The Victorian Internet

A book by Tom Standage reminds us how little there is that is really new. On May 24, 1844, Samuel F. B. Morse, a portrait painter and inventor, succeeded in sending the first message on the telegraph between Washington and Baltimore. “What hath God wrought,” was the message — sent from the Supreme Court chamber to Morse’s partner in Baltimore.

What God had wrought was a communications revolution. Forty miles separate Baltimore from the nation’s capital. That was the extent of the telegraph system in America in 1844. Six years later there were 12,000 miles of telegraph line in the United States alone. In October 1861, the transcontinental telegraph was inaugurated, replacing the Pony Express. A few years later, a line was laid across the Atlantic.

By this time, telegraph mania was in full swing. Cyrus Field had no trouble raising the money to run the cable. The first one was a disaster; it stopped working only hours after it was connected. But on the second try, it worked, and cheap, rapid transatlantic communications have been a feature of modern life ever since.

The celebrations that accompanied the laying of the cable from Newfoundland to Ireland were far more exuberant than those that greeted the 10,000 Dow.

“Our whole country,” declared the “Scientific American,” “has been electrified by the successful laying of the Atlantic Telegraph.” President Buchanan said it was “a triumph more glorious, because far more useful to mankind, than was ever won by a conqueror on the field of battle.”

It was also believed that the telegraph would “make muskets into candlesticks.” That is, people thought wars were a consequence of bad communications. The telegraph had the power to change the world, by allowing people to talk to one another. “It is impossible,” opined a popular book of the time, “that old prejudices and hostilities should longer exist, while such an instrument has been created for the exchange of thought between all the nations of the earth.”

Cyrus Field’s brother, Henry, wrote that the telegraph cable was “a living, fleshy bond between severed portions of the human family, along which pulses of love and tenderness will run backward and forward forever.”

The telegraph had defeated space. It had made communications cheap. Morse was feted at Delmonico’s in New York for having “annihilated both space and time in the transmission of intelligence. The breadth of the Atlantic, with all its waves, is as nothing.”

It was a New Era.

A few years later, the telegraph was such a success that it was swamped by traffic. Delays increased with congestion. Eventually trading houses in New York and London began using pneumatic tubes…and runners…to send message across town. But more wire and technological improvements eventually reduced the problems.

The telegraph did not eliminate war. The worst wars of human history were still in the future. In fact, the telegraphed message became the favored way to inform families when a soldier was killed. Mothers of young men in WWI and WWII dreaded more than anything the unexpected appearance of the Western Union delivery boy.

But the telegraph was only 33 years old when Alexander Graham Bell was granted a patent on the telephone on March 7, 1876. The telephone soon replaced the telegraph for most routine correspondence.

And the telephone, too, revolutionized communications. Because you didn’t need to know Morse’s code to use it. Soon, in the words of John Maynard Keynes:

“The inhabitant of London could order, sipping his morning tea in bed, the various products of the whole earth and reasonably expect their early delivery upon his doorstep. He could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter in the world, and share, without exertion or even trouble, in their prospective profits and advantages.”

That passage was written in 1900. It is now a century later. The more things change, as they French say, the more they remain the same. Regards,

Bill Bonner

Paris, France February 28, 2000

P.S. We awoke to a bright sun on Saturday morning. It was remarkable how the winter seemed to give way overnight to a glorious spring. The jonquils are about 4 inches off the ground. The grass is green. Trees and bushes seem to be budding. Birds we had not heard since last summer sing in the trees.

The weather had an exemplary effect on everybody and everything. Francois had been grumbling about the broken down tractor and the fact that the cows were delivering premature, underweight, sickly calves that needed a lot of extra work and attention. Francois’s grumbling is legendary in the neighborhood. But by Sunday, his mood had lifted dramatically.

Mr. DesHais, the alcoholic gardener, seems to have gotten in the spirit of the sunny weather, too. He found an unopened bottle of 20-year-old wine while digging in the cold frame. I do not know what kind of internal moral conflict he endured, but I can only report the outcome — he left the bottle unopened on our doorstep.

Even the priest at Bourg Archambault, a man whose soul is more at home in the burial section of the prayer book than the marriage or baptism section, seemed to have cheered up. At least he shook my hand warmly as we passed the peace, before giving us his incomprehensible sermon.

But there was not much good cheer at the office of Mr. Dufour-Bazin, a man who serves as a lawyer for the farming industry of the area. We had gone to him to try to figure out how to enter a contract with our neighbor so he could legally, rather than casually, continue to farm our land.

“Ah,” said the canny avocat, “but there you will be trapped.” And so we were. If we rent our land, it will fall under the rules of “fermage.” The legislation was enacted in the socialist period following WWII. It is intended to protect farmers against landlords. What it really does, however, is impose a very costly structure of bureaucratic meddling on the whole farm economy. Effectively, my neighbor and I do not have the right to enter into the agreement we choose. Whatever we do, it will be reconstrued as a farm lease — and I will receive practically no money and he will have the right to use the land for three generations. Since he has two sons, both below 10 years old, that could be a period of say, 120 years.

“Isn’t there someway around this problem,” I asked.

“Yes,” he explained cheerfully, “but it will only work as long as your neighbor remains friendly to you. He is the farmer. You are the landowner. The law was intended to protect him against you.”

French farmers and landowners were trapped by their own desire for security. Subsidies now make up 60% of my neighbor Pierre’s income. But it comes at a high price. The government has declared that farmers are “caretakers” of the nation’s open spaces. More and more, what they do is not determined by their own desires, nor by the economic logic of farming, but by the desires of politicians and bureaucrats. They have, for example, decided that manure cannot be piled up on concrete. It has to be spread around. And plowing has to be commenced from the inside of a field, working outward, rather than the traditional way, so that small animals will be able to get away without crossing the newly plowed sections. If farmers resist — their subsidies are taken away.

“It’s not like the old days,” he went on wistfully, “when you could make whatever deal you wanted. Those were the days. A man could have 10 farms — and people could do what they wanted. Today, you have to ask permission of the Farm Commission for anything you do. You must get permission for every animal…and every crop. And if you hire a farmhand, you have to fill out a mountain of papers and give him six weeks’ paid vacation…and he only works 35 hours a week. And if there is any trouble — he hauls you in front of a tribunal where you don’t have a snowball’s chance in hell. ”

“Back in the old days, a rich landowner might have 50 farmers working 2,000 hectares…and might produce wine and pigs and whatever he wanted…and work his men from sunup to sunset…and might make love with their wives and daughters while the men were out in the fields. Ah…those were the good old days.”

I hated to interrupt his reverie.

*** Remember the excitement on Wall Street when the Dow rose above 10,000? The huzzahs and back-slapping were noticeably absent on Friday — as the Dow once again crossed the 10,000 threshold.

*** The mass of investors resembles an army on the march. Investors crossed the 10,000 mark like Napoleon’s Grand Armee entering Moscow — full of good cheer and bravado. But there were no cheers when the soldiers left the city. They were in retreat. Moscow was a long way from Paris, however, and the worst still lay ahead.

*** Let’s see, the Dow went down 230 points on Friday. That’s about 2.3%. And the Dow is worth — in round numbers — about $10 trillion. Hmmm…that’s about, gee…the math is easy…$230 billion. Or about $2,000 per U.S. household — lost.

*** It’s just on paper, right? Let’s look at the rest of the picture.

*** If you had any doubts that the Dow is now in a bear market, Friday’s market action should have dispelled them. The Dow is now down 14.2% from its high — below 10,000 and probably headed for the magic number — 9120.67. That’s the low for the Dow in 1999. Not since ’82 has the market closed below the low for the preceding year. If it does this year, the longest, biggest, most bullish market in history will be officially over.

*** Of course, we know it’s been over for almost two years. That’s when the Advance/Decline ratio turned down — indicating that most stocks were falling, not rising.

*** Since then, almost all indicators and indices have slipped to bear market patterns. The A/D ratio gets worse and worse. Last week, twice as many stocks fell as rose. And there were almost five times as many stocks hitting new lows as new highs.

*** Another bearish indicator, selling pressure, as measured by Lowry’s index since the 1930s, hit an all- time high.

*** But don’t worry. Who cares about the Dow? That’s the “Old Economy.” Of course it is declining. Meanwhile, “small, high-growth companies in the Nasdaq are getting stronger by the day,” said one analyst, “and taking market share from the Old Economy companies.” The Nasdaq lost a little ground on Friday, down 27 points. But it was up 3.5% for the week.

*** This is no longer an investor’s market. It’s a speculator’s market. And as long as the speculators are making money — the bull market psychology will persist.

*** The speculators and the Nasdaq will be eventually crushed. But right now, they are serving a purpose — from the bear’s point of view. They are helping to maintain order and morale in the retreating army. They offer hope. They provide the good news that soldiers need to keep going, despite the hardships they are suffering.

*** The idea that the Nasdaq can keep moving forward while the rest of Wall Street retreats is a myth. Every 10% drop in the Dow wipes out about $1 trillion of wealth. Or $8,000 per household. There is no way that the hope of miracle cures 10 years from now…or 8,000 media channels…or any of the other supposed wonders of the New Economy can ignore what is happening in the real economy.

*** And the media? Why no word about the bear market? CNBC and the Wall Street media also play an important role — again, from the bear’s point of view, as well as Wall Street’s. They are like the “useful idiots” — the sympathizers in the West who helped Lenin and Stalin.

*** The useful idiots are helping to keep investors bullish. We’ll see how good a job they are doing this morning.

*** Gold fell below $300. The dollar rose against the euro. Hmmm…I wonder what is going on…They should be going in the opposite directions.

*** We know we are getting close to the end of the Internet boom. You can now get a B.S. degree from a respectable university in e-commerce. Wharton, for example, is offering a program in “managing electronic commerce.”

*** My 14-year-old daughter, Maria, was insufferable for a few days last week. She has a real talent for imitating people. She can watch a movie, for example, and mimic the characters she has seen with uncanny verisimilitude. But it has a downside. She tries on roles like she might try on a new pair of shoes — just to see if she likes them. Trying to figure out what was wrong with Maria, Elizabeth noticed that her accent had changed slightly…and her manner of speaking, too. Well…it gradually emerged that she had gone to see the movie “American Beauty” and was imitating the girl in the film. By the weekend, she had gotten over it. But if you have teenaged daughters, you might want to think twice before letting them see it.

*** I can’t help but wonder how much of life imitates art. I have not seen “American Beauty,” but the review made it sound very much like the rest of the bourgeois- bashing art and literature of the century just passed. You would think there was no such thing as a happy family or a closet without a skeleton in it.

The Daily Reckoning