supply and distribution systems, gas and electric lighting plants, railroads, and other properties affected with a public interest are usually not bought and sold in their entirety sufficiently often or under conditions sufficiently similar to have any "market value" in any useful or significant sense of that expression. In view of the inapplicability of the simple test of market value resort must be had to several lines of evidence, no one of which is by itself conclusive of the ultimate problem, which is, what is the present value of the plant or property considered as a whole for the purposes of its actual use. Judicial discussion of this problem has unfortunately been somewhat meagre. Applying the analogy of cases of eminent domain involving similar properties, it would seem that original cost would in most cases be admissible, though generally not very valuable evidence.1 The cost of reproducing the plant item by item, with a proper deduction for depreciation due to use and age, would also seem to be admissible, though likely to be misleading where the assembled plant or any considerable portion of it represents a method of doing the business which by the progress of the arts and sciences has become antiquated or obsolete, or where, by reason of bad judgment in the original selection or assembling of the components of the plant or in its situation, the plant as a whole is ineffective, inadequate, or unduly expensive to run. Among the best considered rate cases bearing upon the present question is Capital City Gas Co. v. Des Moines, in the Circuit Court for the Southern District of Iowa. In his opinion Judge Woolson says: "Under the proof presented the plant is in excellent condition and efficiency; and the cost of reproduction appears to be the substantial equivalent of its value. . . . Returning to the attempt to ascertain the cost of present reproduction of plaintiff's gas plant, or rather of a gas plant which shall be equally efficient and capable in supplying gas to the defendant and its citizens, . . . I conclude that suitable and proper real estate could be obtained and such plant erected, mains laid, etc., with same efficiency to meet the demands of the city as that now possessed by plaintiff, for $400,000." 1 100 Mass. 350; 103 ib. 365; 108 ib. 535; 109 ib. 438; 141 ib. 298; 168 ib. 541; 60 N. E. Rep. 977 ; 76 N. Y. 121; 49 N. J. L. 1; 58 Ill. 380. 2 168 Mass. 541; 155 ib. 35; 32 Minn. 224; 135 N. Y. 116; 23 Nev. 154; 49 N J. L. 1; 72 Fed. Rep. 829. 8 72 Fed. Rep. 818. The passage just quoted suggests the necessity for the qualifica tion of the test of reproductive cost already adverted to. For if the existing plant is in any respect antiquated or inefficient as compared with a new plant of modern design and of the same capacity, and shows a greater expense per unit of output or work done, then the cost of procuring such modern plant will fix the maximum sum which a prospective purchaser of the existing plant, though willing to buy, could afford to pay. The company's plant may be worth much or little, but cannot well in any event be worth more than the cost to procure a new plant of equal capacity and modern design. In computing the cost of a plant it seems proper to include allowances for interest during construction, engineering, bookkeeping, canvassing for subscribers, and all professional and contingent expenses during the period of installation, which together measure the difference in value between two enterprises similar in all respects, except that one is a "going concern and the other prospective; and from the cost of the new and modern plant to deduct a sum representing the shorter future life of the existing plant due to age and to the extent to which it has been allowed to get out of repair, and a further sum representing the difference in cost of operation or mechanical value between the existing plant and a new plant of modern design. The sum thus obtained would seem to approximate as nearly as possible to the fair value of the existing plant for the purpose of testing the validity of a legislative schedule of rates. To what extent, if at all, it is proper to add to the value thus obtained a sum to represent the value of the company's franchises, may be a matter of some doubt, especially if any of the franchises were the subject of an out and out sale by the public to the company. It has also been intimated that the company's business and earnings might be taken into account; but it would seem that this is unsound, both for reasons applicable specially to this class of cases and in view of the analogy of the measure of damages in cases of eminent domain.2 For purposes of taxation, also, a sharp 1 62 Fed. Rep. 853; 60 N. E. Rep. 977; 168 Mass. 541; A. C. (1893) 444. 2 82 Fed. Rep. 839, 850; 12 Cush. 605; 3 Allen, 133; 108 Mass. 535; 109 ib. 438; 117 ib. 302; 157 ib. 218; 176 ib. 101; 59 N. E. Rep. 658, 1020; 26 Fed. Rep. 417; 62 N. H. 561; 133 N. Y. 628; 35 Hun 633; 95 Pa. 426; 99 ib. 631; 107 ib. 461; 140 ib. 510; 148 ib. 429; 177 ib. 252; 190 ib. 51; 192 ib. 632; 61 N. J. L. 32; 49 Cal. 139; 32 Minn. 224; 106 Ill. 253; 111 ib. 499; 115 ib. 97; 167 ib. 85; 86 Ill. App. 392; 98 Ga. 92; 91 Tenn. 291; Cooley, Const. Lim., sects. 696, 697. distinction is made between the value of the property of corpora. tions (which is subject to local taxation) and the value of their franchises, good will, and business.1 And it is believed that generally it will be found that the only rule which will work substantial justice to the public as well as to the Company is to omit altogether from valuations made for the purpose of determining the validity of legislative rates all items representing or purporting to represent the value of the Company's franchises (except, perhaps, franchises for which the Company has actually paid the public), business, profits, and good will. In any event it may be asserted with confidence that any method of valuation based upon a capitalization of earnings for any period, or upon the selling value of the Company's stock (whether the property is overcapitalized or undercapitalized), is wholly inadmissible. 8. What constitutes a reasonable return? The rate of compensation to which the company is entitled is a question as yet unsettled, and one which is perhaps incapable of a specific answer applicable to all cases. Mr. Justice Brewer, in his decision in the Dey case, seems to have thought that any net return, however small, was sufficient to meet the requirements of the Fourteenth Amendment; but, as pointed out by Mr. Justice McKenna in the Southern Pacific case, this view was retracted by Judge Brewer in his decision as Circuit Judge in the Union Pacific case, and "has received no judicial sanction since." It would seem that the just rate of compensation would be that determined by the percentage of net profit expected and commonly obtained in enterprises not affected with a public interest and involving about the same business risk. The tendency has been, however, to seek for a more easily ascertainable and more arbitrary test. In the Kansas City Stock Yard cases, a legislative rate which allowed 5 3-4 per cent profit on the value of the property after all expenses and an allowance for depreciation was held not to be in violation of the Fourteenth Amendment; and Judge Foster, in the first of these cases, suggests that "doubtless the rate fixed by law for interest on money furnishes a test of which the investor 1 12 Mass. 252; 11 Allen 268; 12 ib. 75; 13 ib. 391; 16 Gray 38; 98 Mass, 19, 25; 99 ib. 146; 100 ib. 399, 403; 144 ib. 598; 146 ib. 403, 412; 6 Wall. 611, 632. See, also, 48 Hun 193; 158 N. Y. 162, 168; 144 Pa. St. 365; 67 N. H. 514. 2 35 Fed. Rep. 866. 464 Fed. Rep. 165. 878 Fed. Rep. 236, at p. 261. 5 79 Fed. Rep. 679; s. c. 82 ib. 839, 850. cannot complain, although in many cases it might be oppressive to the general public."1 B. If the rate has been fixed arbitrarily or inconsistently so as to discriminate against the complainant with regard to other persons or corporations similarly situated, it is obnoxious to that part of the Fourteenth Amendment which prohibits the States from denying to any person within their jurisdiction the equal protection of the laws, irrespective of the question whether it is in itself unreasonably low. For this provision means that the law and its administration must be impartial and not characterized by arbitrary or capricious discrimination between persons. In Wilmington & W. R. Co. v. Commissioners,3 a bill in equity to restrain the Attorney-general of a State from enforcing rates established by a State Railroad Commission was sustained on exceptions, the material allegations of the bill being that the Commissioners'order was inconsistent with prior orders of the same body, and with its action in regard to other railroads in the State in such a way as to amount to an arbitrary discrimination. It may be added that it is in cases of this sort that a refusal of the State legislature, board, or commission to afford the party affected any opportunity to be heard may be important, as would the fact that the reasons assigned by the Commissioners were wholly irrelevant, or a mere cover for action in reality based upon improper reasons.5 So a discrimination between classes, as a law compelling a company to transport a certain kind of freight or a certain class of passengers, or to carry on a certain part of its business, at a loss, has been thought obnoxious to the Fourteenth Amendment.6 Insistence on a uniformity of rates under similar conditions may give rise to many embarrassments. Suppose that a company can, owing to exceptionally able management in the past or present, sell at a much lower rate than the average rate necessary to 1 See, also, Milwaukee El. R. R. & L. Co. v. Milwaukee, 87 Fed. Rep. 577; San Diego Water Co. v. San Diego, 118 Cal. 556; Brymer v. Butler Water Co., 179 Pa. 231 2 Yick Wo v. Hopkins, 118 U. S. 356; Gulf, etc., R. R. v. Ellis, 165 U. S. 150. Lake Shore M. & S. R. R. v. Smith, 173 U. S. 684; Trustees Cincinnati Ry. v. Guenther, 19 Fed. 395; Jew Ho v. Williamson, 103 Fed. Rep. 10. 8 90 Fed. Rep. 33. 4 San Diego Water Co. v. San Diego, 118 Cal. 656, 575. State of Ohio, ex rel., etc., v. Cincinnati Gas, etc., Co., 18 Ohio St. 262. 169 U. S. 466, 541; 173 U. S. 684; 61 Kans. 439; 31 L. R. A. 47. return a reasonable profit to other companies similarly situated, is it permissible to reduce the rates of such company below this average? This question has never been adjudicated; but it has often been declared that the interests of both parties are to be kept in view, and that the fair value to the community of the service in question is to be regarded as well as the company's right to a reasonable return upon its investment.1 N. Matthews, Fr., BOSTON, October, 1901. [To be continued.] 1 164 U. S. 578, 596; 169 U. S. 466, 543; 173 U. S. 684, 687; 174 U. S. 739, 753, 757 |