United States v. Am. Livestock Comm'n Co., 279 U.S. 435 (1929)

Other relevant legislative acts indicate that Congress regards the Court of Customs Appeals as a constitutional p. 440court under Article III. See Keller v. Potomac Electric Co., 261 U. S. 428.

The Court of Customs Appeals is a court of limited, not of general, jurisdiction, and this is true of every federal court. The courts in England and in the several States of the United States, however, are courts of general jurisdiction. Scott v. Sandford, 19 How. 393. Not only p. 441is the jurisdiction of the federal courts limited by the Constitution, but that jurisdiction has been further limited by the failure of Congress to confer upon the courts all of the jurisdiction provided for in the Constitution. Turner N. Bank, 4 Dall. 6. This being so, there is no reason for suggesting that, because a court established by Congress is given a jurisdiction over a special class of justiciable questions, it is not an inferior court of the United States.

For nineteen years, the Court of Customs Appeals has been functioning as a useful and respected part of the judicial system of the country. During .that time, its presiding and associate judges have been commissioned by the President, with the approval of the Department of Justice, during good behavior. One of its judges, after eighteen years of service, has been retired, under the general retirement act, and is now drawing his compensation, by approval of the Department of Justice. Another such judge now serving on the District of Columbia Court of Appeals is eligible for retirement. If the Court of Customs Appeals be not an inferior constitutional court of the United States, then its judges are not entitled to retirement, as they were not given statutory life tenure, James v. United States, 202 U. S. 401, their salaries may be decreased at any time and themselves be removed from office, for partisan or other purposes. There is much p. 442doubt as to whether judges of other inferior constitutional courts of the United States may sit with them and supply vacancies. The practical effect of such a construction is to destroy the court that Congress so carefully provided for in the act creating it.

The question whether the appeal presented a case or controversy should be considered first, because this Court may not find it necessary to go further. In order to decide that question, it is necessary to determine the meaning, operation, and effect of §316, and particularly p. 443whether the findings of the Commission are conclusive on the President or merely advisory. The action of the Commission and the President in raising duties or excluding importations under § 316 is not entirely legislative or administrative as under § 315. Its provisions are penal in their nature, imposing increased duties or exclusion of importations because of unfair competition. Because of this and the possible necessity of due process, the provision for judicial review was made. Here the judicial review comes not after administrative action is finished, but midway in the administrative proceedings. Although the provisions of the section are somewhat conflicting and ambiguous, their fair meaning is that if the Commission finds there is no unfair competition, its finding is binding on the President and he may not adopt a different conclusion and raise duties or exclude articles; that if the Commission finds that there is unfair competition and recommends action by the President, he is at liberty to reach a different conclusion and refuse to act. The result is that the findings of the Commission are controlling on the President in the sense that if he acts, it must be in accordance with the Commission’s findings. The case, therefore, is that the findings of the Commission form a final and indisputable basis of action by the President, if he acts, but he has the power to disapprove the findings and take no action, and the question is whether this prevents the appeal from the Tariff Commission’s findings constituting a case or controversy.

It has been held that where the law provides that action of an administrative body, although reviewed and approved by a court, is merely advisory or subject to later revision by administrative officers, the application for judicial review does not present a case or controversy under the Constitution. In Fidelity Nat’l Bank v. Swope, 274 U. S. 123, this Court held that an intermediate p. 444judicial review of administrative proceedings to be followed by further administrative action constituted a case or controversy where the decision formed a final basis for further administrative action, although the administrative officials were at liberty to discontinue all proceedings. If we may accept that decision as authority for the rule that application for judicial review of administrative action does not fail to present a case or controversy merely because the administrative officers may do nothing further, the fact that the President may decline to approve the findings of the Tariff Commission is not fatal to the contention that the appeal to the Court of Customs Appeals presented a judicial case.

If the Court holds that there was no case or controversy, it need not inquire whether the Court of Customs Appeals is a constitutional court, because §316 confers jurisdiction p. 445on this Court to review by certiorari, and that provision is void if there is no case or controversy, and we can not assume that Congress would have granted these powers to the Tariff Commission without review by this Court. The result would be that all the provisions of § 316 must stand or fall together. If it is concluded that there was a case of controversy, there may be no occasion to inquire whether the Court of Customs Appeals is a constitutional court.

The section provides that, “ to assist the President ” in making decisions thereunder, the Tariff Commission shall investigate allegations of unfair practice, conduct hearings, receive evidence, and make findings and recommendations, subject to a right in the importer or p. 447consignee, if the findings be against him, to appeal to the Court of Customs Appeals on questions of law affecting the findings. There is also a provision purporting to subject the decision of that court to review by this Court upon certiorari. Ultimately the commission is required to transmit its findings and recommendations, with a transcript of the evidence, to the President so that he may consider the matter and act thereon.

“ There is nothing in these provisions which violates either the letter or spirit of the Seventh Amendment. Suits against the government in the Court of Claims, whether reference be had to the claimant’s demand, or to the defence, or to any set-off, or counter-claim which the government may assert, are not controlled by the Seventh Amendment. They are not suits at common law within its true meaning. The government cannot be sued, except with its own consent. It can declare in what court it may be sued, and prescribe the forms of pleading and the rules of practice to be observed in such suits. It may restrict the jurisdiction of the court to a consideration of only certain classes of claims against the United States. Congress, by the act in question, informs the claimant that if he avails himself of the privilege of suing the p. 454government in the special court organized for that purpose, he may be met with a set-off, counter-claim or other demand of the government, upon which judgment may go against him, without the intervention of a jury, if the court, upon the whole case, is of opinion that the government is entitled to such judgment. If the claimant avails himself of the privilege thus granted, he must do so subject to the conditions annexed by the government to the exercise of the privilege.”

In the Minnesota Rate Cases, 230 U. S. 252, when the level of prices had become substantially higher than those during original construction, this Court adhered to its p. 465prior decisions and, in so dong, considered and rejected substantially every argument now advanced in support of the “ dollars invested ” theory.

The Commission, in finding the value of the property of the O’Fallon held for and used by it in the service of transportation, proceeded in precise conformity with the statute. It gave 11 due consideration to all the elements of value recognized by the law of the land for rate-making purposes,” and gave “ to the property investment account of the carriers only that consideration which under such p. 469law it is entitled to in establishing values for rate-making purposes.”

During the decade that followed Smyth v. Ames, however, circumstances conspired to enhance the reputation of the reproduction cost basis at the expense of all the other measures of value. This was before regulation of utilities by commissions had become common, and the care-free methods of the promoters of utilities in financing and construction had rendered estimates of original cost difficult and unreliable, and capitalizations in most cases frankly unrepresentative of any sort of value. Reproduction cost, not being subject to the effects of the business ethics of the time, profited by the suspicion and disrepute into which capitalization and original cost had fallen, and became the commonly accepted measure of value. This p. 470was generally satisfactory to both commissioners and utilities, because the price level maintained itself fairly stable during most of the period.

Every one of them is based on the rule of Smyth v. Ames, and if they are authority for the proposition that rate-making bodies could and should give dominant consideration to reproduction cost at a time when other elements of value were admittedly unreliable and undesirable as bases, and when reproduction cost was not only the only reliable base, but actually did approximate the value of p. 471the investment, they are equally good authority for the proposition that at a time when abnormal prices have swollen reproduction cost out of proportion, the rate-making bodies may, in the light of all the facts, accord it less, rather than more weight. Especially is this so, since the other elements of value are now, due to strict regulation, fairly certain and wholly reliable—in fact, infinitely more so than the now fluctuating reproduction cost.

able value,” or “value for rate-making purposes,” or “ rate base,” which by the Act is made the recapture base upon which excess earnings are to be figured; that the recapture of excess earnings is an exercise of the power to regulate rates, and that its determination in the rate regulating process is a “legislative function,” properly entrusted to an expert commission “ appointed by law and informed by experience,” whose judgment will be set aside by the courts only when it clearly results in the denial of constitutional rights; that its determination “ is not controlled by artificial rules ” and “ is not a matter of formulas, but there must be a reasonable judgment having its basis in a proper consideration of all relevant facts ”; that it is “ fundamental that the judicial power to declare legislative action invalid upon constitutional grounds is to be exercised only in clear cases ” and that this is “ true of asserted value as of other facts ”; that if the alleged constitutional invalidity “rests upon disputed questions of fact, the invalidating facts must be proved ”; that the “ property ” of a railroad is “ dedicated ” to the performance of a “ function of government ” and is to be valued in the light of the fundamental restrictions upon its use and disposition inherent in this dedication; that in determining the weight to be attached to current “ reproduction cost ” there is a clear and vital distinction between local public utilities and railroads, especially the railroads of the United States considered as a whole under the provisions of the Transportation Act; that this Act “introduced into the federal legislation a new railroad policy ” in which the recapture of excess earnings is “ the key provision of the whole plan ”; that its fundamental purpose is to recognize the interstate railroads of the entire country as a national transportation system and to “ foster, protect, and control” them so that they will most efficiently and economically perform the service to the public for which they were originally created as p. 475governmental agencies; and that by the Act “ new rights, new obligations and new machinery were created ” by which this new and constructive policy is to be made effective; that it imposes an unprecedented task on the Commission; that it “puts the railroad systems of the country more completely than ever under the fostering guardianship and control of the Commission,” that “ obviously Congress intended that a method should be pursued by which the task which it imposed upon the Commission could be performed ”; that the Act is to be interpreted in no narrow legalistic fashion, but with constant regard to the economic and administrative factors involved, chief of which is such treatment of the capital already invested as will encourage and promote the procurement of the new capital upon which the whole future of the railroads as a national transportation system fundamentally depends; that the Act definitely and specifically provides that the Commission “ shall give due consideration among other things to the transportation needs of the country and the necessity (under honest, efficient, and economical management of existing transportation facilities) of enlarging such facilities in order to provide the people of the United States with adequate transportation ”; that the treatment which has been given by the Commission since the passage of the Act to the existing investment has already produced unprecedented prosperity and financial stability for the railroads and is already proving attractive to new capital investment in railroad securities, stocks as well as bonds; that the continuance of these methods, as they have been continued in the O’Fallon case, will maintain and increase these highly desirable results, and certainly can not be regarded as “confiscatory,” while the adoption of the theory of reproduction cost at current commodity prices as the controlling element in fixing “ value for rate-making purposes ” as the “ recapture base ” will have the opposite effect as well as

As to the relatively minor objections made to the Commission’s order, it is respectfully insisted (a) that under the Act it is only when “ the Commission finds ” that two or more railroads are “ under common control and management and are operated as a single system” that the value and net operating income of such railroads are to be computed for the group as a whole, and that the Commission has not only not made the finding which is the essential condition of any such treatment, but that the facts of record clearly show that these roads are operated separately, that their stockholders are not the same, and that there is no “ common pocketbook ” out of which the excess earnings of one can be or ever have been used for the benefit of the other, and that the decision of the Commission upon this particular point is not reviewable; (b) that the establishment of rates that will actually produce the “ fair return ” contemplated by the Act is not a condition precedent to the operation of the recapture provisions, as the Act did not intend anything whatever in the nature of a guaranty but simply directed the Commission to fix rates from time to time that would produce the results intended “ as nearly as may be ”; (c) that the Transportation Act became effective on and after the date of its passage on February 28, 1920, and that recapture must be effective on excess earnings after the effective date of the Act and not on August 26, 1920, when the first rate increases became effective; (d) that the11 Reserve Fund ” provisions of the Act and their application p. 477in. the Commission’s order do not constitute the taking of private property without just compensation or without due process of law, because the railroad is “ only a trustee for the excess over a fair return received by it ” and “ never had such a title to the excess as to render the recapture of it by the Government a taking without due process,” as expressly decided by this Court; (e) that “ the steps prescribed in the Act constitute a direct and indirect legislative fixing of rates,” but that the procedure is adequately prescribed, and this Court has repeatedly held that an ^administrative tribunal may fill in procedural details; (f) that interest on the recapturable excess is properly recoverable from the dates respectively when the several instalments of such excess became payable to the Commission under the statute, which was four months after the expiration of each period for which there was recapturable excess. By a cross appeal and the assignment of cross errors, the Commission asks this Court to reverse the decision of the trial court as to this feature of the order, and to sustain the provisions of the Commission’s order with respect to the payment of interest.

“ (2) In the exercise of its power to prescribe just and reasonable rates the Commission shall initiate, modify, establish or adjust such rates so that carriers as a whole (or as a whole in each of such rate groups or territories as the Commission may from time to time designate) will, under honest, efficient and economical management p. 479by the Commission from time to time and as often as may be necessary. The Commission may utilize the results of its investigation under section 19a of this Act, in so far as deemed by it available, and shall give due consideration to all the elements of value recognized by the law of the

“(5) Inasmuch as it is impossible (without regulation and control in the interest of the commerce of the United States considered as a whole) to establish uniform rates upon competitive traffic which will adequately sustain all the carriers which are engaged in such traffic and which are indispensable to the communities to which they render the service of transportation without enabling some of such carriers to receive a net railway operating income substantially and unreasonably in excess of a fair return upon the value of their railway property held for and used in the service of transportation, it is hereby declared that any carrier which receives such an income so p. 480land for rate-making purposes, and shall give to the property investment account of the carriers only that consideration which under such law it is entitled to in establishing values for rate-making purposes. Whenever pursuant to section 19a of this Act the value of the railway property of any carrier held for and used in the service of transportation has been finally ascertained, the value so ascertained shall be deemed by the Commission to be the value thereof for the purpose of determining such aggregate value."

Also, we think the District Court rightly rejected the claim that excess earnings were not recapturable unless and until the Commission had fixed a general level of rates intended to yield fair return upon the aggregate value of carrier property either as a whole, or in some prescribed rate or territorial group. Congress, of course, p. 484realized that final valuations would require prodigious expenditure of time and effort; but the language concerning recapture indicates that prompt action was expected. Practical application of paragraphs 5 and 6 does not necessarily depend upon prior compliance with paragraphs 2 and 3. The Act should be construed so as to carry out the legislative purpose. The proviso of paragraph 3 prescribing action to be taken during two years beginning March 1, 1920, and the clause of paragraph 6 excepting the income of certain roads prior to September 1, 1920, are hardly compatible with this claim by the carrier.

“We hold, however, that the basis of all calculations as to the reasonableness of rates to be charged by a p. 485corporation maintaining a highway under legislative sanction must be the fair value of the property being used by it for the convenience of the public. And in order to ascertain that value, the original cost of construction, the amount expended in permanent improvements, the amount and market value of its bonds and stock, the present as compared with the original cost of construction, the probable earning capacity of the property under particular rates prescribed by statute, and the sum required to meet operating expenses are all matters for consideration, and are to be given such weight as may be just and right in each case. We do not say that there may not be other matters to be regarded in estimating the value of the property. What the company is entitled to ask is a fair return upon the value of that which it employs for the public convenience. On the other hand, what the public is entitled to demand is that no more be exacted from it for the use of a public highway than the services rendered by it are reasonably worth.”

The report of the Commission is long and argumentative. Much of it is devoted to general observations relative to the method and purpose of making valuations; many objections are urged to doctrine approved by us; and the superiority of another view is stoutly asserted. p. 486It carefully refrains from stating that any consideration whatever was given to present or reproduction costs in estimating the value of the carrier’s property. Four dissenting Commissioners declare that reproduction costs were not considered; and the report itself confirms their view. Two of the majority avow a like understanding of the course pursued.

“ Without summarizing the other processes, all clearly stated in the majority report, it will be observed that the rate-making value arrived at for the successive recapture periods, as for example the year 1923, rests upon 1923 p. 487market value of lands; costs of other property installed since June 30, 1919; unit prices of 1914, enhanced by allowance for increased cost of units installed during June 30, 1914-1919; and, for the units installed prior to June 30, 1914, constituting by far the major part of the property, unit prices of 1914 without any enhancement whatever. As to this major part of the carrier’s property devoted to carrier purposes in 1923 no consideration is given to costs and prices then obtaining or to increase therein since 1914.”

The main question for consideration is that of statutory construction. By Transportation Act, 1920, February 28, 1920, c. 91, § 15a, 41 Stat. 456, 488, Congress delegated to the Interstate Commerce Commission the duty to establish and maintain rates which will yield “ a fair return upon the aggregate value of the railway property ” of the United States. By paragraph 4 thereof, it directs that in ascertaining value the Commission shall 11 give due consideration to all the elements of value recognized by the law of the land for rate-making purposes ”; and shall “ give to the property investment account only that consideration which under such law it is entitled to in establishing values for rate-making purposes.” The report of the Commission, which accompanies the order challenged, declares : “In the methods of valuation which we have followed in this proceeding we have endeavored to give heed to this direction [that contained in paragraph 4] . . Excess Income of St. Louis and O’Fallon Ry. Co., 124 I. C. C. 3, 19. Speaking for the dissenting members, Mr. Commissioner Hall said: “ If the law needs change, let those who made it change it. Our duty is to p. 489apply the law as it stands.” (pp. 63, 64.) And Mr. Commissioner Aitchison added : “ If we anticipate grave results will follow, our responsibility will be fully met if we suggest to the Congress, under our statutory powers to recommend new legislation to that body, the enactment of a rule for rate making under the commerce clause which will have no such unfavorable effects.” (p. 64.)

Section 15a makes no specific reference either to the original cost of the property, or to prudent investment, or to current reproduction cost, or to the then existing price level. Section 19 (a) (the valuation provisions of the Act of 1913), to which § 15a refers, directs the Commssion to report, among other things, “ i'n detail as to each piecd of property, . . the original cost to date, the cost of reproduction new, the cost of reproduction less depreciation ” ; and also “ other values, and elements of value.” After the enactment of § 15a and before entry of the order challenged, it was held in Southwestern Bell Telephone Co. v. Public Service Commission, 262 U. S. 276, a case arising under a state law, that the rate-base on which a public utility is constitutionally entitled to earn a fair return is the then actual value of the property used and useful in the business, not the original cost or the amount prudently invested in the enterprise. The Government concedes that current reproduction cost is admissible as evidence to show present value under § 15a. The carrier concedes now that neither Congress, nor the common law, made current reproduction cost the measure of value. The question on which the Commission divided is this: Did Congress require the Commission when acting under § 15a to give, in all cases and in respect to all property, some, if not controlling, effect to evidence establishing the estimated current cost of reproduction? Or did Congress intend to leave to the Commission the authority to determine, as in passing upon other p. 490controverted issues of fact, what weight, if any, it should give to that evidence?

The O’Fallon contends, among other things, that the order is confiscatory. The claim is that the order left to the company a return of only 4.35 per cent upon the value ascertained in accordance with the rule declared in the Southwestern Bell case and McCardle n . Indianapolis Water Co., 272 U. S. 400. If this were true, it would be immaterial whether Congress purported to authorize the course pursued by the Commission. But the fact is that, in each of the recapture periods, the earnings were so large as to leave, after making the required payments to the Commission, about 8 per cent on what the carrier alleged was the fair value of the property. The O’Fallon argues that, since the statute and the order required it to hold as a reserve one-half of the excess over 6 per cent, it is deprived of that property. This is not true. The requirement that one-half of the earnings in excess of 6 per cent shall be retained by the carrier until the reserve equals 5 per cent of the value of the railroad does not deprive the carrier of any property. It merely regulates the use thereof. Compare Kansas City Southern Ry. Co. v. United States, 231 U. S. 423, 453. The provision is one designed to secure financial stability; and is similar to those prescribing sinking funds, depreciation', and other appropriate accounts.1 Congress may regulate the use of railroad property so as to ensure financial as well as physical stability. Both are essential to the safety and the service of the public. In Dayton-Goose Creek Ry. Co. v. United p. 491States, 263 U. S. 456, 486, where the facts were in this respect identical with those in the case at bar, the constitutional validity of the order was sustained. If the failure to give to the evidence of current reproduction costs the effect claimed for it by the O’Fallon was error, it is not because the carrier’s constitutional rights have been invaded, but because the Commission failed to observe a rule prescribed by Congress for determining the amounts to be recaptured and reserved.

The claim of the O’Fallon is in substance that, since construction costs were higher during the recapture periods than in 1914, the order should be set aside, because the Commission failed to find that the existing structural property and equipment which had been acquired before June 30, 1914 was worth more than it had been then.2 The Commission undertook, as will be shown, to find present actual value and, in so doing, both to follow the direction of Congress and to apply the rule declared in the Southwestern Bell case. It is true that this Court there declared that current reconstruction cost is an element of actual value; and that Congress directed the Commission “ to give due consideration to all the elements of value recognized by the law of the land for rate making purposes.” But, while the Act required the Commission to consider all such evidence, neither Congress nor this Court required it to give to evidence of reconstruction cost a mechanical effect or artificial weight. They left untrammeled its duty to give to all relevant evidence such probative force as, in its judgment, the evidence inherently possesses. The Commission concluded that in respect to the evidence of reproduction costs the differences between the Southwestern Bell case and that at bar were p. 492such as to lead to different results in the two cases. It did so mainly because “ in the administration of the valuation and recapture provisions,” ascertainment of value “ is affected by a vast variety of considerations that either do not enter into, or are less easily perceived in, problems incident to the regulation of local public utilities.” (p. 27.) In my opinion the conclusions of the Commission are well founded. To make clear the reasons, requires consideration of the function of the Commission in applying § 15a and of the problems with which it is confronted.

An arbitrary disregard by the Commission of the probative effect of evidence would, of course, be ground for setting aside an order, as this would be an abuse of discretion. Orders have been set aside because entered without evidence;4 or because matters of fact had been considered p. 493which were not in the record;5 or because the Commission excluded from consideration facts and circumstances which ought to have been considered ;6 or because it took into consideration facts which could not legally influence its judgment.7 But no case has been found in which this Court has set aside an order on the ground that the Commission failed to give effect to evidence which seemed to the Court to be of probative force, or on the ground that the Commission had drawn from the evidence an inference or conclusion deemed by the Court to be erroneous.8 On

Second. While current reproduction cost may be said to be an element in the present value of property, in the sense that it is 11 evidence properly to be considered in the ascertainment of value,” Standard Oil Co. v. Southern Pacific Co., 268 U. S. 146, 156, it is clear that current cost of reproduction higher than the original cost does not necessarily tend to prove a present higher value. Often the fact of higher reconstruction cost is without any influence on present values. It is common knowledge that the current market values of many office buildings and residences constructed prior to the World War have failed to reflect the greatly increased building costs of recent years, although the need of new buildings of like character was being demonstrated by the large volume of p. 495construction at the higher price level. Many railroads built before the World War have never been worth as much as their original cost, because high construction cost combined with adverse operating conditions and limited traffic have at all times prevented their earning, despite reasonable rates, a fair return on the original cost. The Puget Sound extension of the Chicago, Milwaukee and St. Paul is a notable example.9 Many branches, and indeed whole lines of railroad, have been scrapped since 1920. Abandonment of 2,439 miles of railroad was authorized under paragraph 18 of § 1 of the Interstate Commerce Act between 1920 and 1925; and in the three p. 496following years 2,010 miles more.10 These properties had, in the main, become valueless for transportation, either because traffic ceased to be available or because competitive means of transportation precluded the establishment of remunerative rail rates.11 Obviously, no one would contend that their actual value just before abandonment was what it originally cost to construct them or what it would then have cost to reconstruct them.

“ The basis adopted by the Committee is three-tenths of 1 per cent higher than the basis of the test period [the three years preceding June 30, 1917]; and assuming, though not conceding that the value of the property is equal to the property investment accounts, it will yield for all the railways a net operating income of $54,000,000 in excess of the income of the test period. There were two considerations which led the majority of the committee p. 500to believe that this increase is not only warranted but necessary:

Either increase in the rate of return or increase of the base on which that return is measured would have served to adjust compensation to higher price levels. The adoption by Congress of the increase in the return, as the means of compensating for the decreased purchasing power of the dollar, precludes the assumption that it intended that the valuation should reflect that lessened p. 501purchasing power. By explicitly choosing the former Congress implicitly rejected the latter.19 For to have allowed an increase in both would have gone beyond adjusting earnings to increased costs and have made this increase a mere pretext for allowing unwarranted profits to the rail-, roads. The proceedings which led to the passage of the Act make it clear that Congress intended no such result.

31 See Smelter Products from Nevada and Utah, 61 I. C. C. 374; Coal from Illinois to Arkansas, Louisiana and Texas, 68 I. C. C. 1; Coal from Kentucky, Tennessee and West Virginia, 68 I. C. C. 29; Rates from Chicago via Panama Canal, 68 I. C. C. 74; Grain from Illinois Points to New Orleans, 69 I. C, C. 38; Trunk-Line and Ex- p. 509in large measure to the influence of competing means of transportation.82

40 For an example of reduction in carload traffic, see note 45. p. 512many, in a reduction of the volume of the less than carload freight.41

In an address before the Western Railway Club, T. C. Powell, president, Chicago & Eastern Illinois Ry., said: “The great change, therefore, that has taken place since 1920 has been this growth of automobile traffic, and by this I mean not simply the ownership of p. 515lines shown by reductions in oil rates caused by the threat of competing pipe-lines.48

54 «( The ^me jg fas|. approaching when railroads will stop buying expensive downtown city property for freight houses, and will, by the use of trucks, handle freight from outside and less costly freight p. 520R. R. Co. v. Minnesota, 186 U. S. 257, 268; Willcox v. Consolidated Gas Co., 212 U. S. 19, 52.

57 “ Curves, it is a matter of long record, have an important relation to speed of trains and cost of transportation as well as to track maintenance, while very sharp curves have a relation to safety of traffic. It has been found that in a 10-year period, with no rail renewals on 1 deg. curves, the rails were renewed once on 2 deg. curves, once or twice on 3 deg., and twice on 4 degree curves. Furthermore, track displacement by traffic has necessitated double or triple the p. 522require the building of tunnels or a cut-off.68 In so far as such a condition exists, the railroad would obviously not be reconstructed with the heavy grades and curves;89 and when considering the reconstruction cost of the whole

6911 If it is reasonable to expect that large amounts of heavy freight will be offered, the question of grades to be adopted is of paramount importance and should be given most careful consideration, and the lightest grades possible should be adopted, even if some increase in p. 523property that part of the line must be given merely scrap value. Compare Kansas City Southern Ry. Co. v. United States, 231 U. S. 423.

60Alba B. Johnson, president of the Railway Business Association, testifying before the Senate Committee on Interstate Commerce in 1924, said: “The heavier locomotives and cars and the longer trains brought about a new standard of rails, road-bed, bridges and other structures. If it were possible to show on a chart the rise in cost of replacing the railroad as a whole we would still not be telling the whole story, because the increase would represent not only a higher level of wages and prices but a change in the character of the plant. Rails and ballast are heavier, frogs and switches more powerful, bridges stronger. Capacity of track was increased by installation of signal p. 524fields of business, the great rise in the cost of labor and of supplies, and the need of better service, have stimulated not only inventions but also their utilization. Through technological advances instruments of transportation with largely increased efficiency and economy have been developed. The price of lower operating costs is the scrapping of those parts of the plant which progress in the art renders obsolete.61 The present greatly increased efficiency of the railroads as compared with 1920, their greatly improved credit, and their present prosperity are, in large measure, due to the advances made toward introducing the improved instruments of rail transportation which have become available.62 Obviously much remains to be done.

65“By producing more ton miles of transportation per hour it reduces the total number of locomotives required; it postpones the time when increased investment in tracks and most other fixed properties to increase capacity will be necessary; it reduces the number of p. 526tions, the use of older locomotives, no matter how good their condition. Statistics as to actual performances of the locomotive of today as compared with that built but a few years ago graphically illustrate this great advance in efficiency.66

“ The enlargement of locomotive terminal facilities and the modernization of locomotive terminal equipment is admittedly the most p. 529economical handling, housing and repairing of the modem locomotives and cars, and must be replaced to prevent curtailment of the productive capacity of the rolling-stock by needless idle hours while awaiting service or repair.78 And the waste incident to the use of shop-tools and machinery long since rendered obsolete by progress in the art must be stopped.79

81 In 1920 there were 68,942 locomotives in use on American Railways. (41st Annual Report of the Interstate Commerce Commission, p. 107.) Of these 12,000 were reported to be obsolete by the Railway Age (Vol. 68.1, p. 33). Of the 2,648 locomotives in service on the B. & O., on December 31, 1920, 633 were more than twenty years old. On the Southern, 501 locomotives out of a total of 1,865; on the Erie, 474 out of 1,540; on the Seaboard Air Line, 142 out of 581; on the Lackawanna, 57 out of 757; and on the Pennsylvania, 624 out of a total of 7,599, exceeded that age. In 1926 it was esti- p. 531competitive means of transportation, and through progress in the art of transportation, may, in respect to a particular railroad, have become so large as to more than counterbalance that increase in its actual value which would otherwise flow from the rise in the price level since 1914, seems clear.

88 “ There is too much tendency to patch up and perpetuate an obsolete, inadequate and uneconomical unit of equipment rather than to retire it and purchase new equipment to derive the benefit of the advanced state of the art in building.” F. H. Hardin, assistant to the p. 532insufficient revenues.84 Such an excuse for failing to install the improved plant might have been conclusive if prudent investment had been accepted as the measure of value. But the fact that the management may have been wholly free from blame in continuing to use the inefficient parts obviously does not add to their actual value. The actual value of an existing plant, and the difference between its value and the present cost of constructing a modern efficient plant which will render the service, is precisely the same whether the continued use of the obsolete part was due to lack of capital, or to lack of good judgment, or to somnolence on the part of the management. As was said in Board of Commissioners v. New York Telephone Co., 271 U. S. 23, 32: “Customers pay for the service, not for the property used to render it.” Only the then service value of the property is of legal significance under the rule of Smyth n . Ames.

Ninth. A further question of construction requires consideration. It is suggested that, even if the Commission p. 539is not required to give effect to the higher price level when finding values for rate making purposes under § 15a, it must do so when fixing the amount of the excess income to be recaptured from a particular railroad under paragraphs 6 to 18. The language of the section affords a short answer to that contention. The valuation prescribed in paragraph 4 is declared to be “ for the purposes of this section ”—that is, for recapture purposes as well as for rate making. And paragraph 6, which provides for the recapture, declares: “The value of such railway property shall be determined by the Commission in the manner provided in paragraph (4).”

11 Inasmuch as it is impossible (without regulation and control in the interest of the commerce of the United States considered as a whole) to establish uniform rates upon competitive traffic which, will adequately sustain all the carriers which are engaged in such traffic and which are indispensable to the communities to which they render the service of transportation, without enabling some of such carriers to receive a net railway operating income substantially and unreasonably in excess of a fair return upon the value of their railway property held for and used in the service of transportation, it is hereby declared p. 540that any carrier which receives such an income so in excess of a fair return, shall hold such part of the excess, as hereinafter prescribed, as trustee for, and shall pay it to, the United States.” (par. 5.)

The difficulties by which the Commission was confronted when requested to apply the evidence of reproduction cost can hardly be exaggerated. In the first place, the evidence was of such a character that it did p. 544not satisfactorily establish what would have been the current cost of reproduction during the recapture periods.91 During the years here in question there was practically no construction of new lines.92 Thus, the current cost of reproduction for those years had to be obtained by using index figures as the basis for a guess as to what it would cost to build then the identical railroad. To give

The O’Fallon urged that its large net earnings during the recapture periods and earlier fully established a higher value, independently of the evidence of reproduction cost. This contention ignores the peculiar character of the property. The Railroad, which is owned by the Adolphus Busch estate and family and lies wholly in Illinois, operates about 9 miles of main line from two coal mines also owned by the Busch estate and family, to the tracks of the Terminal Company in East St. Louis. There are 12 miles of yardage tracks, located largely at the Busch mines. While the Railroad is legally a common carrier, it is actually p. 547an industrial railroad. Ninety-nine per cent of its revenues are derived directly from the carriage of coal; and of the remaining one per cent, about half appears to come from a payment of $300 a month made by the Busch coal company for carrying its miners to and from its mines. Besides the coal from the Busch mines there is a substantial, but diminishing amount carried under a long time contract, from two mines located on an electric road, the East St. Louis and Suburban Railway, which crosses the O’Fallon. This coal it carries from the junction to East St. Louis. See St. Louis & O’Fallon Ry. Co. v. East St. Louis & Suburban Ry. Co., 81 I. C. C. 538. Obviously the value of this railroad property is wholly dependent upon the operation of the mines.

The report of the Interstate Commerce Commission is rejected and its order set aside on the sole ground that in a recapture proceeding under § 15 (a) of the Interstate Commerce Act, it has failed to consider present reproduction cost or value of appellant’s property and so to “ give p. 549due consideration to all the elements of value recognized by the law of the land for rate making purposes.” No constitutional question is involved.

In performing its task the Commission had before it the cost of reproduction new of appellant’s structural property, estimated on the basis of 1914 unit prices, “ with the knowledge that the costs of reproduction so arrived at were not greatly different from the original costs.” It had evidence of the actual cost of later additions and replacements, of the physical condition of the railroad and equipment, of the character, volume and sources of its traffic, of its working capital and revenues and expenses. It possessed, through its valuation department, special knowledge of the property of this carrier. Through its own experience it had the benefit of an expert knowledge of all the factors affecting value of railway property growing out of changes in methods of transportation, of improvement in transportation appliances and the consequent obsolescence of existing equipment, of improvement in methods of railroad construction and consequent reductions in cost. Although it had estimates of present construction costs in the form of index figures based on the comparative general price levels of labor and materials for 1914 and each of the recapture years, which it considered and discussed in its report, there was no evidence before it of the actual present cost of construction of this or any other railroad or any affirmative showing that, if appellant’s road was to be built and equipped anew, competent railroad engineers would deem the present structure and equipment suitable for or p. 550adaptable to the economical and efficient management contemplated by the statute.

I cannot avoid the conclusion that in substance the objection, now upheld, to the order of the Commission is not that it failed to consider or give appropriate weight to evidence of present reproduction cost of appellant’s road, but that it attached less weight to present construction costs than to other factors before it affecting adversely the present value of the structural property. That this was the real nature of the objection voiced by the dissenting Commissioners seems to me apparent from their p. 551opinion. They seem to assume that as a result of Southwestern Tel. Co. n . Public Service Comm., 262 U. S. 276, and other cases in this Court, the Commission as a matter of law may never, under any circumstances, find that the value of the structural part of a railroad does not exceed its fair value of an earlier date, if the Commission has before it evidence of later increased construction costs. They say “ under the law of the land,” in valuing a railroad under § 15a “We must accord weight in the legal sense to the greatly enhanced cost of material, labor and supplies” during the recapture periods. Weight in the legal sense is evidently taken to be not that accorded by an informed judgment but imposed by some positive rule of law.

This Court has said that present reproduction costs must be considered in ascertaining value for rate making purposes. But it has not said that such evidence, when fairly considered, may not be outweighed by other considerations affecting value, or that any evidence of present reproduction costs, when compared with all the other factors affecting value, must be given a weight to which it is not entitled in the judgment of the tribunal “informed by experience ” and “ appointed by law ” to deal with the p. 552very problem now presented. Illinois Central, &c. R. R. v. Interstate Commerce Commission, 206 U. S. 441, 454. But if “ weight in the legal sense ” must be given to evidence of present construction costs, by the judgment now given we do not lay down any legal rule which will inform the Commission how much weight, short of its full effect, to the exclusion of all other considerations, is to be given to the evidence of synthetic costs of construction in valuing a railroad property. If full effect were to be given to it in all cases then, as the Commission points out in its report, the railroads of the country, valued by the Commission in 1920 at nineteen billion dollars, would have had in that year a reproduction value of forty billion dollars and we would arrive at the economic paradox that the value of the railroads may be far in excess of any amount on which they could earn a return. If less than full effect may be given, it is difficult for me to see how, without departure from established principles, the Commission could be asked to do more than it has already done—to weigh the evidence guided by all the proper considerations—or how, if there is evidence upon which its findings may rest, we can substitute our judgment for that of the Commission. Such, I believe, is the “due consideration” which the statute requires of “ all the elements of value recognized by the law of the land for rate making purposes.”

As I cannot say a priori that increased construction costs may not be more than offset by other elements affecting adversely the present value of appellant’s property, and as there was evidence before the Commission to support its findings, I can only conclude that the judgment below should be affirmed. In any case, in view of the statement of the Commission that it considered all relevant facts, including the elements of value brought to its attention by the carrier, I should not have supposed that we could rightly set aside the present order without some p. 553consideration of the probative value of the evidence of present reproduction costs which the Commission discussed at length in its report.