Yes, I guess I’m with you among the damned. I felt distinct relief whenever somebody in The New New Thing expressed a measure of skepticism. When Clark offers a job at Netscape to Alex Slusky, the young venture capitalist assigned to sleep under his bed, Slusky declines, saying, “He was just too volatile for me. I couldn’t live like that.” Robert, the hands-on engineer of the computerized yacht, thinks Internet investors are mad, observing that Allan, the boat’s captain, “just sits there all day thinking about his money. But if you ask him what any of these companies do, he has no idea.” And Stuart Liroff, who made $8.5 million in the Healtheon IPO, says, “History will document this as the largest financial bubble in the history of the world economy.”
I can’t help trying to picture J.P. Morgan in Silicon Valley, and you can probably guess what I think he’d think. He spent most of his life trying to impose order on the chaos of the emerging American market–partly because the United States was still dependent on foreign capital, and European investors tended to yank their money out whenever things got too crazy here. As America’s unofficial central banker, Morgan tried to rein in the excesses of the business cycle, stifle speculative manias, control corporate competition, keep the currency “sound,” and stop panics. But he was also looking for the 19th century’s new new things. The technological changes he helped underwrite transformed that world as dramatically as the Internet is transforming ours, though much more slowly. The transatlantic cable and the railroads are the most obvious examples, but the Morgan bank also furnished early venture capital for Edison and Carnegie–and Morgan later organized GE and U.S. Steel. When he bought Carnegie out in 1901 to put together the giant U.S. Steel, he paid $480 million–about twelve times earnings. A few weeks later he capitalized the new corporation (which included other steel mills, railroads, mines, steamships, and ore lands) at $1.4 billion, about twice the value of its tangible assets. Nobody thought in terms of billions in 1901. The $1.4 billion figure was equivalent to about 7 percent of the U.S. GNP–a comparable percentage today would be about $400 billion. Henry Adams said, “Pierpont Morgan is apparently trying to swallow the sun.” Other people said that the stock not based on tangible assets was “aqua pura.” In fact, however, Morgan was doing something financially new–capitalizing future earnings–and within a few years the corporation was earning profits and paying dividends.
But I know, that’s the old old thing. In ClarkWorld, Morgan would probably be one of the suits trying somehow to harness new ideas, fascinated by their revolutionary potential but appalled at the idea of throwing billions at companies that exist only “in a state of pure possibility.” Like you, I greatly admire the portrait Lewis has drawn of Silicon Valley and don’t think this state of things can last. I wish I believed in the “new paradigm” that says we’re beyond the business cycle and will not see another recession. According to Lewis, the U.S. capital markets have acquired the personal predilections of Jim Clark. Terrifying thought.