The Washington times., 1911-04-09
THE MINNESOTA RAILWAY
.. \ RATE DECISION.

1u"n III Inc ueclslon byeJudge SanborI
OF the Minnesota rate case. Judg,
Sanborn has been very conservative,
jurist, despite that he has favored tn,
Government in the Northern Securitie,
and Standard Oil and some other not
able cases under the Sherman act. But
he is a property rights judge" of The
strongest predictions. His decision
in the Minnesota case presents the con
elusive logic of the effort at dual con.
trol-eontrol by the Federal Govern
ment of interstate traffic, and by the
State of intrastate business.
Minnesota's railway commission had
ordered passenger rates reduced from
3 to 2 cents the mile, and had reduced
both class and commodity freight rates
the former about 20 per cent and the
latter about 7. The railroads enjoined
the reductions, and after long test OF
the revenue effects of the new sched.
ules the, circuit court has decided
against the State.
Reduced to simplest terms, here is
the substance of the courts decision:
The State has authority over intra-
state rates. But in exercising that
authority it must not insist on such
reductions as may affect interstate
business. For example, suppose half
e
from State and half from interstate
business. Suppose the railroad efEns,
from all this business, per cent. And
suppose both classes of rates are on
the same basis. Then the State sets
about to regulate.
1t orders the intrastate rates re-
duced 25 per cent. That lops off one
fourth of one-half of the total revenue.
The railroad, in order to hive, must get
that money back; and to do it must
increase the interstate rates so as to
gain, through them, as much as has
been lost by the reduction of the State
rates.
The Sanborn decision lays down this
rule, and while advocates of State
regulation may be aggrieved, they must
concede that it is logical. Practically
its effect is to destroy the power of
the States to regulate rates within
their own borders. Whenever they un-
dertake a reduction which can be con-
strued to trench upon interstate rates
it is ultra wires The former attorney
general of Minnesota, Z. T. Young,
who handled the case for the State,
takes exactly this view. 1t would be
we'll if States rights advocates gen.
orally would recognize TIE seriousness
of such a construction. II is logical
and clear. The right to regulate one
half. or one third, of the total business
of railroad is manifestly an authority
to regulate, in less degree, the entire
business.
Suppose the State of Minnesota or
ders a reduction of 25 per cent in all
rates If that is fair the shipper in
North Dakota, just beyond the Mime
sofa line, will demand equally good
rates. If, through the interstate COM
merce regulafive authority, he is given
them, the reduction is general The
railroad cannot recoup itself from its
interstate traffic for the losses on State
business. There is inaugurated foot
race in regulation between the two sets
of authorities.
Obviously, the answer is to cen
tralize this entire authority in the in
terstate body. 1t is not fair that
North Dakota traffic should pay higher
rates because Minnesota compels lower
ones. 1t is not equitable that inter-
state business should pay the penalty
of low rates on State traffic. The two
cannot be separated. They move on
the same lines, over the same rails, in
the same cars and trains. The expense
of the one cannot possibly be segre-
gated from that of the other. The
situation must be handled as a whole,
and that means that a single authority
must hold the power.
In the Minnesota case the railroads
submitted to the court a valuation of
their properties. 1t greatly exceeded
their cost, and was much larger than
their capitalization. 1t represented, in
short, the capitalization of the un-
earned increment of value in their real
estate, in terminals, rights of way,
etc. On the basis of this valuation the
court finds that the Northern Pacific,
for instance, cannot earn per cent
on its value.
There is the nub of this whole ques-
tion of regulation. There must be a
conclusive declaration of public policy
as to whether unearned increment is
entitled to the same ratio of profits
as investment. If so, then there will
be continued increases of rates. The
Sanborn decision holds in favor of
capitalizing unearned increment.
The need for general valuation of
railroads, and for a declaration of
national policy toward this whole vast
,nrohIam Was never made plainer than