"And just what does that mean?" I hunt-and-pecked back.

"It means that you keep sending my allowance and paying tuition to my school, but I won’t actually be there anymore."

"That’s not going virtual, Katie," I re-digited, "that’s going teenager."

"Seriously, dad. I’m dropping out of this snail school you sent me to so I can start a virtual company."

"And what will this virtual company do?"

"I haven’t decided yet, Aged Parent. But my investment banker says I can be virtually assured of going public this spring at 70x virtual revenues."

"Well, save a few shares for me in the IPO, sweetheart. I have to go now; your brother is IM’ing me to meet him in a chatroom where I can wire funds real-time."

Maybe Katie is onto something. At current Internet stock price levels, the air is so thin it seems to have affected investors’ judgement. Normally sober analysts are raising their price targets for unprofitable companies already selling at two-digit multiples of revenues.

These valuations remind me of Tokyo real estate prices in the late 1980’s, when the Imperial Palace – it’s a one-mile jog around its walls -- was briefly worth more than California. Tokyo property prices have fallen about 10% every year since then – think of it as a tithing program for overzealous Japanese investors administered by the Bank of Japan. The same thing will happen here for Internet stocks; the only question is when. This brings us to:

Rutledge’s Rule #1: When the price of something gets too high, sooner or later it will fall. More specifically, when the market value of an unprofitable company reaches the GDP of a small country in Europe, it is time to sell the stock.

It would be less than honest if I did not stop here and admit that I own some of these stocks as well. After all, I am only human. But at least I understand that I am doing this for entertainment, not investment returns.

The real story of the Internet is not about stocks, however; it is about clocks. Real-time, i.e., instant, communications will have an enormous impact on our lives by changing both the way we learn and the way we earn. It is still enjoyable to use my time to go to the library to collect information, for example, but it is no longer necessary. Now I can retrieve documents from any library in the world instantly from home. I do not even need a library card any more, and library fines – the nightmares of my youth – are obsolete.

The Internet literally takes time out of doing work (chrono-suction?) by eliminating all the queuing costs of collecting information and communicating with others. These wasted bits of time that are sandwiched between all the truly useful things we do in our lives represent a tremendous waste of energy. At one point long ago, it took months for a letter to make one round trip between New York and London to clarify a business idea. In the meantime, people on both sides of the Atlantic sat around aging. One day last week I had five email round trip conversations with a man in Singapore in one day without interrupting my regular work.

In the same way that compression software squeezes the empty space out of computer files, the Internet squeezes the waiting time out of our lives. Analytically, this should have the same beneficial effects on the economy as an increase in our effective life span. We will get more useful things done in our life times.

Leonardo da Vinci lived to be 70 years old. Out of Leonardo’s 70 years, I will bet he spent 30 of them metaphorically walking to the library. He had to wait to get information, wait for answers when communicating with people and wait to receive the materials he needed to create his wonderful works of art. Delays in communication and transportation interrupted every aspect of his life. That means he had an effective, or productive, life span of only 40 years.

What could Leonardo have accomplished if he had lived for another 30 years? What paintings, what sculptures, what inventions would we have today if Leonardo had been able to devote his time to better use? Real-time communications has increased the ceiling on the amount of experience, information, knowledge and useful work that a person can accumulate and use in the three score and ten years we have to make our mark.

Taking the time out of business also takes the need for capital out of business. The Austrian economists wrote about capital as a means of increasing the roundaboutness of production. We need capital to feed the fisherman and his family while he takes time away from catching fish to produce a net that will improve his productivity later. This method of fishing, by first building a net, is more roundabout, i.e., takes longer, than using a fishing pole today, but it is more productive. Capital is a way to bridge time.

If you do not need time, you do not need capital. The Internet should radically decrease our need for capital, driving real interest rates lower at a given level of output. Conversely, real-time communications should increase the level of economic growth that we support at today’s interest rates with our current stock of capital. This is especially good news for the poor countries of Latin America, Asia and Africa who desperately need capital to grow.

This means I expect more growth, lower interest rates, and higher stock price multiples than traditional analysis would suggest. Whether we own Internet stocks or not, the Internet phenomenon will have a positive impact on all of us.