The Towering Boondoggle

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As a result, the charter, when it finally made its way out of the legislature, on April 24,1832, virtually guaranteed an economic basket case. It established an independent corporation to build a railroad running through the Southern Tier but specified that the line must lie wholly in New York State. Because New Jersey occupies the western shore of New York Harbor, that meant that the eastern terminus of the road would have to be about twenty-five miles north, at the village of Piermont, New York. Moreover, because the canal ring wanted no interference with the canal, the western terminus was set not at burgeoning Buffalo but at the small Lake Erie town of Dunkirk, forty miles to the south. Only politicians could have designed what would be, upon completion, the longest railroad in the world, running, almost literally, between nowhere and nowhere.

The Erie was always “Burdened with a capital structure that made it easy to manipulate on Wall Street.”

Furthermore, the legislature required that the Erie have the unusual gauge of six feet and not connect with any out-of-state railroad without the specific permission of the legislature. As a gauge of four feet eight and a half inches became the standard, other railroads quickly fell in line, in order to be able to use off-the-shelf rolling stock, crossties, and such. The Erie, forbidden by its charter to adopt the standard gauge, did not do so until the 1880s, IL at huge cost.

As for connecting with other railroads, it seems the legislature feared they might siphon off traffic. That they might equally bring traffic to the Erie was apparently beyond the imagination of the solons at Albany. By 1850 they had finally learned that lesson, and they passed a law requiring all New York State railroads to connect with all possible out-of-state lines. As for the cost of the Erie Railway, with very little experience to fall back on, neither the surveyor of the proposed route nor the original management of the Erie or the politicians who so reluctantly authorized its construction had the faintest idea. This did not stop them from issuing estimates, of course. The surveyor thought it would cost $4,726,260. The management, in its first annual report, predicted a sum not exceeding $6,000,000. The Committee on Railroads of the state assembly, haughtily announcing that it was “discarding estimates founded n conjecture,” came up with a figure, based inevitably on conjecture, of $16,435,875, a number that included double-tracking the entire line.

The committee’s estimate proved to be as erroneous as it was exact. In the end the Erie Railway, with only 60 of its 450 miles double-tracked, took $23,500,000 and seventeen years to construct. In the context of the time, that was staggering. The sum was about what the federal government spent annually in the 1840s, more than three times what the Erie Canal had cost. To raise it, the Erie had to issue just about every form of security existing, from stock to preferred stock to debentures to convertible bonds. Furthermore, it had to be bailed out by the state three times lest the entire enterprise collapse into politically conspicuous failure.

As a result, the Erie from its inception was burdened with a capital structure that made it easy to manipulate on Wall Street, where plenty of people were more than willing to do so. It soon became known, in the memorable phrase of Charles Francis Adams, as the Scarlet Woman of Wall Street. Profitable only in the best of years, the railroad passed through bankruptcy and was reorganized no fewer than six times before losing its corporate identity altogether in the early 1970s.

The Erie at least became a model of how not to build a trunk-line railroad, just as the World Trade Center 120 years later became a model of how not to carry out a major urban development project. Still, the WTC disaster had one wonderful consequence. The dirt from the enormous hole dug for the foundation had to go somewhere. That place was the Hudson River, creating an expanse of landfill that remained empty for twenty years. (One year a conceptual artist planted two acres of wheat on it, the first agricultural crop to be harvested in Manhattan in decades.) Finally, when the real estate market was right, Battery Park City began to rise on the land. A mix of residential, commercial, and public areas designed by many different architects and built by many different real estate concerns under an overall design, it was clearly a masterpiece of urban development long before it neared completion.

Further, because it lies to the west of the World Trade Center, those colossal structures no longer stand at the water’s edge, and the vista of Manhattan from the harbor is once again as aesthetically satisfying as it is awesome.