Herein we have outlined the full position of the railroad and the opposing position. We do not regard the decision of this question as vital to this proceeding, however, accepting as we do for the purposes of this discussion the tenability of the Burlington's theory.

We now turn for a moment to consider the added value of railroad property by reason of the increase in the value of the lands held as terminals in cities and rights of way. Out of the difference between the original investment of $258,000,-000 and the estimated present value of $530,000,000 it has been estimated that the increase in land values amounts to approximately $150,000,000. We may agree with the contention of the Burlington that it is no concern of ours as to whether these lands were obtained by private or public donation in whole or in part, but a larger question of public concern is involved - the legal right of a carrier to continuously increase rates because of the growth of the community which gives this added value to the land over which the railroad runs. The States of Illinois, Iowa, South Dakota, Kansas, and Nebraska have not reached their maximum development. Their total population under the census of 1910 was but 32.66 per square mile, whereas the population of the States immediately to the east - Indiana, Ohio, New York and Pennsylvania - was 143.23 per square mile. We have seen the population of the city of Chicago alone grow in 20 years from 1,105,540 to 2,185,283. To-day a road is built upon a prairie farm; next year it runs through a Kansas village; 20 years hence this same village may be a city of half a million.

It is unquestionable that Kansas would not enjoy the population that she has or the prosperity that is hers without the presence of the railroads, and those men of prophetic vision who projected those roads and invested their capital therein are not to be denied a share in the wealth which they have so largely helped to create. But as these lands increase in value with the growth of the communities which they serve should not this larger share coming to the railroad arise out of the operation of that property and the increase in its traffic rather than by the imposition of a new burden of tolls upon those who use their road? This question is not of paramount importance in this case, but, it is urged, may become one of supreme moment if the carriers insist upon a right to increase rates in proportion to increasing land values. In a very real sense these added land values do not come to the railroad as a railroad, but as an investor in land which has been dedicated to a public use; and, being so dedicated, it may be strongly urged that the increment added thereto from year to year by communal growth should not necessitate an imposition of additional rate burdens upon the public. Again, it is said that the community increasingly taxes these lands upon their com-mercial value as real estate, and that therefore the public is stopped from denying their right to return upon such basis of value. Without delaying to consider this matter it may be said that in this case it has been discovered that the ratio of taxes to operating revenues of the carriers remains approximately the same throughout the years. While the absolute tax somewhat increases the relative tax does not increase. Furthermore, such facts as we have been enabled to gather tend to indicate that land used for railroad purposes does not increase in value out of proportion to the increase in the value of the property as a whole.

Whatever the true economic or legal view may be as to the right of a carrier to consider the increase in value of its land as a part of the value upon which it is entitled to a reasonable return, such increase in value does not of itself establish the right of a carrier to increase rates upon a given service. Certainly if the Supreme Court may decline to lay down the absolute rule that "in every case failure to produce some profit to those who have invested their money in the building of a road is conclusive that the tariff is unjust and unreasonable" (Reagan v. Farmer's Loan & Trust Co., 154 U. S. 412), it is a conservative statement of the law to hold that a railroad may not increase the rates upon a number of commodities solely because its real estate has risen in value.

The Burlington has assumed that the true basis of a railroad value was the cost of reproduction, and it may not be unworthy of our attention to consider the reproduction value of this property as estimated by the officials of the Burlington and present the record made therein as to the cost of building a road in this section of our country. It is said, and with no little supporting reason, that those who prophesy or fear that rates will constantly ascend from this time forward because of the increasing value of lands are mistaken; that no such results would take place because increasing earnings would care for increasing land values. This certainly should be so if the property is situated so that it can avail itself of the greater volume of traffic produced by a richer and more productive territory. At any rate it is fair to say that the time has not yet come when values have so increased that they menace existing rates, whatever may be the support they give to the contention that rates should not be reduced. [Page

5389.] ...

[Page 5391] The trend of the highest judicial opinion would indicate that we should accept neither the cost of reproduction, upon which the Burlington's estimate of value is made, nor the capitalization which the Santa Fe accepts as approximate value, nor the price of stocks and bonds in the market, nor yet the original investment alone, as the test of present value for purposes of rate regulation. Perhaps the nearest approximation to the fair standard is that of bona fide investment - the sacrifice made by the owners of the property - considering as part of the investment any shortage of return that there may be in the early years of the enterprise. Upon this, taking the life history of the road through a number of years, its promoters are entitled to a reasonable return. This, however, manifestly is limited; for a return should not be given upon wastefulness, mismanagement, or poor judgment, and always there is present the restriction that no more than a reasonable rate shall be charged.

[An interesting item in this connection is clipped from the financial columns of the New York Times of July 10, 1912 - Ed.

Burlington's Fat Treasury.- No one appreciates more than J. J. Hill that one cannot eat his cake and have it. For several years stockholders of the Great Northern and Northern Pacific have been greedily watching the increasing profit and loss surplus of the Chicago, Burlington & Quincy, jointly owned by the two roads. When the Burlington was earning 11 per cent they felt that the time had come for it to pay something more than the interest on the cost of its ownership. When it began to show from 13 to 14 per cent they saw the possibility of a "melon" in its surplus over the 8 per cent disbursed on its stock. In 1911 the road earned 15 per cent, and still paid only 8 per cent. In the period closed with June 30, after a very severe winter and other unfavorable conditions which left some of the transcontinentals with a deficit after dividends, the Burlington earned about 13 1/2 per cent on its $110,000,000 of stock. The reason this company is able to continue to earn a large balance over dividends in spite of bad weather or business depression is that the management did not embrace the first opportunity to increase the payment on its shares. Instead, the surplus was plowed back into the property, as railroad men say. It was used for improvements, which are now earning a handsome return on the uncapitalized investment. In the Burlington the Northern Pacific and Great Northern have a sheet anchor which would enable them to weather a bad year without reducing their dividends. So far the Hill boards have shown no disposition to cut into the Burlington's surplus.