choice of two possible theories, each achieving virtually the same result, finally accepted the property theory and rejected the contract theory? Does it throw any light on the subsequent course of judicial decision? Since the court does not itself give any reasons for its choice, one can only speculate. But it seems to me that the choice has some significance.

For a court composed of nine jurists, appointed for life, to annul a legislative expression of the popular will is always a delicate matter. To upset a law which has behind it the political passions and aspirations of a great popular movement like the granger movement of the seventies, requires particular circumspection. Above all, the judges must have been anxious to avoid the suspicion that they were substituting their own discretion for the will of the legislature. Their decision must rest on judicial, not on legislative grounds. A court acting judicially ascertains facts, and applies to them rules derived by certain processes of reasoning from established principles or precedents. A public body with legislative powers ascertains facts, perhaps, but it applies to these facts its own sense of what is in the public interest. Now the word "reasonable" carries with it a large suggestion of legislative discretion. No process of juristic reasoning can point with certainty to the precise limit beyond which a rate ceases to be reasonable. For twenty years the court had been saying that the issue of reasonableness was a legislative and not a judicial question. But a decision based on the rule in Smyth v. Ames would have at least the illusion of juristic necessity. What the value of a railroad was, seemed on the surface to be a pure question of fact, and a fair return could easily be ascertained by reference to current rates of profit. A judge who upset a state statute on the ground that it failed to allow a reasonable return on the fair value of the property seemed protected against any charge of usurping legislative power. He need only point to the ascertained facts, and shift all responsibility to the framers of the Constitution.

Certainly the language of the cases subsequent to Smyth v. Ames in the main bears out the hypothesis that the court has been trying to ascertain not a rule of policy, but a discoverable fact. The question has been, not what is it wise to allow the company to earn, but what is the value of the property on which it must be allowed to earn a return. In Smyth v. Ames the court enumerated

seven factors which were to be taken into account "in order to ascertain that value," - cost of construction, cost of improvements, amount, and market value of stocks and bonds, present cost, probable earning capacity, and operating costs. It suggested that there might be other factors. But these were merely different kinds of evidence, to be given such weight as they deserved. They were like the instructions of the court to a jury in eminent domain proceedings. The court instructs the jury that they must find, as an ultimate fact, the market value of the property in question. Perhaps it will enumerate the different kinds of evidence submitted at the trial, bearing on this ultimate question. The evidence may be contradictory, and the methods of valuation of the expert witnesses may have been inconsistent. But it is for the jury to give to each item of evidence such weight as in their judgment it deserves. The only requirement is that their ultimate finding must be a finding of fact. They must make up their minds what the property is worth, not what they think the owner should in fairness receive for it. No other explanation of the Supreme Court's enumeration of inconsistent and contradictory factors in Smyth v. Ames seems to me possible. The court was addressing the masters in chancery and the lower federal courts, and instructing them what ultimate fact they had to find, and what evidence they could consider.

On the whole, although there have been some suggestions that a rate schedule must be "just both to the company and to the public," 23 this conception that rates should be based upon an ultimate fact to be determined by inquiry has persisted. "What the company is entitled to demand . . . is a fair return upon the reasonable value of the property at the time it is being used for the public." 24 The price paid at a recent foreclosure sale is "evidence" of value.25 The cost of reproduction is "one way of ascertaining the present value" of a public service corporation.26 The cost of reproduction is "of service in ascertaining the present value of the plant," but it is not conclusive.27 That mere conjecture is insufficient to justify overturning state legislation "is true of asserted value as of other

*San Diego Land Co. v. National City, 174 U. S. 739, 758 (1899).

24 Ibid., 757.

25 San Diego Land & Town Co. v. Jasper, 189 U. S. 439, 443 (1903).

26 Knoxville v. Knoxville Water Co., 212 U. S. 1 (1909).

27 Minnesota Rate Cases, 230 U. S. 352 (1913).

facts." 28 This conception that there is a fact which can be discovered, if we are only persistent enough in our search for it, and which, once it is found, will provide a mathematical solution of all rate-making problems, is widely prevalent outside the Supreme Court decisions. Congress has instructed the Interstate Commerce Commission to "investigate, ascertain and report" the value of all property owned or used by common carriers.29 It is the general practice of many state public service commissions to conclude their opinions with "findings of fact" as to the value of the utility in question. Indeed a general technique seems to have been developed, among state commissions, the object of which appears to be to render their decisions proof against reversal in the courts. The commission inquires minutely into the several "evidences" of value enumerated in Smyth v. Ames: original cost, cost of reproduction, capitalization, value of stocks and bonds, etc. It then marshals the figures, of course widely divergent, which these different lines of inquiry produce, and concludes somewhat as follows: We have considered carefully the facts which the Supreme Court has directed us to consider, and have given to each fact such weight as in our judgment it deserves. We therefor find that the value of the property is so and so. The final figure evolved generally bears no arithmetical relation to any of the evidentiary figures which the commission has "taken into consideration" and no indication is given of the logical process by which the figure is reached.30 A court which is reviewing such a decision obviously finds it exceedingly difficult to hold that a wrong method was applied in valuing the property, since it is not clear what method, if any, was in the commission's mind. Unless the net result is clearly unjust, the court is more than likely to treat the whole question as one of fact, on which the decision of a fair-minded board which considers all the evidence is virtually conclusive.31

28 San Diego Land & Town Co. v. Jasper, 189 U. S. 439 (1903). 29 Valuation Act, 37 STAT. AT L. 701.

30 See, for instance, Re Champaign & Urbana Water Co. (Ill. Pub. U. Com'n), P. U. R. 1919 E, 798, 825. Harbster v. Angelica Water & Ice Co. (Penn. Pub. S. Com'n), P. U. R. 1918 E, 540, 548. Re Western Col. Power Co. (Colorado P. U. C.), P. U. R. 1918 E, 629, 648. Pub. Serv. Com'n v. Pac. Tel. & Tel. Co. (Washington P. S. C.), P. U. R. 1916 D, 947, 959. Re Valuation Missouri Southern R. Co. (Mo. P. S. C.), P. U. R. 1916 C, 607, 648.

"As in Van Dyke v. Geary, 244 U. S. 39 (1916)

II

Smyth v. Ames closed the first great chapter in the judicial history of rate regulation in the United States. The conflicting desires which plagued the Supreme Court in the granger and railroad commission cases were reconciled by the unanimous adoption of a formula which conceded what the majority of the court desired, the power to regulate, and yet guarded against what the minority feared, confiscation. The second chapter was already opening. What content should be given to the general terms of the formula? The formula implied a business relation between the railroad and the public. A certain service was to be performed and a certain measure of compensation to be paid. But what were the detailed terms of this hypothetical agreement? What risks was each side to assume? What meaning should be ascribed to the word "value," and what was a "reasonable return"? To any one familiar with the intricacy and refinement of detail in any business contract involving large sums and complex relations it must be apparent that the general language of the rule in Smyth v. Ames could only be regarded as a preliminary formulation, and that the task of giving it precision of meaning and fullness of detail still lay in the future.

The answer to these questions is obviously not to be found in Smyth v. Ames itself. Sometimes a court uses a word to which it ascribes a clear and definite meaning, but which to the reader is ambiguous. In such a case a minute inquiry into the context, the facts of the case, the precedents and the theoretical probabilities, may reveal just what it was that the court meant. But a mere grammatical inquiry of this sort is of little use in interpreting the rule in Smyth v. Ames, for the ambiguity of the words "fair value" is of a different sort. It is more probable that the court did not have in its mind any clear definition of the phrase. Consciously or unconsciously, it used words which merely described a large area of possible meanings. The use of such words of indeterminate meaning is not uncommon in jurisprudence, and almost universal in political discussion. Whether or not the court was originally aware of the ambiguity is of no importance. It must sooner or later have realized it, and intentionally left it to the future to decide what signification the term should have.

Before inquiring in what manner and to what extent the Supreme

Court has accomplished this task, it will be helpful to consider more carefully the elements involved in the business relation which the rule of Smyth v. Ames covered. Juristically, the problem may be to construe and interpret certain general concepts, such as property, due process of law, just compensation, but mere analysis of juristic concepts will not carry us very far. For the moment let us forget the Fourteenth Amendment and the nature of property. Instead of deducing a rule of rate making from a definition of value, or from a theory of the police power or of the nature of judicial and legislative functions, let us consider the matter pragmatically, as a problem in practical statesmanship.

The community requires certain transportation services. It is willing to pay for them, but for practical reasons, or perhaps because of certain historical and political preconceptions, it does not wish to undertake the construction and operation of the necessary facilities through its own gevernmental agencies. A group of citizens with financial resources form a company and offer to perform the services for the community, provided a satisfactory agreement can be reached as to the terms on which the services shall be performed and paid for. The agreement is obviously one of the very greatest importance, both in the magnitude of the financial interests involved, and in the vital effect which it will have on the business development, the health, and the prosperity of the community. One might naturally expect that the leading principles of such an agreement would be debated with the greatest thoroughness, and that they would be embodied in a written instrument in which the reciprocal rights and obligations of the respective parties were set down with the utmost clarity and refinement of detail.

Let us visualize the negotiations which might lead up to such an agreement. A committee representing the community is closeted with a committee representing the company. We will assume that a certain consensus of opinion has already been achieved. The committee for the public has rejected the company's proposal that the government should give a financial guarantee of operating expenses and a fair profit. The company has rejected the counter proposal that a fixed schedule of rates be embodied in the contract, the company taking the risk of increases in operating expenses and of fluctuations in the volume of traffic. It is agreed that the company shall look for its compensation to the fares and freight charges,