In 1937, the year Edith Wharton died aged 75, her work was consigned to oblivion by the left-wing critic, Herbert J. Muller, in his Modern Fiction: a Study in Values. He conceded that in The House of Mirth she 'made what in its day [1905] seemed a daringly realistic study of high society'. But after finding a few words of praise for Ethan Frome, her single excursion into working-class life, Muller declared that 'the bulk of her work concerns the doings of pallid gentlefolk and soon acquires the mustiness that has already sent The House of Mirth to the attic'.

Well, Wharton and her books have long been recovered from the attic and the two most famous of them have been filmed with great distinction by Martin Scorsese and Terence Davies, blue-collar Catholics far removed from the patrician, Wasp world of Edith Wharton. Both have seen in her books the subtle perception and unflinching honesty of a writer who, from a position of confident success and social acceptance, could observe the hypocrisy, false values and cruelty of her own class. To write trenchantly, vividly on one society is to illuminate the idea of society in general.

As he's demonstrated in the movies inspired by his Liverpool childhood and the non-autobiographical Neon Bible, Davies has a tragic, or at least stoical, view of life, and it was clearly not to escape from his customary gloom that he chose to film The House of Mirth.

The title, which misleadingly suggests a funfair attraction, comes from Ecclesiastes ('The heart of the wise is in the house of mourning; the heart of fools is in the house of mirth') and Edith Wharton regretted having adapted her first major literary success for the stage. 'I now doubt if that kind of a play, with a "sad" ending and a negative hero, could ever get a hearing from an American audience,' she wrote during its very brief Broadway run. In consoling her as they left the theatre, the critic and novelist William Dean Howells famously remarked: 'What the American public always wants is a tragedy with a happy ending.'

The 29-year-old Lily Bart (Gillian Anderson) follows on from Emma Bovary, Anna Karenina and Isobel Archer in the nineteenth-century tradition of self-deceiving heroines destroyed through a combination of oppressive social conventions and their own wilfulness. Lily is a 29-year-old orphan, beautiful, intelligent, witty, but dependent upon an allowance from a rich aunt and expected to secure her place in upper-class New York through marrying a rich man.

This is a society in transition (old money is being challenged, or inveigled, by the nouveaux riches) that plays a deadly game with complex, unwritten rules which have nothing to do with ethics or morality. The consequences for losers are ostracism and banishment.

Following Wharton's book with intelligent fidelity, the film goes to the heart of the matter with a superb opening encounter between Lily and her confidant, Lawrence Selden (Eric Stoltz), a hard-working lawyer with no inherited money. Like her, he lives through the hospitality of the rich. They love each other, but her ambition and his diffidence keep them apart. This lean sequence, which establishes character, milieu and values, concludes with Lily leaving Selden's apartment block and lying to its owner, the suave financier Rosedale (Anthony LaPaglia), that she's been seeing her dressmaker.

This is the first of several hostages to fortune. As Davies forgoes an authorial commentary (one of the strengths of Martin Scorsese's The Age of Innocence, where Joanne Woodward spoke for Wharton), we are not told that Rosedale is a Jew. Viewers who haven't read the book may think him merely an edgily ambitious arriviste and not be aware that Lily shares the conventional anti-Semitism of her class.

Though both Lily and Selden see through, and wittily mock, this society, they're trapped within it, in Lily's case because she lacks the skills and the political vision to break away. Ultimately, she's brought down and sent to an early grave by her decency, her vulnerability and her honesty. She rejects several wealthy suitors, falls into the hands of the blackmailing would-be seducer, Gus Trenor (Dan Aykroyd), is manipulated by a treacherous friend, the adulterous Bertha Dorset (Laura Linney) and cheated by a hypocritical cousin, (Jodhi May).

To tell this complex story, Davies steers a course somewhere between the luxurious explicitness of Merchant-Ivory - whose admirable, not dissimilar, The Golden Bowl opens next month - and the metaphoric, elliptical, expressionist style of his previous pictures. The action proceeds through a succession of dialogues where, except in the exchanges between Lily and Selden, the real subject under discussion only occasionally disrupts the polite surface. The truth is to be found in glances and a shift in the eyes, and his whole cast serve Davies admirably.

The movie draws for its visual style on the contemporary paintings of John Singer Sargent and James Tissot (whose work is used for the covers of several Virago editions of Wharton), but Davies, who shot all the American material on artfully dressed Scottish locations, doesn't parade the period detail. The decor is always in the background.

The eclectic use of music is typical of Davies, but the most obviously characteristic sequence is a transition from the States to the Mediterranean where Lily is to be undone. It begins with a series of tracking shots though the dust-sheet-covered furniture of a mansion, followed by the camera moving rapidly over a rain-splattered lake that gives way to the sun catching smooth, sun-dappled water as the prow of a yacht breaks through the sea, and finally the camera pans up to buildings on the cliffs of Monte Carlo. An episode to cherish.