The Way We Lived Then

"It seemed there was but one virtue in the world, commercial enterprise." Expressions of regret for the excesses of the 1990s bull market have been common this month and outraged US congressmen have used such phrases as they interrogate chief executives on reforms of corporate accounting.

But this sentence was penned by Anthony Trollope a century and a quarter ago, in The Way We Live Now. The novel chronicles the rise and fall of the railway speculator Augustus Melmotte, a rogue who drags the elite of the City of London - peers, baronets and all - down with him.

The similarities of Trollope's plot to the present day are striking. Just as he is beginning to be assailed, Melmotte throws a sumptuous dinner party worthy of our own gilded age; the same guests who had begged for invitations slap him in the face by failing to turn up.

It is not merely the novel that is familiar but also the pattern that it depicts: a cycle in which innovation is followed by boom, scandal, outrage and reform. While The Way We Live Now does not get much past the outrage, Britain and America reformed their financial markets following the railway scandals. Recalling that cycle - both as Trollope sketches it and as it played out in reality - is vital as we consider how to proceed now.

The first stage is innovation. In The Way We Live Now, the building of the railways in Britain and the US has opened up new vistas. Suddenly the prospect of economic and social mobility arises where none existed before. A young lawyer in the novel, Mr Squercom, may succeed without capital or contacts simply because he is talented. His success is "a sign, in its way, that the old things are being changed". Another character observes "a general heaving up of society". The same sort of "heaving up" was forced in the 1990s by the modern equivalents of the railway: the internet and data telecommunications.

The trouble is that the genuine prospects of a new technology are always hard to distinguish from the hype. Because the railways of Britain and the US had succeeded so stunningly, London investors talked themselves into believing that any such development would be similarly profitable. And when Melmotte comes along, selling a scheme to lay track from the American south west through Mexico to Vera Cruz, they bite.

Similarly, the investors of the 1990s were willing to accept inflated estimates of profits in industries where the potential for profit seemed so great. In eras when future profits seem enormous yet unknowable, rogues and rumour command unusual power. Melmotte, like Enron's executives, bullies sceptics into silence by accusing them of ignorance of finance or the new technology. His railway scheme depends on unusual accounting, like WorldCom's. His holding company is domiciled safely far away in Vienna, the Bermuda of its day.

Of course, the new wealth is also intimidating. Who can compete with Melmotte's soirees, or the $12m Nantucket mansion of Dennis Kozlowski of Tyco? So when trouble emerges, the scapegoating is ferocious. In The Way We Live Now, the revolt is against Melmotte: "As the great man was praised, so also was he abused." In our day, the targets are Mr Kozlowski and his alleged failure to pay art sales taxes, or Bernie Ebbers of WorldCom and his statement to Congress while pleading the Fifth Amendment to avoid questions.

Neither man has been accused of roguery on the scale of Melmotte but anyone symbolic of a tainted era - even those not directly involved - can become a target. Martha Stewart's stock trades are of such interest because, as the doyenne of domesticity, she is an emblem of the way we lived in the 1990s.

Public rage is so ferocious in such a period that the era itself is also condemned. Trollope's disgust was aimed at the 1860s and 1870s, when Jay Gould, the railway schemer, used every trick in his battle with Cornelius Vanderbilt for control of the Erie Railroad. President George W. Bush pursed his lips and uttered a Trollopian condemnation of his own last week: the 1990s saw "the lure of heady profits" that "spawned abuses and excesses".

But as the real-life pattern of such cycles reveals, a general attack on an age drags down the good along with the evil. Melmotte's railway is a scam but it need not have been: it may be that the laying of rail through Mexico had, as one character puts it, the possibility to "regenerate" a desert frontier. Railways were indeed a modernising innovation.

The same holds true today: we may know that WorldCom or Enron had problems - but the essential premise of opportunity in deregulation of the telecoms and energy industries has yet to be disproved. The bonfire of revenge now burns high but when the smoke clears we shall probably see much of value in our recent era of innovation.

Trollope, for his part, concludes by depicting a penitential return to something close to pre-railway England. Melmotte perishes; materialists repent their ways and retreat to the farm and estate, poorer but cleaner. Such a rejection of the new era is, however, a fictional solution and was even in Trollope's day. England did not go back to the agrarian economy. It reformed the world of finance, as did the US, first through the trustbusting of Theodore Roosevelt and, eventually, with the creation of the Securities and Exchange Commission. Railway scams remained abhorrent but the railway proved an engine of progress.

So it will be this time. The widespread share price losses mean that reform will come quickly. After it does, though, we shall begin to see the greater pattern - and to recognise that there has also been much good in "the way we live now".

© Copyright 2002 Financial Times

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