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that^there must be some fallacy in it, for in interstate business as that employed in the reason that while the new schedule local business, in which the rates are re would reduce the actual receipts on freight duced. Again, in another way, the error business 17 per cent, the earning capacity of the court's computation is manifested. was diminished only one-tenth of one per The testimony discloses that the operating cent. "Such a result," says the court, expenses of the entire system during each "indicates that there is something wrong of the four years were over 60 per cent of the in the process by which the conclusion is gross receipts. If the cost of doing local reached." To show the fallacy of this business in South Dakota was the same as method and attempt to ascertain the cost of that of doing the total business of the com pany, then the net earnings of that local transportation, the court took round num bers. "Suppose the total value of the business would not exceed 40 per cent of property in South Dakota was $10,000,000, the gross receipts. Reduce the gross re and the total receipts from both interstate ceipts 15 per cent, and the reduction by and local business were $1,000,000, one- the defendant's rates was 15 per cent on half from each. Then, according to the passenger and 17 per cent on freight busi method pursued by the trial court, the ness, it would leave only 25 per cent of the value of the property used in earning local gross receipts, as what might be called net receipts would be $5,000,000, and the per earnings, to be applied to the payment of cent of receipts to value would be 10 per interest on bonds and dividends on stock. But the testimony shows that the cost of cent. The interstate receipts being un doing local business is much greater than changed, let the local receipts by a pro that of doing through business. If it should posed schedule be reduced to one-fifth of be 85 per cent of the gross receipts (and what they had been, so that instead of re there was testimony tending to show that ceiving $500,000, the company only receives it was as much if not more) then a reduction $100,000. The total receipts for interstate and local business being then $600,000, the of 15 per cent in the gross receipts would valuation of $10,000,000, divided between leave the property earning nothing more the two, would give to the property engaged than expenses of operation. These com putations show that the method which the in earning interstate receipts in round num bers, $8,333,000, and to that engaged in court pursued was erroneous, and that earning local receipts, $1,667,000. But if without a finding as to the cost of doing the $1,667,000 worth of property earns $100,000 local business it is impossible to determine it earns 6 per cent. In other words, although whether the reduced rates prescribed by the actual receipts from local business are defendants were unreasonable or not.1 In a recent case 2 before the Kentucky only one-fifth of what they were, the earn ing capacity is three-fifths of what it was. Railroad Commission, an attempt was made to arrive at an approximation of the And, turning to the other side of the prob lem, it appears that if the value of the property engaged in interstate business is 1 The decree of the trial court dismissing a bill to be taken as $8,333,000, and it earned to restrain the enforcement of a. schedule of $500,000, its earning capacity was the same maximum rates was reversed, but the court in its as that employed in local business — 6 per opinion recommended that the testimony should be referred to some competent master, general or cent. So that although the rates for inter to make finding of facts. state business be undisturbed, the process special, s The Commonwealth of Kentucky v. the by which the trial court reached its con Louisville and Nashville Railroad Company, et aL, clusion discloses the same reduction in the before the Railroad Commission of Kentucky, earning capacity of the property employed 1906.