Stephen Salsbury’s No Way to Run a Railroad: The Untold Story of the Penn Central Crisis (McGraw-Hill Book Company, 1221 Avenue of the Americas, New York, N.Y., 10020, 363 pp., $19.95) is a story within a stow. The author defines his fascinating and tortuous book as a business biography of David Bevan, the chief financial officer of the Penn Central Railroad who struggled against a thousand odds to avert America’s largest business failure. Most of the time Mr. Salsbury, who once taught at the University of Delaware and now teaches in Australia, manages the perspective of a close-up. You see Mr. Bevan, the common sense protagonist, as a legitimate tragic hero who might have saved the railroad if only he had had more understanding superiors.
The perspective doesn’t hold when, at odd moments, Mr. Salsbury looks at the bigger picture. Sensible though he may have been, David Bevan’s efforts to stave off the bankruptcy of the Penn Central merger were doomed by a mind-set that took hold in the United States before he was born. Nobody could have saved the Penn Central as long as our Statist philosophy of regulation prevailed. Mr. Salsbury casts the two chief officers of the merged railroads, Stuart Saunders of the Pennsy and Alfred Perlman of the New York Central, as obstructionist villains. But they were not villains, they were merely men who lacked the tools to reverse an historic situation. If they had listened to Bevan they might have failed with at least a show of honor. But they would still have been unable to escape the nemesis of a Washington, D.C., that does not believe in giving enterprisers freedom to compete. David Bevan came to the Pennsylvania Railroad with a background in finance. He was properly appalled at methods of bookkeeping that did not permit accurate analysis and computerization. Budgets were haphazard affairs, and estimates of cash flow had to be made by guesswork that might be shrewd or might not. The old Pennsy had been run by operators who couldn’t go wrong for the simple reason that coal and iron had to be moved by rail in hilly territory if they were to be moved at all. Capital improvements in these circumstances always paid off. A Declining Business The great days were coming to an end when Bevan, who worked well with President James Symes, managed to install modern methods of cost accounting and control. With declining business it became important to know where the cash account stood before projecting such things as the rehabilitation of freight cars and the investment in diesels. Be-van had considerable skill in money-raising, but he did not push his wizardry beyond the ability of the railroad to pay its operating expenses. The trouble, as Mr. Salsbury sees it, is that Symes, and President Stuart Saunders after him, had the fixed idea that the only way to save the Pennsy for profits was to merge it with the New York Central, which served much of the same Middle West market. But there was no proper planning for the merger. The Pennsy had a decentralized system that was held together by Bevan’s good methods of accounting, which let Philadelphia headquarters know what was going on in the boondocks. The Central, on the other hand, was a centralized road that somehow got along with ancient Interstate Commerce Commission bookkeeping that made no effort to help budget makers anticipate the future. An added hazard was that Alfred Perlman, who had been brought in from the West by Robert Young to manage the Central, didn’t want the merger any way. What happened when the two roads were put together was utter chaos. Cars were lost, and customers vanished. Up to the time of the merger the Pennsy was able to pay its bills out of the investment income earned by its wholly-owned subsidiary, the Pennsylvania Company. David Bevan had followed a diversification program that was generally successful. And both the Pennsy and the Central had profitable real estate in New York City, where “air rights” over trackage could be turned to good account. But the blunders in operation, magnified by employees who simply did not like to work together as a team, could not be compensated for by outside investments. Personal Clashes Part of the time David Bevan functioned as a Cassandra. As Professor Thomas Cochran notes in his foreword to the book, Cassandras are never believed. But, unlike the original Cassandra, Bevan had a free will streak. At one point he had arranged to take early retirement, but he allowed himself to be persuaded that he might help avert doom by hanging on. He felt a loyalty to his benefactor, Richard Mellon, a Pennsy board member who asked him not to resign. Mr. Salsbury makes it high personal drama, with the good guy (Be-van) standing off the bad guys (Saunders and Perlman). But the personal drama collapses when the author, in a mournful commentary, remarks that “what no one knew in 1969 and early 1970 was the long term and severe nature of the collapse of the northeastern railroads . . . . It was evident that the Pennsylvania and the New York Central had long been marginal enterprises. It was also clear these railroads suffered from the general decline of the Northeast and were further damaged by Eisenhower’s massive highway program, which diverted much of the high-value traffic still remaining in the region. Hindsight tells us that the operating failure created large operating losses . . .” The difficulties went far deeper than anything connected with cost accountancy or cash flow projections. At one point the Pennsy, following Bevan’s diversification ideas, invested in something called Executive Jet, a company that provided jet transport for corporations which lacked the resources to own jets of their own. Saunders, no villain at this point, caught a vision of a future given over to well-rounded transportation enterprises. Says Mr. Salsbury, “he felt that it was only a matter of time before railroads would be allowed to control a thoroughly integrated transportation system that would mix trucks, pipelines, ships, inland barges and trains. To the north in Canada, the Canadian Pacific Railroad already did exactly that. In the West, Southern Pacific was coordinating trucks and pipelines with its rail operations.” So, on Mr. Salsbury’s own showing, Stuart Saunders wasn’t quite a dummy. The big villain of the piece turns out to be government. If our regulators and antitrust zealots had only allowed transportation companies to expand into trucks, airplanes, barges and pipelines at their own sweet will, we might have averted such bankruptcies as that of the Penn Central.
John Chamberlain
John Chamberlain (1903-1995) was an American journalist, business and economic historian, and author of number of works including The Roots of Capitalism (1959). Chamberlain also served as a founding editor of The Freeman magazine.