Occasionally, we think about investments we could have made that might have made us rich. Armed with clairvoyance, who would not have sunk the farm into Microsoft, back when Bill Gates was a nebbish? But we probably would have put our money into AT&T, U.S. Steel or Western Union—sound investments that would become much riskier through technological change and management by mediocrity.
It’s easy to see why a century ago, an investor choosing between, on the one hand, an automobile factory promoted by an obscure Michigan mechanic named Henry Ford and, on the other, the New York, Westchester & Boston Railway, backed by J.P. Morgan & Company and controlled by the bluest of blue chips, the New York, New Haven & Hartford Railroad, might have opted for the known quantity.
The Westchester—“the Road of Ease”—ran its first train on May 29, 1912 and its last on December 31, 1937. It was safe, stylish, and efficient. Its trains ran on time. Though it never turned a profit, part of its main line survives as part of the IRT number 5 line, carrying passengers between East 180th Street and Dyre Avenue in the Bronx.
The Westchester was an old idea. On March 20, 1872, the New York, Westchester & Boston Railway was incorporated to build from New York through the Bronx to the Connecticut border beyond Portchester. The Panic of 1873 cut off new investment in the scheme as abruptly as the 2001 recession cut off the dotcoms, and so the Westchester slumbered as a paper railroad—a file of corporate papers, including its franchise to build through the Bronx to Westchester—in its lawyers’ office. In 1906 investors headed by J.P. Morgan and William Rockefeller (John D.’s roguish brother) bought control of the Westchester for $11 million. This was a lot of money for an abstraction.
However, the corporate charter and the franchise justified the expense to Charles Sanger Mellen, the New Haven railroad’s arrogant, sharp-tongued, and audacious president. Throughout his presidency, from 1904 to 1913, Mellen enjoyed the confidence of J.P. Morgan, who was as much a financial statesman as an investment banker.
Morgan had dominated the New Haven through sheer force of personality since 1892. Mellen later testified that without Morgan the New Haven’s board of directors would have been “as lacking in interest as a herd of cows deprived of a bull.” Morgan’s policy was simple: eliminate competition. He saw the railroad as a route to a monopoly over southern New England’s surface transportation that would literally control “everything that moved.”
By 1912, Mellen had achieved this. Through new construction, stock control, or lease, the New Haven operated over 2,000 miles of track: nearly every inch of steam railroad and trolley in Connecticut and Rhode Island and most of southern Massachusetts. The New Haven even controlled the coastal shipping companies—like the great Fall River Line with its huge white wedding-cake four-decker steamers Commonwealth and Priscilla. (The heroine of John O’Hara’s Butterfield 8 ends her life aboard a thinly disguised Fall River Line steamer.)
The Westchester’s peculiarity was that, though controlled by the New Haven, it would directly compete with its parent for commuter passengers between New York City and its northern termini, White Plains and Portchester. Yet this wasn’t an absurdity. First, Mellen believed the Westchester would eventually save the New Haven money. The Interstate Commerce Commission (ICC), which regulated railroads, required the New Haven to operate commuter trains with cheap tickets between Westchester and Connecticut and Grand Central Terminal in Manhattan, which was owned by a rival company, the New York Central. The New York Central charged the New Haven up to twenty-four cents for each New Haven passenger passing through Grand Central. This meant the New Haven lost money on every commuter it carried.
The Westchester’s planned southern terminus was at 132nd Street and Willis Avenue, where its riders could board the IRT subway at 129th Street or the el train at 133rd. This obviated Grand Central’s terminal charges. If the Westchester charged lower fares than the New Haven, New Haven commuters might shift to the Westchester, cutting Mellen’s losses.
Second, Mellen believed that New York City’s commercial center would continue expanding northward. Between 1800 and 1850, the commercial district had grown from the tip of Manhattan to Canal Street; by 1900, it had passed 42nd Street. Mellen expected that it would reach the South Bronx between the 1930s and 1950s. (The city fathers planned for this: look at a map of the roads, railroads, and subways that converge at 149th Street in the South Bronx neighborhood nicknamed “The Hub.”) The Westchester would be right there, waiting for it.
The Westchester drove its first spike in 1909. Mellen spared no expense: Roger Arcara described it in Westchester’s Forgotten Railway as “the culmination of railway development: the most modern and efficient design, the most solid and sturdy construction, the greatest capacity (for its amount of trackage), and the most attractive layout and appearance of any line in the world.” It cut through rocks and hills and filled gullies and bogs to keep a straight, level right of way. Its bridges, viaducts, embankments, and retaining walls were designed to last for the ages. Although most of its route was then rural, the line was solidly built as a four-track heavy-duty electric railroad using the finest technology of the day.
It opened on May 29, 1912. From the beginning to the end, it was a first-class operation. Its 72-foot-long olive-green steel cars, with upholstered double-seat benches and a toilet compartment, could reach 57 mph within a minute. At E. 180th Street, Morris Park, Pelham Parkway, Gun Hill Road, Baychester Avenue, and Dyre Avenue the railroad built fabulously ornate stations of poured concrete and steel, designed in a kind of Spanish Renaissance style (“modified Mission” it was called), several of which still serve the MTA today. It carried 2.8 million passengers in 1913, 4.5 million in 1916, and 14 million in 1928.
Yet the Westchester never quite caught on. Its elegant trains were rarely more than five coaches long, in contrast to the fourteen-coach commuter trains run by the New York Central and the New Haven. Commuters preferred a one-seat ride to midtown over changing to the subway at the East 133rd Street terminal. Second, the city’s zoning laws, adopted four years after the Westchester opened, effectively set the northern limit of commercial development at 59th Street.
Third, the Westchester never developed much freight traffic: indeed, it operated only one freight locomotive throughout its existence. Some said it hauled a single load of coal up to White Plains in the fall and took out the ashes in the spring.
Fourth was the fall of Charles S. Mellen. The New Haven’s press bureau made the railroad seem a financial Rock of Gibraltar. Yet as early as 1907, Louis Brandeis, then a Boston lawyer, later a justice of the United States Supreme Court, had shown that Mellen’s profits were largely bookkeeping magic. Few paid attention then. In May 1912, a few days before the Westchester accepted its first paying passenger, the ICC began a routine review of the New Haven’s services and freight rates. Their accountants found confusing transactions between the New Haven and its 336 identified subsidiaries. The review became a full-scale investigation.
The report, issued in early 1913, proved Brandeis correct. The New Haven was insolvent: it had lent money to its money-losing subsidiaries, which they used to pay dividends to the parent company, which the parent then classified as income. Worse, Mellen had constantly shuffled assets between subsidiaries to inflate profits. One relatively clear example, outlined in George H. Foster and Peter C. Weiglin’s Splendor Sailed the Sound, was the New Haven’s coastal steamship operations. The ships themselves were sold in 1907 by one subsidiary, New England Navigation, to another, Consolidated Railway. They were not paid for in cash but with Consolidated Railway stock, worth $20 million but only because Mellen said it was.
The New Haven’s accountants showed a paper profit on the sale for New England Navigation, which was reported as real income, and an increase in the assets of Consolidated Railway. It looked like the real thing. With each transfer, though, the corporate books became works of increasingly elaborate fiction, showing explosive growth without any real increase in value. The steamboats alone shuttled from subsidiary to subsidiary (Consolidated Railway to New England Steamship to New England Navigation and back) over the next five years, pumping up the asset values on one or another set of books, depending on which one needed to be made attractive to investors at any point in time.
An immediate result of the investigation was Mellen’s resignation in August 1913. Within the year, the ICC offered and Mellen accepted immunity from prosecution in exchange for his testimony. He described the steamboat deals and numerous other secret transactions. The New Haven’s treasurer, Hiram Kochersperger, was taken ill; his doctors advised him to travel to Europe for a rest, rendering him regrettably unable to testify. Mellen, when asked how long Kochersperger had been ill, replied, “Since the Commission began to get after the New Haven’s accounts.”
On November 2, 1914, a federal grand jury indicted twenty-one New Haven directors; Mellen spent thirty-one days on the stand at their trial.
Meanwhile, the Westchester lost money on its day-to-day operations from 1912 until 1921 and from 1932 through 1937. Even in the good years, it never made enough to cover the bond interest, which was paid by the New Haven. Much as the dotcoms relied on infusions of fresh venture capital, so the Westchester relied on advances from its parent. In 1935, six years into the Great Depression, the New Haven went broke. The advances stopped. In its annual report for 1935, the New Haven wrote off the Westchester, stating that “The advances made to the New York, Westchester & Boston Railway Company amount to $21,460,494.87, but as the prospect of their being repaid is very remote, they have been reduced to a nominal value of $1.” The next day the Westchester defaulted on its bonds and filed for bankruptcy.
By April 15, 1937, the Westchester’s receiver determined the line was hopelessly insolvent. On December 31, 1937, the Westchester made its final run. In June 1939, scrappers began removing the tracks in Westchester County; a year later, the City of New York purchased the line between E. 174th Street and Dyre Avenue for $1.7 million—much less than it had cost to build—and began operating it on May 15, 1941.
Here and there, the Westchester survives. The East 180th Street and Morris Park stations still bear the initials “N.Y.W.B.” The overpass at Brady and Matthews Avenues bears the railroad’s symbol: the caduceus, a staff entwined with coiled snakes, symbol of Mercury, the swift messenger of the gods. According to Cox Rail, an online site for collectors of obsolescent railroad securities, one of the Westchester’s handsomely engraved bonds, meant to be redeemed in 1946 for $1,000 in gold, is worth about $50.
New York Press, February 19,2002