the articles would not be moved at all. Therefore they are bound to take into account what the traffic will bear, and by that I do not mean to say that they are authorized to go as high as it will bear; but in considering whether they will carry the article at all or not they must consider whether or not there is any profit to them after paying the expense of the movement of that freight.

The

All of these are matters that must be taken into account. Supreme Court said, in the Nebraska case, I think, where a State undertook to fix the rates on all articles on all roads, that it must take into account the bonded indebtedness and the other indebtedness, of stock and its value, market value, what the roads earn. They must not be confiscated that is, no rates must be made which would leave them no profit.

You say you

But to illustrate some difficulties about these matters. must take into account the value of their stock. The value of their stock depends on what rates you will permit them to charge, and so you get into a circle when you come to consider it from that standpoint.

Mr. STEWART. To fix rates on agricultural implements, would not this be the process: You would first ask that if the company were engaged entirely in the transportation of agricultural implements whether the reasonable rates fixed would give them sufficient earnings on the capital invested? Would not that be the process?

Mr. CLEMENTS. I presume so, if that were all they were hauling, and yet of course that case could never arise in practice, because they all engage in carrying a great many kinds of freight.

Mr. ADAMSON. Under legitimate conditions their property may increase in value and they would be entitled to profits on real bona fide value whether it cost that much or not. Mr. Stewart asked you in regard to the cost. If its value increased, they are entitled to the bona fide value, are they not?

Mr. CLEMENTS. Yes, sir.

Mr. ADAMSON. Sometimes that happens without watering stock? Mr. CLEMENTS. Undoubtedly.

Mr. ADAMSON. In all kinds of property?

Mr. CLEMENTS. Undoubtedly. I would not think that the original investment was the only thing to go upon.

Mr. STEWART. My question was this: In order to arrive at whether a rate was reasonable on agricultural implements, would you not have first to ask that if the company were engaged entirely in the transportation of that article, whether the rate would give them a reasonable earning on the capital invested?

Mr. CLEMENTS. I presume so. If that were all they were doing and you found out the basis upon which they were entitled to earn, whatever that might be, that until they had earned something more than a reasonable return you would not be authorized to reduce it.

The CHAIRMAN. If fixing or estimating value of plant and you allow any sum for the franchise, would you consider the value of the franchise?

Mr. CLEMENTS. Well, Mr. Chairman, I hardly know how to answer that question. It is probably one that has never been considered by the Commission, certainly not within my knowledge except as the franchise may be bound up with the tangible property.

Mr. COOMBS. For instance, in California the franchise is taxed; it is considered taxable property. It is taxed very heavily, so much so that

the railroads have been fighting it; but I think it has been established that it is taxable property. Would you consider that an asset?

Mr. CLEMENTS. I should say the road was protected in this, that before you undertake to reduce their revenues you consider what tax they have to pay on their franchise and their property and on all these things they pay on.

The CHAIRMAN. In this estimate of value, would you take into account what is known as good will?

Mr. CLEMENTS. Well, Mr. Chairman, I would not know how to measure that in any way except as it expressed its value in the value of the property. I reckon that an element that enters in; I would not know how to measure it, how to estimate it separately. It shows itself in the value of the stock, whatever there is to that. The road that has a good deal of good will, a high reputation and high standing, has high-priced stock.

The CHAIRMAN. But there are many persons who insist that stock and bond valuations are not proper criterions to be looked to in performing the duty of fixing a rate.

Mr. CLEMENTS. Not alone, no; I agree to that.

The CHAIRMAN. I want to know whether or not you can tell me whether these matters of franchise and of good will are, to your mind, or would be to your mind, in performing this duty, elements of value to be considered in considering the aggregate value of the plant?

Mr. CLEMENTS. I do not think they are entitled to any consideration except so far as their value is shown in the stock and property itself. The CHAIRMAN. But if you abandon the method of ascertaining value of taking stock and bonds, if you abandon that method, then would you not consider the separate elements of value?

Mr. CLEMENTS. Undoubtedly.

The CHAIRMAN. Would that include, in your mind, then, value of franchises and value of good will?

Mr. CLEMENTS. It is rather a new question to me; but I suppose if you eliminate the consideration of the stock and all questions of that sort you would appraise the property upon the same terms that you would other property, and in that way the good will necessarily shows itself in the value of the property. The franchise and the property are bound up together; it is all one earning thing; speaking generally, one is not available without the other-that is, for railroad purposes. The CHAIRMAN. There are a good many persons who do not agree with you, who say that in making estimates of this kind, ascertaining value of this kind, the value of the franchise, the value of the good will, are not to be considered. I have read much on that subject. Now, I would like to know if you were to be intrusted with this power of fixing a rate, where you must consider value of plant, whether to your mind these particular elements of value are to enter into your computation?

Mr. CLEMENTS. I do not see how they are to be left out on that basis, if you abandon the stocks and go to the tangible property. The CHAIRMAN. Excuse me for interrupting you.

Mr. CLEMENTS. That is all right; it is rather a novel question to me, but speaking on the spur of the moment I do not know of any better answer to make than that. Of course if the Commission had ever been intrusted with or assumed that it had the power to make rates, initiating rates on all traffic, we would have been confronted with that

question long ago; but never having assumed that power, and only believing that we had the power to correct the rates complained of in particular instances by review, that question has not come up.

Mr. STEWART. The railroad companies in making up their assets upon which they calculate their earnings do not value their good will or their franchises at all, do they?

Mr. CLEMENTS. I do not know that they do. They take into account their stocks and bonds and so on.

Mr. STEWART. And therefore the Commission, in finding whether the rate was just or unreasonable, would not have to take into account the question of what their franchise was worth?

Mr. CLEMENTS. I think so, on the basis suggested. The chairman's question had reference to eliminating a lot of those things.

Mr. STEWART. Do not the railroads eliminate it now?

Mr. CLEMENTS. But they take into account their stocks, and the chairman's question was based upon the idea of eliminating that and going to the value of the tangible property itself, ignoring the stocks and bonds and all those things, and it was in that view I said what I did.

The CHAIRMAN. In fixing a rate would you consider the fluctuation in volume of business from one year to another; or, in other words, in fixing a rate in what was spoken of yesterday as a fat year, would you take into consideration the fact that last year had been a lean year or next year might be a lean year?

Mr. CLEMENTS. That requires me again to say that in respect to all these matters, whether we consider rates originated by the carrier or corrected by a commission or arranged by a railroad association, the best that can be done is approximation, to deal with generalities and approximate what is just and right, all things considered. There are too many details, too many particulars, too many differentiating circumstances of time and place and value, to make it possible to do it in any other way except upon approximation.

Now, that brings me to say what I think would be a right and proper thing in regard to these fluctuations of which you speak, and I am very glad you asked the question at this point, because it will enable me to refer to some things which I was going to defer but might as well speak of now.

Undoubtedly, any substantial, important change in these matters is one that would be considered, and ought to be considered in a determination of what is reasonable and right, because you can see at a glance by the figures that I have referred to here that whereas the earnings for the year 1901, ending June 30 of that year, were $1,578,000,000, for the year 1899 they were $1,313,000,000. Making a difference of $265,000,000-about as much as you collected in the whole year from the tariff on imported goods. The difference alone, that is, the increase shown in 1901 over 1899, was $265,000,000.

Mr. CLEMENTS. Whereas the receipts from customs were $238,000,000, what did you ask?

Mr. ADAMSON. Were the disbursements for 1901 more than they were in the year 1899? They are somewhere near a fixed ratio.

Mr. CLEMENTS. The increase of expenses was $166,000,000; the increase of receipts over earnings was $265,000,000.

Mr. ADAMSON. There is somewhere a fixed ratio, then?

Mr. CLEMENTS. Approximately so, somewhat. These figures show

$100,000,000 more increase in the earnings than there was in the expenses in these two years.

What I was about to say in answer to the chairman's question about fixing rates in reference to fluctuations in earnings and so forth was this: A few years ago the tonnage was not near so great as it is now, and the earnings were less. Expenses were less then than now. Naturally they are more now, to handle a bigger volume of freight. But you can not vary the rate; neither can the Commission or the railroads vary the rate with every monthly or frequent fluctuation, or one that affects some articles and does not affect business generally. Reasonable stability in rates is desirable alike for the public and the Commissioners. Rates can not be stable at all, whether made by the railroads or a commission, on constant fluctuating changes in the value of property or the volume of business. That is another case for the exercise of reasonable, fair judgment, so as to arrive at something that is approximately just.

I remember a few days ago seeing in the newspapers of Washington that the cabmen of this city had applied to the District Commissioners for authority to increase their rate of 25 cents for hauling a person a certain number of blocks, and they assigned as a reason therefor the fact that the price of hay and corn had gone up so it took more to feed a horse now than before. Another reason they assigned was that whereas for hauling a person they were entitled to charge the fixed rate of 25 cents for so many blocks, and 50 cents for so many more blocks, that in some instances they were required to go 10 blocks after a man, and then to take him to a place that he wanted to go, the depot, for instance, and then they would have to go back again to their stand, and that in view of the actual distance traveled, and in view of the greater cost of feeding their horses, they ought to be allowed to charge a higher rate. But that request was refused by the Commissioners, the authority of this District, acting under the law of Congress. You can not lay down an exact rule about such matters except the general rule of reasonableness and fair play.

This regulation of cabs and street cars in Washington is interesting in connection with the contention that to give the Commission the limited authority to review the rates made by the carriers, for the purpose of correction, not creation, is said to be revolutionary, radical, unreasonable, and dangerous, and yet right here in this community of 300,000 people, the capital of the United States, by authority of Congress the Commissioners of this District are authorized and that without a hearing to fix a schedule of rates for the cabmen of this city, to say what they shall charge you and me, so as to protect us when you get off the car at the depot, for instance, against an exaction of $1 where the rate ought to be 50 cents. Now, if this little business in this city, as between these men who stand around in eager competition, lifting their hands to you, saying "Here's a carriage," "Here's a carriage," bidding for your business, if under that competition. I repeat, in a little matter like this there is justification for the arbitrary fixing of a schedule of rates on this business, how infinitely more important it is in respect to this greater business of the railroads of the country that the individual, the shipper, should be protected in the rates he pays.

Now, if we take the advice of those who say that the fixing of the rates by review and the correction in promotion of justice, of a rate

which the carriers have made is revolutionary, confiscatory, destructive, radical, and therefore not to be permitted, are we not straining at a gnat and swallowing a camel when we set up this regulation for the cabmen and street cars of this town? You regulate their fares. Is there any possibility that you can be so badly hurt and oppressed by the rates of these local carriers here where they are in competition as that the man out in the country, dependent on one road for transportation, will be subjected to a worse injustice? Take the man who lives on one road and has no choice as between roads in respect to moving his crop. He may sue in the courts for an excessive charge, we are told. Well, one judge-a circuit court judge in Iowa-has decided that the law fixes the published tariff rate now under this law as the rate conclusive, and if you have paid the published rate and then complain that it was unlawful and sue for the excessive part of it in a court, that you can not recover it because the law has said that the carrier shall make the rate and publish it, and when published he shall collect it.

Not that he may do it. It is a crime for him to remit it after he has published it. He is guilty of paying rebates if he does so; he is guilty of a criminal offense if he takes less than his published rate. He is not only permitted to collect it, but he is required to collect, and he is a criminal under the law if he does not collect it. And yet shall the law be left in such shape that a man must go into court and complain that he has paid the rate which it was a crime on the part of the railroad not to collect after it is published? According to the decision referred to there could be no recovery in such a case if the rate collected was the published rate, however unreasonable. But if this decision be erroneous and the amount of excessive rates collected be sufficient to justify suit, now who is it that can collect in a case in court. Take the grain men of the West or the cotton men of the South, who grow the corn or cotton, as the case may be. At the end of the harvest, or soon thereafter, these men sell their crop to a local buyer. He sells it to Mr. Councilman or Mr. Richardson, or some other one of the great grain dealers in the West, or, if cotton, to dealers in the South. And what do the local men pay for it?

They pay a price which is based upon what he is authorized by the person with whom they are dealing. That is fixed by the market price of the grain in Chicago or in the markets of consumption farther beyond in the case of grain, and they get that price or thereabouts less the freight rate that is necessary to take it there. The grain man sells at a price which is based on the published rate, and suppose after that a complaint is made and upon investigation it is found by the Commission first, and then the courts, that that rate was unreasonable by 3 or 5 or 2 cents. The shipments have all been made, the crop has been moved, practically, and the bills of lading have been made out in the names of the dealers, not the farmer, the man that bought the grain shipped it.

In the bill of lading his name only appears. He paid the freight. The farmer did not pay it; the cotton man did not pay it; each bore the burden of it, however; but the dealer paid the freight, having shipped the grain and cotton. Now it is determined that that rate was unreasonable by two or three cents, and the court sustains that finding. Who is it that recovers back the difference, supposing anyone can? It is not the farmer, who has parted with his crop based upon the higher