To Gauge the Internet, Listen to the Steam Engine

By William J. Holstein
August 26, 2001 The New York Times

John Steele Gordon did not pass judgment on the Internet in his
book,  "The Business of America." In a recent interview, however,
he did have some things to say about dot-com mania and its
historical precedents. 
       
Q. How does the Internet compare with earlier waves of
technology? 
       
A. Some technologies are more fundamental than others.
A better can opener doesn't change the world. But when a
technology does something revolutionary, it changes the whole
economic universe. A perfect case is the steam engine.
Somebody born in 1720 would be  utterly mystified by the world 
of 1820, which by then included railroads. The Internet is one 
of those very fundamental technologies; the microchip is another. 
       
Q. Do you think that we understand the full dimensions of
what the  Internet will do to us? 
       
A. Heavens, no. It will be a hundred years before it fully
plays out, just  like the steam engine. We are now at the point 
with the Internet that they were with the railroad in 1850. 
It's just beginning. 
       
Q. Was the rush to invest in dot-coms typical of earlier
investment  manias? 
       
A. Very typical. Whenever a new technology is brought before 
the public in a very impressive way, there is always a rush
to invest in it, to  get on the bandwagon. If you get on the 
right bandwagon, you get  enormously rich. Of course, guessing 
the right horse is very difficult, especially when there are 
10,000 horses in the race. After Lindbergh flew to Paris in 
1927, for example, there was a bubble in aviation stocks. 
People rushed in without even knowing what they were buying.  
It turned out that one, Seaboard Airlines, was a poetically 
named railroad. It wasn't an airline at all. 
       
Q. What are we learning from today's technology bust? 
       
A. Old Andrew Carnegie's formula still applies. Whether
you're making steel or software, you invest to be the low-cost
producer. Keep the  money. Don't pay it out in dividends. 
So that when times are bad, you can swoop in and scoop up the 
pieces. Bill Gates, for example, is sitting on billions of 
dollars and marketable securities. We haven't seen the last of 
him. 
       
Q. You don't seem to think governments can be effective in
breaking a monopoly. 
       
A. Antitrust enforcement is a hippopotamus. It lumbers in
after the game is over. 
       
Q. So your view is that monopolies eventually self-destruct? 
       
A. Right. Nobody works any harder than they have to.  
Lions don't  make their living chasing fast wildebeests. 
They do it by chasing slow ones. It's the same in the marketplace. 
If you have the right widget and everyone comes to you, you get 
lazy. 
       
Q. Do you subscribe to the view that we have a "new economy" 
that behaves differently than it did a few years ago? 
       
A. Yes, we have a very different economy than we did 25
years ago.  We haven't abrogated the laws of economics or the
business cycle, but  it is different. It's much more globalized 
than it was. And we learn about information so much faster. 
       
Q. Will economic momentum resume? 
       
A. This period reminds me of the English economy in the
early part of the 19th century when their economy was exploding.
The term "millionaire" was coined in 1827 by  Benjamin Disraeli.
Everybody was making so much money. The whole society was
shifting. Power was shifting from the aristocracy, which owned 
the land, to the middle class, which owned the factories. 
       
Q. So are you optimistic? 
       
A. Over the long term, I'm very much a bull. Over the short
term, it's a  bumpy flight.