The new economy (Pre)Dux; or, what history teaches us about the wired world.

• Author: Rutten, Andrew
• Position: Review Essays

Historians can't help but smile every time they hear another pundit pontificating on the new economy. Historians know that there is no new thing under the sun, at least not yet. If they want to understand "the" new economy, they don't seek out the latest word on network externalities, path dependence, or technological lock-in. They don't worry whether the code wants to be free, whether open source really is better, or whether it's WindowsXP or the iBook that is really just another marketing ploy designed to confuse consumers. Instead, to understand this new economy, historians turn to the original new economy, the one the railroads created over the past two centuries. After all, whatever looks new in the past two decades--bubbles, busts, merger manias, managerial malfeasance, fights over network standards, imported labor, and intellectual property--the railroads had in abundance. They even had the hype, which may be the most important reason we should get our history right.

Although the trope of the railroads as the original new economy is well known, the truth of the matter is not. Many who chatter about such things only repeat myths that were debunked long ago. Such mistakes are especially egregious in discussions of the consequences of the new economy for law and policy, where even the relatively well informed are apt to be ignorant, taken in by ancient propaganda from long-forgotten battles. James Ely's Railroads and American Law (2001), a compact but comprehensive tour of the tangled marriage of law and locomotives, from the very beginning to today, should do much to remedy our ignorance.

In presenting this history, Ely writes as a lawyer and a historian, rather than as an economist or a political scientist. He emphasizes the particular and the contingent, rather than the general and the necessary. This approach keeps him grounded in facts, and it saves him from drawing the wrong lessons. Luckily for the reader, it doesn't keep him from pointing out the follies of others; along the way, he hoists many theorists on the petard of what really happened. Nor does it make him dry and boring; Ely is not from the "if you pile up enough facts, you'll have a story" school of history. Along with the facts, he reveals several deep and profound truths about the political economy of law and policymaking in the United States. Because these truths continue to shape policy, it is useful to be reminded of them; and because they are messy, the truths that Ely tells are likely to be unpopular and annoying to all who seek easy answers. For this reason alone, the book is important.

The Economics of New Economies

The parallels between the rail economy and the wired economy are obvious. Both work their magic indirectly. Just as there's no thrill to just riding a train, there's no thrill to just being on-line. People want to go on-line for the same reason they want to ride a train--they want to go somewhere, and trains (or the Internet) get them there more cheaply than do the alternatives. In other words, both allow people to get more bang for their buck, whether at work or at play. The results range from making existing markets work better (the Chicago Board of Trade and now Expedia) to creating whole new markets (before trains, there was no reason to put resort hotels in the middle of New Hampshire; before eBay, there was no reason to have rare bookstores in rural California).

Since the 1820s, new-economy theorists have taken the simple fact of lower transportation costs as the basis for their claim that these technologies will make all things new. Because both rails and the Internet can move many different sorts of things, it seems...