The sun. [volume] (New York [N.Y.]) 1833-1916, 1914-11-09
"Reasonabio Return" and "Rea-
sOnable Rates"


sonable Rates"
Regarding the issues presented to the
Interstate Commerce Commission In
the rate case involving the Eastern rail-
roads correspondent asks:
rs not the question in It's simplest tos
whether a public utility, restricted or sub
sect to restriction by Government regu!a-
zion 20 a fair return on its capital In pros
porous times IL entitled to a fair return
on its capital at all times? IL return
on capital not more than reasonable Is
one OF the determnants OF reasonable
rate " is a corollary proposition that a
return on capital not less than reasonable
10 also a determInant And further II
Government regulation determines rates
partly on the basis Of holding capital TO
a reasonable return, does not reasonable
rate include in It's definition "A reasonable
return on capital at the particular tlne'7'
There is no doubt whatever that the
Government does fix rates in accord
ance with It's conceptions OF the return
on capital which such rates will rea-
sonably permit.
Not since the Government took charge
OF the railways. for that precisely Is
what il has done through regulatlve
enactment and Interpretation, has the
Interstate Commerce Commission set
out to reduce rates on the ground that
the railroads were earning too much
money. II has. however. In effect argue,i
at great length and repeatedly that re-
ductiorS ordered in rates would not
prevent railroad earnings from exhibit.
-sng reasonable return on invested
capital
1t has argued at even greater length,
in refusing 10 sanction RATE increa ses,
that the increases were not needed to
enable the railroads to make adequate
earnings for their owners. II has at all
times in recent years considered earn
ings in the light of rates and rates IN
the light of earnings.
Reduced To It's lowest terms the
course OF rate regulation could be de-
scribed as Il consistent and persistent
refusal to allow such rates as would
yield more than II reasonable return
on capital. Is there any other logical
conclusion than that railroad rates
must not be such ms To yield less than
a rea sOnablc return on capltalE
II 1t be objected that reasonable re-
turn" is an elastic phrase, capable OF
large variety NJ definition. and that
there is not much profit in phrases, the
answer might he made that II is not
half as elastic a phrase as "rea sonable
rates. The Interstate Commerce Com
mission seems to have had no difficulty
in guiding It's decisions by its notion Of
reasonable rates, and 1t should have
less trouble in arriving at an agree
ment as to what Is meant by a reason
able return on capital Invested in rail-
road service.
The commission has certain very
hard facts 10 assist II. One Is the
price which capital commands in the
investment markets where the rail-
roads must seek funds in competition
with other forms OF enterprise. An
other is the continuing necessity with
which the railroads are confronted OF
obtaining annually fresh supplies Of
capital In addition to the amounts al
ready furnished them tn establish,
maintain and extend the transporta-
tion industry.
Just before the European war broke
out the Interstate Commerce Commits
sion made an almost grudglng acknowl-
cdgment that railroad net revenues
we're insufficient, 1t had been shown
chat In the last four years, despite
large additional investments Of money,
railroad net earnings actually de-
creased. Power cannot be exercised in
this country without responsibility. r.
responsible power Is something which
American public opinion has never toll
Grated for long. The Government Is
exercising the power 10 fix rates and 1t
nrust own responsibility for the return
~ earnings possible when rates are
multiplied by the volume OF traffic.
II the railroads are going TO be
financed in the future as IN the past
under regime of private ownership
there must he Increased assurance that
reasonable return on present capital
invested will accrue from regulated
sh"'S' 'A''NH VIC '"''''H'V - '''''-'-
sared the railroads will be unable to
obtain the supplies Of new capital which
they will need annually. To convey
this assurance some increase, not de-
crease, Of net earnings must accompany
large increases of capital expenditure
by the railroads; and on the present
level OF rates this assurance Is wholly
lacking,
Moreover the European war Is going
to raise the price OF capital to all Dor.