I chose the start date of 1866 because that is the first time the New York Senate appointed a committee to study rapid transit in New York, which concluded that New York would be best served by an underground railroad. It’s also the start date that Katz uses.
The technology was available. London opened its first subway line in 1863. There is a 1.4 mi railroad tunnel from 1873 in Baltimore that is still in active use today. These early tunnels used steam engines. This did cause ventilation challenges, but they were resolvable. The other reasonable pre-electricity option would be to have stationary steam engines at a few places, open to the air, that pulled cables that pulled the trains. There were also some suggestions of dubious power mechanisms, like the one you described here. None of the options were as good as electric trains, but some of them could have been made to work.
This is not a global technological overhang, because there continued to be urban railroad innovation in other cities. It would only be overhang for New York City. This is a more restrictive definition of overhang than I used in my previous post, but it might still be interesting to see what happened with local overhang.
The London subway was private and returned enough profit to slowly expand while it was coal powered. Once it electrified, it became more profitable and expanded quickly.
The Baltimore tunnel was and is part of an intercity line that is mostly above ground. It was technologically similar to London, but operationally very different.