be the fair value of the property being used by it for the convenience of the public."

This statement with others in the opinion, appears to limit "fair value" to that of the physical property and to exclude franchise valuations. Unless the value of the physical property employed in a public service and the actual cost of performing that service are to be taken as the basis of rate calculations, the amount of rates would appear to depend mainly on the arbitrary opinion of the company or legislature making them. Though the majority of the railways in Nebraska could have made nothing on their investments under the rates prescribed by the act of 1893, as the court understood the evidence, yet the opinion states that two companies could have earned "something" above operating expenses. Reference to the evidence on which the court relied, and which was repeated in the opinion, shows that this something amounted to 1.99, 4.06, 6.84 and 10.63 per cent annually on the values of the railways. Unless the court thought that this rate of net earnings was so small as to amount to a taking of property without due process, it does not appear why the Nebraska act was unconstitutional as to the roads making this rate. According to dieta in the Sandford case above cited, an act might be constitutional as to some roads and unconstitutional as to the others.

A still later case in the Supreme Court, that of Cotting v. Goddard, decided in 1901, goes farther than any of the foregoing in its limitation of state powers. This case arose under a Kansas statute of 1897 that fixed charges for handling live stock at stock yards where more than a certain amount of business was done, and affected the yards at Kansas City. Petitions were filed asking that the Attorney-General of Kansas be restrained from enforcing the statute as to these yards, and, after hearings in which evidence was taken as to the value of the yards and the annual earnings, the injunction was granted. In the course of the unanimous opinion of the court, delivered by Justice Brewer, it was said:

If the rates prescribed by the Kansas statute for yarding and feeding stock had been in force during the year 1896, the income of the stockyards company would have been reduced that year $300,651.77, leaving a

net income of $289,916.96. This would have yielded a return of 5.3 per cent on the value of the property used for stock-yard purposes, as fixed by the master.

The actual net income of the company during 1896, as found by the master and the court below, was $590,558.73, and the value of its property in the stock yards was $5,388,003.25, so that its net income during that year amounted to nearly 11 per cent on its investment. After pointing out the liability of a person engaged in the operation of public stock yards to some legislative regulation, the court proceeded to define the limits of such regulation, and said:

The question is not how much he makes out of his volume of business, but whether in each particular transaction the charge is an unreasonable exaction for the services rendered. He has a right to do business. He has a right to charge for each separate service that which is reasonable compensation therefor, and the legislature may not deny him such reasonable compensation, and may not interfere simply because out of the multitude of his transactions the amount of his profits is large.

These reasons for the decision of the court are negative in character. They tell us that it matters not that profits are large if rates are only reasonable. But what are reasonable rates? How are they to be determined if considerations as to investments and profits are put aside? If reasonable rates do not imply reasonable profits, where is the amount of charge to stop short of what the person receiving the service can be induced to pay?

A quarter of a century has transferred the test of reasonable rates from the opinions of state legislatures to the opinion of the Supreme Court. In the Granger Cases the court denied its right to interfere with local rates fixed by legislatures, even when these rates were so low as to destroy all profits. This doctrine, after various adverse dicta, was fully repudiated by the case of Chicago, etc., Railway Co. v. Minnesota, decided in 1889, thirteen years after the Granger Cases. From that date to 1896, when Covington, etc., v. Sandford was decided, the court went no farther than to hold that legislative rates must afford some income above operating expenses. Another step

was taken the following year, when the court held in Smyth v. Ames that rates which permitted a net profit of as much as 10.63 per cent on one road, but nothing on others, could not be enforced as to either.

Finally, in 1901 comes the decision, in Cotting v. Goddard, that rates which yield a profit of 10.9 per cent on the investment are not unreasonable, and that rates which would reduce this profit to 5.3 per cent are unconstitutional.

ALTON D. ADAMS

W

XXIV

THE DOCTRINE OF JUDICIAL REVIEW 1

E are now to undertake an investigation of the influence which the doctrine of judicial review has exerted on our American system of railroad control, in order to discover whether it has strengthened or weakened the efficiency of that control. In this inquiry we shall consider, first, its effect on the state's power to reduce rates; second, its effect on the state's power to enforce the rates it has established; and third, its effect, as a resultant of the other two, upon the spirit and ideas of railroad commissions.

Before coming to these precise questions, however, we shall do well to reflect for a moment upon the spirit of the law which has shaped the doctrine of judicial review, and which directs its application; for it will serve to illumine our entire discussion of this subject to recall at the outset the general attitude of the law and of the courts in all cases which involve both public and private interests. The attitude of the courts is determined by the fact that they are charged with the duty of interpreting and applying a law in which the individualistic spirit of the age has been firmly crystallized. In our modern régime the individual is the central figure. His importance, his dignity, his sanctity, his rights, and his liberties are everywhere recognized. His use of a free ballot is supposed to guard civil rights and to shape aright the course of government; his pursuit of his individual self-interest is supposed to secure industrial justice and welfare; his freedom of conscience, of thought, of will, and of action is not to be lightly infringed. "All men are created free and equal," says our Declaration of Independence, "and are endowed

1 From "Railroad Rate Control," by Harrison Standish Smalley, Ph.D., Publications of the American Economic Association, 3d series, Vol. VII, 1906, pp. 83-110.

by their Creator with certain inalienable rights. . . . To secure these rights, governments are established among men." The only limitation upon them is that they shall not, in their exercise, encroach upon the equal rights of other individuals.

It is true that this is a theory which has been gradually losing its hold both upon the minds and upon the hearts of men. So pernicious have been some of its results, especially in the world of industry, that the inquiry now is whether it has not passed the zenith of its usefulness, and whether it is not now necessary to modify it by an assertion of the social duties and responsibilities of individuals, and accordingly, by the enactment of laws. restricting the individual for the general good. In this inquiry different minds have pursued different courses, have gone different lengths, and have, of course, reached different conclusions. Socialists would have us abandon the theory of individualism entirely and substitute therefor a theory of social duty, to be applied by the state. Long since, more conservative minds suggested factory legislation. Some thirty years ago, the consensus of public opinion demanded regulation of railroads for the public good. To-day there is agitation for municipal ownership, trust regulation, and other limitations upon private enterprise. This view is not intended to be complete. Its purpose is merely to recall the fundamental theory upon which our society is based, and some of the modifications of it which have been urged by many from time to time.

But while observing the gradual departure from the theory of individualism in industrial economics we must always remember that the law under which we live grew up with the growth of the individualistic theory and has received its stamp. The history of the English law is a record of the successful struggle of the individual, first for recognition, and then for supremacy. Indeed our law is permeated, saturated, with the theory of individual rights. Two centuries ago English law had been shaped to that theory, while in our country it no less lies at the basis of our law; and its dignity has been recognized in the bills of rights of our state constitutions, and in most of the Amendments to the Federal Constitution. Such limitations as the state may