mine on the evidence presented in any
given case, and I do not see that a
physical valuation by government ex-
perts would help matters.