Enron is well on its way to becoming the most intensively dissected company in the history of American business.” So wrote Bethany McLean and Peter Elkind in their 2003 account, The Smartest Guys in the Room. Today, Enron stands as the most-analyzed corporate scandal in modern history, with countless books, journal articles, and reports about an iconic company gone rogue.

Imprudent investments coupled with financial and accounting legerdemain constitute the well-documented why of Enron’s artificial boom and decisive bust. But the why behind the why—the attitudes and strategies that produced risky and deceptive practices—has been less chronicled and little understood.

Simplistic criticisms have abounded. “Fish rot at the head” declared one popular Enron book. “Shocking incompetence, unjustified arrogance, compromised ethics, and an utter contempt for the market’s judgment” found another. “Thoughtless and incompetent leadership” and “careless and lazy management” concluded the most professorial study of Enron to date.

Hubris, amorality, and greed were certainly present at Ken Lay’s company. But accusations of incompetence, lethargy, and thoughtlessness fall short. Enron brimmed with smart, dedicated, focused decision makers who tirelessly sought to create a new kind of company. How and why did so much talent and effort go astray? Why was “innovation corrupted,” as a Harvard Business School professor asked.

Was it capitalism run amok? A species of market failure? Or was it, directly or indirectly, a nonmarket failure, an unintended consequence of interventionist public policies and a contra-capitalist ethos by, respectively, government and executives?

More specifically, did prevalent government involvement with natural gas, coal, oil, and electricity before and during Enron’s life shape the leadership and strategies atop the once storied company? Did special features of America’s mixed economy invite financial deceit and other delinquencies at the grand experiment called Enron?

If so, why did bad practices come to dominate Ken Lay’s Enron rather than, say, Lee Raymond’s Exxon (later Exxon Mobil) or Charles Koch’s Koch Industries? What was so different about Enron? What was the role of the company’s founder and beginning-to-end chairman, the Great Man of his industry, and, as much as anybody, Mr. Houston?

These questions have been inadequately explored for several reasons. First, many journalists lacked deep familiarity with Enron and the energy industry. Second, employee-book retrospectives (a dozen or so), which might have offered deeper insight, tended to be provincial and personal narratives. Third, most analyses were preoccupied with Enron’s last years and missed how earlier developments made the end all but predictable, absent a major (even radical) course correction. Above all, though, most accounts failed to appreciate the political dimension of Enron’s profit centers and the pervasively contra-capitalist mentality of Enron’s leadership.

Lacking technical depth and theoretical breadth, mainstream history became misleading history, especially when placing Enron in its social-economic-historical-political context. Ironically, commentators fell back on Enron’s own misleading self-narrative about its free-market reverence.

The company, and no one more than Ken Lay, time and again pledged allegiance to free enterprise, deregulation, privatization, and competition. Come the implosion, that rhetoric was taken at face value. If Enron was capitalism, then capitalism was prone to flim-flam and deception, even fraud—and failure. Conclusion: More, tighter, smarter regulation was and will be needed; privatization must be checked, especially in undeveloped countries; and business-funded lobbying must be constricted, if not banned. Only then can the government intervention that might have prevented Enron prevent future ones.

This narrative stubbornly persists. The fall of the company remains a modern-day allegory for the perils of free enterprise and the capitalist spirit. Business students and professors purport to draw lessons about the need for regulatory oversight. Pundits, politicians, and intellectuals continue to make ideological points by using the company’s name as a metaphor for unfettered profit seeking. The result is that, even after the 15th anniversary of Enron’s bankruptcy (December 2, 2016), the company still lacks the detailed, chronological, you-are-there history needed for fuller interpretation and better insight.

A complete history must focus on Enron’s beginning and maturation—and even its antecedents. What the company actually did—not merely what it said it was doing—must be established. Painstaking analyses must document how the company’s principals, and no one more than Ken Lay, acted, interacted, reacted, and failed to act during his company’s solvent life (approximately 17 years).

But more than better documentation is required. The real lessons of Enron require a reliable, integrated worldview spanning the social sciences. Earlier interpretations, albeit presented as just-the-facts, rested explicitly or subtly on the worldview of American Progressivism: Whatever capitalists do is capitalism. The result was a contradictory and unintelligible picture of a supposedly free-enterprise firm profiting heavily from its political influence. This book, and the tetralogy Political Capitalism of which it is a part, endeavors to resolve that contradiction.

Capitalism at Work (Book 1) explicated the classical-liberal worldview; Edison to Enron (Book 2) detailed the back story of Enron’s industry and Ken Lay’s early career. Drawing on those previous works, this book (and the one to come) will trace the false prosperity and spectacular demise of Enron to the company’s violations of classical-liberal principles in epistemology, ethics, business, and politics.

Contra-capitalism is most easily recognized in the pursuit of special government favor, a practice that came to define Enron. Its deepest roots, however, lie in transgressions of the “bourgeois morality” (or Smilesian virtue, as Book 1 termed it) that has always constituted the foundation of commercial capitalism. Such contra-capitalist transgressions may be essentially personal—such as self-deceit, imprudence, recklessness, and prodigality. Or they may be intracorporate vices that violate the rules for honest cooperation and best-practices leadership.

The false representation of achievements and difficulties, philosophic fraud, was Enron’s greatest corporate sin. But mixing personal and professional relationships, serving multiple masters, substituting image making for profit making, and CEO worship were others. Such contra-capitalism is explained in the Introduction and identified throughout this book to show that Enron, in spirit and in practice, was radically antithetical to classical liberalism.

Classical liberals applauded the fact that the market, not regulators, exposed and ruined Enron. True, but the broader point and the deeper moral of the story is this: Enron and Ken Lay, as they were and became, would not have existed in a truly capitalist culture. The ambitious and talented Lay took a political company to the top of a politicized industry within a politicized economy, fooling nearly everyone about the firm’s economic sustainability and goodness.

The first draft of history, emanating from news analyses and resulting books about Enron, reached three major conclusions: one correct, one partially so, and one wrong. Affirming, completing, and rectifying those takeaways is the task of the present book—and the finale to follow.

The first conclusion—Enron should have failed—is sound. Ken Lay and Jeff Skilling reversed cause and effect by arguing that Enron had been undermined by bad press and short sellers of ENE stock. Enron was not “a great company,” as Skilling and Lay each maintained. And Enron certainly was not “a strong, profitable, growing company even into the fourth quarter of 2001,” as Lay avowed until his death. Enron was a hollow enterprise that had precious few assets to offset liabilities when liquidated after its 2001 bankruptcy.

Enron was able to deceive outsiders, and even itself, for far too long. The company’s few critics and short sellers were brilliantly right, in retrospect, working from traces of smoke to find fire. If anything, Enron should have failed sooner. Many years of apparent success, Ken Lay’s mighty persona, political correctness, new-economy hyperbole, and financial trickery kept the mirage shimmering for years longer than otherwise would have been the case.

The half-true conclusion is that a successful, sustainable Enron was sunk by the loss of Richard Kinder and the ascension of Jeff Skilling as 1996 turned into 1997. “It was one of the saddest days for Enron when Rich Kinder left,” an Enron board member reminisced. “Sometime around 1996–1997, Enron crossed the line,” a book author wrote. “Richard Kinder’s departure as the financial conscience of the company seemed to be a critical step in this transformation.”

Enron employees echoed the same sentiment. “I think that your book and other people’s books are going to come back and say, Enron’s downfall started on January 1, 1997,” stated Jim Barnhart, a beloved, long-time Florida Gas Company/Enron executive who retired in that year.

Although true in important respects, the reality is that Enron was badly off track by 1996. Tipping points can be identified in 1987 (the Valhalla crisis), in 1989 (earnings acceleration), in 1992 (mark-to-model accounting), and in 1996 (financial gaming), not only in the more recognized episodes in 1997 forward, associated with CFO Andy Fastow. Outside the rock-solid interstate pipelines, as well as the industry-leading exploration and production unit, both of which had very different corporate cultures from their parent, Enron’s major divisions were listing, and important new initiatives were unproven and problematic.

Ironically, troubles at Enron were partly the result of its might-have-been savior. In the leadership triumvirate of Ken Lay, Rich Kinder, and Jeff Skilling, tough-guy Kinder was the chief operating officer who wielded the hammer and ensured accountability from the business units. But Lay had helped make Kinder successful and rich, and Kinder had been notably compromised in the process. Indeed, he kowtowed to Ken Lay. The boss’s shortcomings—a lack of focus and a perilous appetite for hazard—left Kinder with messes and complicity. From an oil-trading scandal to short-sighted accounting practices to Lay-family nepotism to inflated public relations to political forays, the CEO called the shots, and the COO was in places that he did not want to be.

Kinder’s flaws went beyond acquiescence. Because he was Enron’s top lawyer, the Valhalla trading debacle was partly his gamble and whitewash too. Kinder was personally unrelenting in his efforts to make promised earnings, quarter to quarter, year to year. He jumped at quick fixes that violated the economics of net present value to meet corporate and key-executive performance goals and, not coincidentally, put himself over the top financially. Until his time was up in 1996, the chief operating officer presided over misleading financial engineering, practices that would worsen.

Kinder developed flawed compensation systems, including a system for international projects that rewarded closings, not successful operation. He signed off on naked risks and okayed investments that resulted in large write-offs. A large buildup of off-balance-sheet debt occurred under his purview. Imprudence and artifice existed alongside Kinder’s constructive actions of instilling accountability and practicing tough love.

The belief that Kinder would have saved Enron rests less on what he did at the company than on what he accomplished afterward. Having declared personal bankruptcy earlier in his life, Kinder relearned at Enron how high-sounding ventures by smart people could go awry. This lesson, and the end of his subservience to Ken Lay, served him well. Kinder and fellow HNG-ex William Morgan founded Kinder-Morgan on a hard-asset, midstream model that achieved a multibillion-dollar valuation by the time of Enron’s demise. (They began by purchasing assets Enron no longer wanted.) This anti-Enron company, located across the street from the Enron Building, resulted from a fortuitous exit by a company builder (Kinder) who became, entrepreneurially and managerially, the anti-Lay.

Meanwhile, the new team of Skilling and Lay substituted hype, hope, and hurrah for midcourse corrections and allowed the company’s bad divisions to overwhelm the good. Enron chose not to bid aggressively for new pipelines or focus on new domestic infrastructure projects at the core, betting instead on trendy ventures with postulated higher rates of return. The divergent paths taken by Enron and by Kinder-Morgan gave rise to an alternative history—if only Kinder had stayed—that is far from certain.

The third major conclusion, concerning the role of ideology in shaping Enron’s business strategy, demands wholesale revision. The question to be answered is: Was the “systemic failure” involved in Enron’s collapse—implicating all the private and government gatekeepers and guardians of business—attributable primarily to free-market incentives and capitalist attitudes or to an outlook favoring government intervention (regulation, tax preferences, subsidies), as well as deceit and cornercutting?

The mainstream view is that capitalism failed. Didn’t Enron egregiously exploit the rules meant to protect the public? Didn’t Ken Lay pay homage to deregulation and free markets during his entire Enron tenure? Wasn’t Jeff Skilling the epitome of Social Darwinian capitalism? Didn’t the final result—tens of thousands of innocents financially compromised—reveal the downside of modern capitalism? Amid the wreckage, even the Wall Street Journal editorialized that Enron was “a problem for anyone who believes in markets.” More regulation and better enforcement, Progressives concluded, must protect against free-market debacles. Post-Enron legislation, supported by both political parties, reflected this view.

But one must look beyond Enron’s promarket image to actual behavior and true motivation. It is here that a far different view emerges.

Enron is a problem for anyone who believes in the modern mixed economy. Ken Lay’s business model leveraged government-sponsored commercial opportunities in myriad and sustained ways that ultimately came at the expense of competitors, investors, taxpayers, and consumers. In contrast to such business/political scandals as Crédit Mobilier and Teapot Dome, however, Enron’s acts of political enrichment were legal. In the mixed economy, moreover, they were often politically correct, achievements to be heralded in the media and in Enron’s own annual reports.

Enron is also a problem for anyone who believes in the highly regulated economy. The company became a master of gaming complex tax codes and regulatory rules. Indeed, Enron came to embody those sharp practices and philosophic frauds so long decried by classical-liberal thinkers and free-market entrepreneurs. Yet, as with Enron’s lobbying, these manipulations were almost all legal. And those that were not were typically mere infractions of accounting minutiae.

What allowed Enron to prosper greatly through its dissimulations, and for so long, was nothing but the government’s regulatory role, which Enron’s brightest gamed into profits. Because of the moral hazard created by Progressivism’s bureaucratic oversight, private-sector gatekeepers failed to discover and denounce the company’s violations of moral and commercial best practices, as they surely would have in more of a self-reliant, buyer-beware market.

A revisionist view of Enron must also focus on the modus operandi of Ken Lay, a big-picture PhD economist with much regulatory experience inside and outside federal agencies. After becoming CEO of Enron-predecessor Houston Natural Gas Corporation, Lay quickly remade his new company into a federally regulated entity. From innocent beginnings, he gradually came to abandon centuries-old maxims of business prudence, in a vain quest to make Enron into the world’s leading energy company and, later, the world’s leading company.

Highly ambitious and über-optimistic, Enron’s chairman was running from a past and superaccelerating into the future. What appeared to be a real-life Horatio Alger story would end up as an American tragedy, the subject of Book 4 (covering Enron from 1997 through bankruptcy and the criminal prosecutions). Jeff Skilling’s release from prison will constitute a final data point for my history of Enron and this tetralogy on political capitalism inspired by the rise and fall of Ken Lay’s enterprise.

The current project began as a three-part book: Political Capitalism: Insull, Enron, and Beyond. Then each part—worldview, backstory, and Enron proper—expanded to become its own book, reflecting the unanticipated richness of each subject on a stand-alone basis.

Book 1, Capitalism at Work: Business, Government, and Energy (2009), applied the classical-liberal worldview to Enron and the US mixed economy in which the company thrived. My foray into business strategy, history, philosophy, economics, and political economy documented how leading capitalist thinkers identified and emphasized economically sustainable commercial practices.

Adam Smith, Samuel Smiles, and Ayn Rand each warned against the behaviors that came to define Enron. In our day, classical-liberal entrepreneur Charles Koch has codified an integrative business philosophy in his books The Science of Success (2007) and Good Profit (2015) that is quite opposite to Enron’s modus operandi.

No less important than the history of ideas is the history of institutions. Book 2, Edison to Enron: Energy Markets and Political Strategies (2011), explored the antecedents of Enron in terms of predecessor companies and individuals, including Ken Lay himself. The rhyme-in-history stories of John Henry Kirby and Samuel Insull offer parallels to that of Ken Lay, bankruptcy and all. The lessons of history, particularly the rise and fall of seemingly bedrock individuals and firms, show that history unknown, unlearned, forgotten, or simply unappreciated is valuable knowledge foregone.

The present book begins my analysis of Enron proper and its aftermath. But for several reasons this book turned into two—and the trilogy into a tetralogy.

First was the sheer complexity of Ken Lay’s always-charging, always-changing Enron, which was a collection of companies having separate management, business plans, and incentive structures. Those companies were in exploration and production (Enron Oil & Gas); interstate gas transmission (Florida Gas Transmission, Transwestern Pipeline, Northern Natural Gas, among others); natural gas marketing (Enron Capital & Trade Resources, and predecessors); and international infrastructure (Enron International). Gas liquids and other Enron ventures, such as those in renewable energy, had their own histories as well.

Enron repeatedly spun off units into public companies, one of which was brought back as a wholly owned subsidiary. Monetizing assets to fund the next big thing was important in Enron’s quest to become North America’s leading integrated natural gas company, then the world’s first natural gas major, then the world’s leading energy company. (Enron’s final vision, to become the world’s leading company, is part of the forthcoming Book 4.)

Second, Enron was bound up with external events that were much bigger than the company itself. In business and in public policy forums, Ken Lay became the spokesman for natural gas against coal on one side and oil on the other. Lay also became the closest thing to a Mr. Houston by the mid-1990s, using his personal wealth and his company’s vast resources to support numerous philanthropies and to drive ballot initiatives that he considered important to Enron and its hometown.

Third, reliable and scholarly history must capture the context and purpose of events, not only their sequence. Enron was not a place or thing or event; it was a process of decision making, with each stage unfolding into the next. Contextual, insider, purpose-centered history—as opposed to mere external storytelling—requires a detailed you-are-there approach to understand what might otherwise be bewildering, even to Enron scholars.

Finally, pre-1997 Enron is a story unto itself. The events and lessons of the “forgotten years” stand on their own without the complications of later history. The past is prologue to the last five (solvent) years of Enron. Still, the process has two natural segments: 1984–96 and 1997–2001.

Enron is one of the most important stories in American business—and certainly in the domestic energy industry, where Ken Lay’s saga joins those of John D. Rockefeller (1881–1911) and Samuel Insull (1892–1932). Rockefeller was Mr. Petroleum; Insull was “The Chief” of electricity. Ken Lay was Mr. Natural Gas and reaching for more.

When I began this project some 20 years ago as a bright-eyed Enron employee, I believed that Lay would achieve, or at least approach, his rarefied goals and be a notable success story. What I did not know—what this book documents—is that many of the seeds of failure and tragedy had already been sown.