The Future of Stock Market Necessity

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SpaceX stock blasted off in its debut, soaring more than nineteen percent on the NasSDAQ At the closing bell, SpaceX is now worth over two trillion dollars turning SpaceX employees into millionaires and its CEO into a trillionaire the largest initial public offering in all of human history The company raised over eighty five billion doars And it's been driven in an unprecedented way by retail investors. I just bought fifty shares of SpaceX at one seventy two per share And I'm never sell it see what happens, baby. According to the New York Times, in the week after SpaceX first began selling to the public, retail investors have purchased a net of three hundred seventy million dollars worth of stock More at the time said than the net retail buying of Nvidia, Microsoft, Alphabet Meta, and Amazon combined over the same period Today, SpaceX briefly became the fourth largest company in the world by market cap surpassing Amazon and Microsoft. How do you begin to think about something like this that the social forces that pushed game stop. A store that sells physical copies of video games up the leaderboards that those same forces are now aimed at something much larger at Elon Musk's promise that the future of AI sits with him. with him using rocket ships to launch data centers into orbit. What's actually gonna to happen When the future confounds me, as it usually does, I look at the present When the present confounds me, as it usually does, I look at the past This week we are doing an extreme version of that. We're going to go all the way back We're going to go back to the creation of the stock market accidental invention over four hundred years ago We are going to understand how and why that happened how a tool for funding sea voyages has evolved into something somewhat different today And by the time we're done The present will make a little more sense to you. The future will make a little more sense to you, and the Netherlands will make a little more sense to you Trap in, buckle up, this week a search engine or time traveling My name is Lodic Bashum. I'm a historian and economist from the Netherlands. And why did you decide that you wanted to study the history of the stock market Oh that's an interesting. So I was a student of economics here in Amsterdam and then I told my thesis supervisor, this is many years ago of course. I was also a student of history, early modern hory and he said, Well yeah, Are you aware of the special situation that you're in the Netherlands? that there's so much financial history in the Netherlands in Amsterdam So I'm currently right in the center of Amsterdam When I look out the window here, I see what is called East India House in Amsterdam, which is the original quarters of a company that was founded in the early seventeenth century, the Dutch Ienia compomany whichich from modern eyes was a really terrible company. I mean, it did so many hideous things in Asia But back then some more than four hundred years ago, peopleople in Amsteram, they were really about making money, trading stuff from place A to place B out competing the English, the Spanish, the Portuguese People were still exploring the world and as they were exploring the world, they were also trying to control the world The Dutch at the time in a cutthroat competition with all these powers, fighting to win the spice race. Not space, spice spices, like nutmeg, for instance, just extremely valuable back then Historian Giles Milton in his book about this era, Nathaniel's Nutmeg, writes about how if you could get a ship to the Banda Islands you buy ten pounds of nutmeg for less than an English penny. If you get that ship back to Europe, you could sell the spice at a markup of something like sixty thousand percent. As assuming your ship didn't rack. asssuming all your men didn't die The risk of a failed voyage was that it could ruin the person who funded it. Loadmank explained to me that businesses until the sixteen hundreds were pretty much all funded either by one single person or a single person plus their family. That's how things had been. But because shipping was so expensive and risky, This has begun to change In some Italian city states, people were founding these shipping companies. You'd raise money from a lot of people, not just your family, to fund a boat voyage And this is working, but there's this funny inefficiency in the way they organize these companies, a limitation that people at the time cannot see And that is that they founded these shipping companies always for the duration of just one expedition. So what they did was they I founded a company asked investors to invest some money Then they would buy a ship or have a fleet build somewhere, I don't know They would send out those ships to a foreign destination and when they got back, they would liquidate the company again. And this was a way for them to quickly pay out the proceeds to the investors and just be done with everything Every shipping company was dissolved at the end of every voyage. You buy shares, but it's shares in a project, not shares in an ongoing business, the way we'd understand that today Which seems normal to everybody involved Here's how that begins to change. In sixteen oh two, the Dutch government, which remember, wants to beat its rivals in the trade wars, decides What if instead of having all these little Dutch shipping companies competing with each other, we just had one enormous one Dutch East India Company They said, okay, we are going to find a company that's not just sending ships there once, but that's going to send ships there multiple times and also build fortresses and wage war. And so that's when they went from the system of you founding a company for just one expedition to one that would exist for a much longer period of time The government gives this new shipping company a monopoly on trade essentially throughout Asia. It's going to be an enormous venture It wants this new company to run multiple voyages, not just one rases is a question When will the investors get paid back It is decided investors will be paid back after twenty one years. Anybody in the Netherlands, get my share of this new twenty one year shipping company A couple decades later, they'll get their portion of all the money the Dutch East India Company has made from its many voyages What does the very beginning of that look like? who's allowed to put money into this? How are they finding people? what does an IPO look like hundreds and hundreds of years ago? Yeah, yeah. So what the Dutchy senior companies did was they organized a public subscription to the initial capital of the company There was no limits or restriction of any kind, so anyone could subscribe some money to the company And when that actually happened in august sixteen oh two, so there's this one month August when the suubbscription books were opened And that took place in Amsterdam and also in five other cities in the Netherlands. And what happened in Amsteram, I always find a somewhat peculiar story is that because the Dutch Seniia Company was a newly founded company, it didn't have an office building yet. and there was also no investment bank involved in it. There were no investment banks back then. So one of the founding directors of the Dutchy Seniia Company, he opened his house for this initial capital subscription, which came to be an IPO So during this one month could pay a visit to his house. and I always imagine that you end up, I don't know in the kitchen or maybe in his living room, you know, and there must have been probably a large table there with the bookkeeper of the company sitting there and maybe one or two directors overseeing the whole process. And what would happen is you would say your name. and state the amount that you wanted to invest in the company There were also no limits, neither lower nor upper limits to the amount that you could subscribe Famously, the very last entry in the book is of the maid of the bookkeeper, who subscribed fifty guilders to the initial capital of the company But there's also a couple of merchants who subscribed several tens of thousands of gillers, which was really a huge amount of money back then who the companies. Would it have felt to them like I guess one of things I'm trying to understand is like if this didn't exist before. like I don't have a faith that if I personally put money into the stock market, I'll make the money back. But I have a faith in the stock market as a thing that basically functioned in a way where you know, didn't have faith in like cryptocurrency in twenty twenty one.. The people who were putting their gilders into the Dutch East India compomany, would they have felt like they were buying crypto? Would they have felt like they were giving a wealthy friend they trusted money for a business venture? Like how much faith did they have in the enterprise they were creating as they were creating it And so they knew the persons who were involved in finding this new company. And I think that was very important. So all the founding directors, they had been well known merchants, so people would know them because they were, you know well known Figure in Amsterdam, successful they had all been involved in earlier companies that send ships to East Asia to trace spices And many of those companies have been very successful and very profitable. So People were laying their face in those aspects, right? So because of this personal touch and I think the sense that people were indeed giving their money to someone Who they expected to do well with? That was very important So across six cities in the Netherlands The Dutch East India company goes out and offers these shares It raises what is at the time an unfathomable sum. The equivalent of in today's US dollars, about two hundred billion bucks The Dutch East India Company makes one final fateful choice, which seems to have almost been an afterthought. Somebody reasons that twenty one years is a long time for these shareholders to have their money locked up in a single investment And since the company wants to make investing as attractive as possible, somebody makes up this rule If you're a shareholder and you don't want to wait all that time to get your money back You can come back to the bookkeeper and just sell someone else your share att any time They put a tiny little cause in the official document. It was just a very simple line, by the way, which said something like, any shares in this company can be transferred from one person to another. So that's where they accidentally event stock trading. Yes. Yeah. But they weren't like they weren't imagining you don't think at that point Oh, this is going to create a market and speculation. It was more there's going to be some people who are like, hey, I need some way to back my money out of this earlier because twenty one years is a huge amount of time. So we'll just give this as an option. But they did not understand the feature would become kind of the whole game. I think so it's important to realize that no one ever sat down at a table thought I'm now going to invent the stock market. It evolved, right? So people were trying to solve various questions, various issues. and along the way they happened to invent the stock market. but this I think only when looking back after a century, maybe someone for the first time realized, oh, maybe we invented the stock market there. How much of human invention is just like this hugely consequential new tools we build Not entirely understanding what they're even for yet We're trying to solve one problem And we build something that solves and creates so many more These Dutch shareholders had founded an entirely new kind of market. A market for stocks. They were not thinking about the five hundred years of history they just enabled They couldn't imagine us They were thinking about their boats What are people trying to do? now that they have these shares out there, like what are the people I forgot that there's a word, which is shareholders. What are the shareholders doing over these decades with their shares? Like Is their behavior with these shares starting to resemble modern stock market behavior? L what's happening? Yeah, so there's a few stages. So after the IPO was done in sixteen oh two At first there was a couple of months of nothing, basically, because people had not actually paid up their investment when they went to this house of one of the founding directors, they had just written down their names and an amount of money that they wanted to invest in the company But only after a couple of months, the first instalment of that money was sced up. So only then people actually had to pay up the first bit of money And interestingly, immediately after that moment You see the first share transactions appeared Ladvig says that very quickly this primitive Dutch stock market starts to somewhat resemble ours Derivatives trading, including what they call forward transactions, which look a lot like our trading futures. The thing we do where we don't simply just buy and sell shares in companies We also make complicated bets about the future price of those shares as a way of selling and buying insurance It's already happening. on a bridge in Amsterdam hundred years before the invention of the piano But like I guess what I don't understand is you had described how if I wanted to buy or transfer a share, I would have to go to the local office of the Dutch East India trading compompany and they would, you know have a big book and I would say like, I'm PJ vote and I want to transfer this to, you know, Garret Graham and that would happen. Yeah. Once they're entering into this quick period of Honestly, like modern sounding financial innovation I mean, they're not logging onto their e trade accounts. How are you buying an option or whatever? Like what's the rumor that happens? What's the place, who's the person That all happened on the exchange locations in Amsterdam. So If you've ever been to Amsterdam, you probably arrive in the city by train So if you would nowadays exit central station, the very first thing you see in Amsterdam is a bridge which is called New Bridge. And that is actually the location where in the early seventeenth century it was the exchange location of Amsteram. So there' on the bridge, open air is where merchants and other commercial people would come together on a daily basis to hear the latest news, gossip a little bit and do transactions So it was very strongly trust based The persons who were entering into a forward transaction with each other they had to trust each other because There was no down payment. there was no forormal registration somewhere with I don't know, an exchange organization or a bank or you name it It was just this The written contract that these two parties to the contract had both signed So they really had to trust each other. And that was possible in Amsterdam in the early seventeenth century because it was a very small place. with a couple of hundred people, you know, actively involved in this kind of trade And they all knew each other. They were each other's neighbors. They lived in the same neighborhood. They were often married to each other's sisters or, you know It was a tight knit community And that's what made this market work. I start of feel a little nostalgic hearing this a market where everyone knew each other. I don't mean to be a bumpkin, but The complexity of our financial markets And my understanding that when they collapse, so does society My experience having lived through one of those crises in two thousand eight I felt a pang of longing for Amsterdam in sixteen oh two When the market was just a few hundred people, you could actually know. Selling pieces of something, a shipping company, that was so comprehensible Majoring in Econ in college back then. What would it have been forty minute class Of course, Ludwig assured me my nostalgia was misplaced Markets are always complex. There's always bad actors in them Just becausecause some guy's married to your sister, it doesn't mean he won't get the better of you in a trade Sometimes trust was misplaced, right? The other party to a contract was actually dishonest. So a lot of nasty things also happened.'s I think what I'm trying. You're still getting builed. It's just by your neighborood. Yeah The past wasn't simpler, it was just different. And of course, the Dutch stock market, which enabled the Dutch East India Company, would also enable the kinds of wrongdoing most people now associate with colonialism that nutmeg they were looking for on the Banda Islands? They found it. They also killed or deported nearly all of the fifteen thousand people who had been living there when the Dutch ships first arrived on shore British East India Company, England's version of this enterprise, would make even more money and spill even more blood colonizing most of the Indian subcontinent, sparking a famine in Bengal that would kill around ten million people It's a long list. It's a long story That, however, is a different story than the one we're here to tell today We were here because we were trying to understand spaceX Theon Musk's company, which he founded with promises to colonize Marars There are no indigenous people on Mars as far as we know There are also no spices But SpaceX did raise an unfathomable sum of money using the same tool invented in the Netherlands four hundred years ago an IPO. Or maybe more accurately, SpaceX used an evolved version of that tool Because of course, our stock market would be both familiar and alien to a Dutch person wandering in from the sixteen hundreds We're gonna take a short break, and then we're gonna try to understand that evolution How we Americans adapted this tool we inherited Made it better, made it worse After these ads, we're going to hop in our Delorean and set the clock a few hundred years forward eave Old Amsterdam for New Amsterdam. We will head to American shores episode of Search Egine is brought to you in part by Bilt We can all agree that housing is expensive. Rent, mortgage, doesn't really matter which one you're paying. It stings every month can make it feel a little better. The build started out rewarding members on their rent. Now, as of twenty twenty six, Built members can also earn points on mortgage payments wherever they live Every housing payment earns you points. 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In fact, those hiring with LinkedIn are twenty four percent less likely to need to reopen a role within twelve months compared to the leading competitor Join the two point seven million small businesses using LinkedIn to hire getet started by posting your job for free at linkedIn d. com slash pJ search Terms and conditions apppply This episode of Search Engine is brought to you in part by Liquid IVy. Here's the thing about summer in New York. You walk to the Bodega, very sweating d your shirt. A any actual activity, biking over the bridge, standing over a grill Walking your dog. and you're losing real fluid Water alone doesn't always cut it, which is where liquid IV comes in J one stick and sixteen ounces of water hydrates faster than water alone It's powered by LV Hydroscience, an optimized ratio of electrolytes, essential vitamins, and clinically tested nutrients to turn ordinary water into extraordinary hydration I keep oneing my bag. White peach is pretty good Done. Retain hydration for up to four hours, eight essential vitamins, no artificial sweeteners They use alulose instead. Get moving with superior hydration from liquid IV. Tar poor, live more goo to liquid Iiv. com and get twenty percent off your first purchase with code search a check out That's twenty percent off your first purchase with code search at liquidiv. com. in sixteen fifty three Early Dutch settlers on the southern tip of Manhattan buildilt a big wall The street that runs alongside that wall eventually takes its name, Wall Street And later, a financial market will emerge there. The story of that market, the American stock market, is a long, complicated story can be told a lot of different ways. This week, we're gonna to do the quickish one. You've got places to be So America starts actually by trading bonds before we trade stocks. After the Revolution, all the individual American states are in debt because of the war Alexander Hamilton, the rapping treasury seecretary, comes up with the idea that the federal government will take on that debt and issue bonds in exchange. Meaning Americans can buy a bond, knowing that the federal government will one day pay them back with interest. This creates our first speculative market. There's not a ton of rules, we have to make them later when things begin to go wrong and people lose their shirts Some Americans are buying and trading shares, mainly of banks and insurance companies, but it's not a huge part of the economy, or a huge part of most people's lives. Things take off the first time in the eighteen thirties because of the railroads It's funny in a way, our construction of the railroads, It's like a mega version of the Dutch and their ships Building a railroad system in America is this hugely expensive, hugely risky project with enormous upside if it works And the barons turn to the people and make the request every market ultimately relies on. Trust me Many Americans do It's not a project where everybody's investing. It's not like your moving guy owning crypto The people buy into the railroads are mostly already wealthy Eites It works out very well for some of them terribly for others Many railroad projects go busts, the investors get destroyed. There's also a ton of overbuilding. Three big financial crises But we also get hundreds of thousands of miles of railroad tracks The market providing this vision of the future showing us what can be will be with enough capital deployed Fortunes are made. And some of what we think of when we use the word stock market is created too banks like JP Morgan, financial newspapers But again, if you're a normal middle class person P probably would not have been a part of this normal people Regular people enter the stock market in the nineteen twenties In this ten year run where it seems like the number will only ever go up Normal people borrow enormous amounts of money to buy stocks on margin because they're convinced they're on the cusp of what people are calling the new era. a sweeping age of permanent prosperity enabled by technology. The number will never go down RCA, the radio company, is that decade NVidDia Obviously, the number goes down, the Wall Street crash in nineteen twenty nine, the Great Depression. But that crisis will actually lead to a much better stock market A much safer place to put your money, a market that can even fund more impressive ideas To explain how that happened, I've enlisted someone much more qualified than myself Me herear they say I'm a professor at Harvard Bus School and Harvard Lw school M here starts the story of our modern stock market right after that nineteen twenty nine crash. It really begins with a set of securities laws that are passed in the nineteen thirties that really enable us kind of make sure that we can give money to people and make sure that they will do the right thing by us. We require two safeguards against a return of the evils of the old Order. There must be a strict supervision O all banking and credits and ins. You're hearing of course, FDR, American president and frequent radio broadcaster. There must be an end to speculation with other people's money And there must be provision for an adequate but sound currency So when we create some institutions that protect those shareholders, like we started to do in the early part of the twentieth century, that sets the foundation for allowing outside investors to feel like, okay, yeah, maybe this can work This is the birth of the SEC, the Securities and Exchange Commission. This is how we get a stock market that is more trustworthy than crypto or cal shhade. But when the SEC's born in the nineteen thirties, there's still way fewer people investing in the market than today. It's like a single digit percentage of Americans How does that begin to change The first step is that after World War two, American unions successfully fight for lots of employers to be in funding employee retirement plans for the first time. huge win for workers. It also means that American companies now need more money to fulfill these obligations So the post war kind of settlement was what, you come and work at Packard Motors and we will pay you And as part of our union negotiations, you will get health care and you will get a retirement plan And then what will happen is Packard will contribute to a retirement plan and you can rest assured, For as long as you live, I'll write you checks. And so then they would invest in stuff to make sure that they could make those payments to you So like my grandfather comes back from World War two Yeah, he wouldn't have been checking the stock market every day. That's right. He would have had a retirement account through his work. Exactly right. His work would have been responsible for making sure that he gets paid in retirement So you're making an assumption that the company you work for will always exist. and that was problematic. And I that broke down, right? Because Packard ended up going bankrupt and like we're on the hook for all this stuff. and there's an insurance bailout. And so people are like, well, maybe that's not right So let's go a different way. And that different way is we had a revolution in the way pensions work in the United States Which is beginning in the early nineteen eighties, we had a massive shift in this country from defined benefit plans to what's called defined contributions So what does that mean Just to explain a little more slowly The shift that happened here in our grandparents era, a lot of people had worked for companies that for the first time offered retirement plans The companies, not the workers were responsible for funding these plans And they did this by making very safe investments, often bonds, so they could write retirees checks when the time came. That was the defined beneit plan riution, which we shifted to That includes something like a four hundred one K And it's different in a very specific way. Now not just the company, but also you, the employee are contributing money directly into an investment account. And employees are now deciding directly where to invest their retirement money And that is really fundamentally different in the way you think about the world. Now you're an investor. What happens when you retire? The company's gone, they wash their hands of you, but you have this like nest egg Well what the heck are you gonna do with that nest eck? Now you have to decide what to do with that nest eck. and you had to decide what to do with that nest eck all the time while you were earning. And that would be like my dad. my dad is born nineteen fifty five. He's in the workforce in the eighties. Yeah. And at this point, the company where he works is not securing his future. They are supplementing his investments in the stock market. and my dad would be like the first person in the lineage of my family who like Exact has strong opinions about Ss. Exactly right. and you know, and investments more generally. By the way, the whole thing that's happening all along here at PJ just to be clear is we're all getting richer I don't know the specifics of your family, but your father is probably earning more than your grandfather and your grandfather is earning more than your great grandfather. And so we're getting richer. So what does it mean when you get richer Well, more and more of your income is going to be available for savings. Let me just say Everyone in America keeps getting richer, is not actually a story most people feel like they're living in But Behere is talking about a relatively long time scale A hundred and fifty years ago, many Americans were still living in a cash poor farm economy They weren't earning a steady wage and setting cash aside They're mostly just consuming what they produce. In eighteen seventy six, not only did you not own a dishwasher, a car, a phone or a flush toilet You also just wouldn't have had much money in the bank probably Americans then even adjusted for inflation, something like ten times poorer Most of us do not feel rich in a country where housing is so criminally expensive But relative to the you of eighteen seventy six, you are probably richer You may even have some cash And if you do You have to put it somewhere From the nineteen eighties on, you've more Americans putting their cash in the stock market through their retirement plans, through individual investing. This is where our savings for the future in one form or another start to go That creates a huge pool of capital that can be used to fund American capitalism. And there's no question in my mind that a big part of the vibrancy of the American economy over the last sixty years is associated with that. with capital markets funding really interesting great stuff is fantastic. and those returns are being distributed in a broad way amongst the population of people who save So in Mahere's telling by the nineteen eighties, the institutions of America largely started saving for the future by putting their money in the stock market. And he thinks that was mostly a good thing where he starts to have more complicated feelings is sorts what happened next The beauty of a stock market is that you can accomplish more with strangers money than you could on your own The bigger that market gets, the more capital in it, the more society can achieve. The hazard is that as more strangers pour in These strangers are increasingly making bets on companies they don't understand, led by people they don't know And the question is whether the market remains logical In the nineties and ous as more and more retail investors joined the market This system mostly held Individually, people may have made bad bets, but the logic of the market with some exceptions, still made sense Beier believes not long after that though Things began to change. Do you own any Bitcoin or Ethereum? The recent spike in the prices of the cryptocurrency That's right. Elonus say that he will now accept payment and dogecoins for certain Tesla merchandise.' that go You know what I'm saying? I'm like, this is exactly what needs to happen. When crypto emerged in the twenty ten s driving in the pandemic It proved you could have a market where people made bets really just on attention itself. not on whether an asset had significant underlying value And instead of crypto either being regulated away or petering out What happened next was that the entire market just became more crypto like. Robinhood is now number one on the US app store this week. Coinbase came in at number two after its listing You had apps like Robinhood inviting everybody to buy stocks on margin from their phones. That app store dominance is seen as a little bit more evidence that investing is becoming a form of entertainment for a lot of people. You had the rise of meme stocks like GamameSop in the twenty twenties. It's been two years since GamSop share started going parabolic spred by retail traders Aned to ame, whether it's Doge, Bitcoin, or GameSop is getting a lot of attention from retail investors that you believe our stock market has somehow been broken? Maher thinks around here is where it happened We enabled a world of attention gamblers, competing over who could make the wildest promises, not on who could fulfill them We remade our market, so it's no longer just a place where we bet on which company will succeed It's also a place where we bet on the future flows of internet attention Not a gamble on a ship voyage I gamble that tomorrow, more people online will say the phrase ship voyage. Let me try a metaphor out on you that I really like. We usually think about financial markets as mirrors or lamps. Meaning Two things What is a financial market? It's a mirror. It's reflecting your value to you. And that's really important becausecause I'm to pay you on that basis. and I'm going tell you what you' your worth Massively important for capitalism to have a good mirror It's also lamp What is a lamp Ojects light into the future So what do financial markets do? They value everything and they tell you what things are going to be doing in the future or they guess. That lamp is really important because when something goes up in value a lot, you say, oh my God, I want to go do some of that because financial markets are telling me that it's valuable. That lamp is hugely important for capitalism. So it's a mirror and a lamp. I think financial markets have become a prism. And what is a prism? So a prism is something that somebody holds up and it refracts light and it distorts reality Hm And what my concern is now we have figured out, a subset of people have figured out that we can use financial markets to manufacture wealth, redistribute wealth in all kinds of interesting ways. And that prism It's not a mirror and an ain't a lamp. It's something completely different and it's really problematic And that, I think is what the last twenty years have been about because people started to believe things that nobody should believe. And then I think entrepreneurs started to feel like Oh wow I know how to play this game. The bigger the promise, the more extravagant the thing I say, the cheaper the capital And that is screwy. When we hear Tai looks at the American stock market of twenty twenty six, what he sees is a tool that's been somewhat mangled It designed originally to allow humans to make bets on large enterprises, larger than one person or one family could afford superersized like most things are in America. And in the last two decades, bent into a shape where it's no longer as reliable as an instrument And SpaceX, this specific company, this specific IPO, is a good way to understand that shift We're gonna to take one last short break When we come back The story of SpaceX, founded in an earlier version of our stock market by an earlier version of Elon Musk how it started. How it changed Let's after these outs. This episode of Search Engine is brought to you in part by Mint Mobile A lot of people wonder what the catch is with MintMobil's fifteen dollar month plans There isn't one. 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There's no catch. forty five dollars upfront payment required, equivalent to fifty dollars a month New customers on first three month plan only, spepeeds slower above forty gigabytes on unlimited plan, additional taxes fees and restriction supply, CMint mobile for details This episode of Search Engine is brought to you in part by NPR's Planet Money Whether you're an expert or just curious, Planet Money from NPR is the show that makes sense of the economy through stories you'll actually want to hear. I still remember their classic Planet Money Makes a T shirt series where they tracked the global supply chain from a cotton farm in Mississippi to a factory in Bangladesh It turned a massive abstract concept like globalization into something human and tangible. That's their super powerower, making the complex feel simple Their hosts go to unusual lengths to explain the world to you They have published their own book, shot a satellite into space to understand the private space industry. 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We've heard Mahure Dise' theory for how it evolved from something reasonably sane to something perhaps less reasonably sane The last story I wanted to learn was about SpaceX itself a company I'd ever paid too much attention to before this year, before what is now the biggest IPO in history. In a sense, the biggest bet the stock market has ever made So Here's where I would start the story of SpaceX One day in two thousand seven, a not yet famous computer nerd was being interviewed on a soon to be canceled PBS show called Wired Science. Thank you so much for being with us here at Wired Science. Thank you for having me. Elon Musk. He's young here, much less flashy Dressed in a dark blazer, blue dress shirt, wearing a comically wide beige tie. here to share the story of his success so far. Two days into your physics program at Stanford University You quit school to start a company called Zip to a Media Comany., which you sold a few years later for a poultry three hundred seven million dollars. Then four years later, eBay buys PayPal. Is that correct? A company that you established or helped to establish is one compers Yeah. And now you've taken Those two enormous successes and you set your ambition on space. How did you go from online payment systems to Building a spaceship, essentially Well, when I graduated from college, there were three areas that I thought would be most impactful to the future of humanity. The three were the internet space exploration and then changing the economy from a mine and burn hydrocarbon based economy to one which is solar electric, which I think you know he even back then, he talked a big game. He was not trying to get involved in politics. He was sort of staying in the lanes of being this tech visionary speaking about building things for the betterment of humanity. This is reporter Eric Berger, senior sppace editor, which is a fantastic job title at Rs Technica He's also written two books on SpaceX. He's been covering the company for over a decade Why did you first start paying attention to the story of SpaceX so long ago They started doing really interesting things. and I think this was against a backdrop of me becoming really frustrated with what NASA was doing What was your beef with NASA So I I live in Houston literally a couple of miles from Johnson Space Center There's astronaut who live on my street. So I love the space agency, but they just they weren't going anywhere. They were spinning their wheels and It was increasingly clear that the agency was set up by Congress in particular to serve contracts to large defense companies and they would slowly do things, but we were not going back to the moon or going to Mars in my lifetime If you were one of the kids who grew up watching NASA land humumans on the Moon on TV What you might have thought is that you were in the first chapter of a story of galactic manifest destiny. that humankind was beginning its final great voyage to the stars That's not what happened. And some of these kids as adults, felt cheated, including Elon Musk. You have said that we got lost along the way with our space program What do you mean by that He's asked about this in that interview. What I mean by that is in nineteen sixty nine, we were able to go to the mooon, and here we are Over three decades later and we can barely get to low Earth orbit And I think by any measure, that is a step backwards. must believe that the NASA of his use had been replaced by something else. It started in the nineteen eighties when NASA, after some high profile disasters, found itself being grilled by Congress. Today, the House Science and Technology Committee begins an intensive series of congressional hearings into the causes and the ramifications of a great national tragedy Last week, the Columbia Acident Investigation Board released its report on the causes of the space shuttle accident that occurred seven months ago. and today, the committee will begin a thorough examination of its conclusions Afterwards, in Mask view, The agency had just become too risk a ofverse Eric Berger agrees. NASA really can't afford to fail in the public eye because the administrator and the whole agenccy' called out on the carpet. And in industry as well, the companies that work for NASA, the contractors kind of had the same mentality. like they could not fail They were worried about losing their NASA contracts. and Elon sort of changed that up and said, you know what This is really hard. We're going to blow stuff up. We're going to make mistakes, but we're not going to let that slow us down. We're going to use that to go faster. You said in your endeavor here to explore space that we are committed to failing in a new way, if nothing else. What did you mean by that? Just how it sounds? Well, I mean I mean, we're committed to succeed, really, But if we do fail I would hope that reallyirdly sts the body of knowledge such that those who follow may make few mistakes. I know this might sound like fake humility, but Musk probably understood that the odds were very much against him Private rocket companies are a place other people more successful, more experienced than him, had already failed. Notoriously an industry that turns billionaires into millionaires And Musk is spending what is at the time his limited fortune on this very quixotic endeavor. I told the team, I'd have enough money for three flights and then that'd be it, you know Ctains if we didn't make it in three flights There's a documentary called Return to Space that chronicles these early days at Space Hcks, when it seems so clearly a folly this former payPal guy wasting his payout blowing up dozens of rocket engines in early pressure tests Even once the company finally settled on its own proper rocket design, the Falcon One in two thousand six, that rocket failed at launch after launch Here's Eric Burger. They tried three times and it failed each time and the company almost went under as a result of that. You know, if NASA brought out a rocket and failed one time two times, the program be shut down. Right? SpaceX was about to run out of Elon Musk's money And without a successful launch, the company wouldn't attract anybody else's. The third rocket fails and Elon basically says, you know, we need to launch the next one in six weeks, which in launch terms is super fast. So instead of shipping the fourth rocket out there on a barge like you would normally do to save time. They get a C seventeen from the U.S. military. they rent it And they put the first stage, which looks like a large ballistic missile into the cargo container area of the C seventeen And they're launching from Quadrirline, which is a smaller toll in the Pacific. Basically you fly from L.A to Hawai and then fly again from Hawaii, further into the Pacific to get there And so the first leg of the journey, they're desnding Hawaii and all of a sudden, the rocket starts imploding because the pressure differential hadn't been calculated correctly. Okay. And so like one of the engineers has to climb inside the rocket to open vents. and the military pilots wanted to say, hey, we need to dump it. We can't have this in the cargo area. Anyway, it was quite dramatic They get to this tropical island, which looks not dissimilar to Gilligan's Island and they perform surgery on the rocket. do all sorts of crazy things to fix it and test it. And they put it on the launchstand in september twenty eighth, two thousand eight. Five. four, sequ three Two, one Musk, watching now helplessly as his final try takes off. He's too nervous to sit. He stands, he mutters, he curses. He beseeches the monitor.aby Please tell me that it's for stage lights And it Miraculously reaches orbit. approaching Sko be a nominal CO, which means Falcon One is the first privately developed launch vehicle to reacharth orbit from the ground And they'd become the first company to ever privately build a vertical takeoff rocket like that and get to space Musk and SpaceX, having survived a string of near death encounters, enter a period of real success. The company starts to make money. NASA called and told us that we'd won a one and a half billion dollars contract And I couldt even hold the ce and it was like, I just blurt it out. I love you guys. NASA begins hiring SpaceX to bring cargo and later astronauts to the interternational Space Station. The first promise of SpaceX has been fulfilled Of course, Musk has much greater ambitions, which will require much more capital. This would have been a totally reasonable time for him to take the company public offffer shares on the stock market, raise capital. Instead, Musk does something atypical He says publicly that SpaceX is very long term mission travel to Mars is incompatible with the stock market and its short term thinking. So instead, he'll use a mix of revenue and private investor money to keep advancing And in twenty seventeen, we see the next big leap forward for SpaceX The company discovers how to drive down the cost of a rocket launch by fundamentally redesigning the rocket itself Before SpaceX, here's how every rocket launch worked The Rocket is basically one giant disposable engine Not like a plane which lands and flies again withith a rocket you attach your payload satellites or a capsule with astronauts to the top of a skyscraper sized booster Payload would retach ourbit and go to work booster, the biggest, most expensive part fall back to Eth after launch and burn up One launch and your rocket's gone SpaceX invents reusable rockets Rocketets like in sci fi movies A rocket that takes off then returns to Earth. I hate to betray my medium audio. But it's worth just looking up one of these launches online to on zero Iignant And l's on sight is something to say A rocket ship takeoff, which you've seen a million times, be roll in your brain. But a rocket ship landing, I hadn't Th thrusters engage. Th four feet looking things deploy. somethingomething that weighs about twenty five tons lands gently on a very small landing pad. That was as smooth as I've seen it. We had phenomenal shots all the way through the landing burn. You heard? Nobody' ever done that before. Tonight, SpaceX makes history reusing the same rocket to send something into space It will reuse a rocket that' b to space and back again. The mission could advance SpaceX's goal of bringing down launch costs and eventually The reusable rockets do bring down launch costs. They drive them down wildly From now on, if you want to put something big into outer space SpaceX is the cheapest way to do it. The company describes it as what they're calling a rideshare mission. So this is kind of like The Uber of these satellite launches, I guess. That also enables a new very profitable business Musk has launched, Starling Satellites beaming internet to consumers from the sky To a lot of people, it becomes indispensable As Ukraine tries to drive back Russian forces, it has one big advantage in its effort, Starlink internet satellites provided by the Elon Musk compomany, SpaceX Meanwhile, the rockets keep getting more efficient, more ambitious, more easily reusable. The lead SpaceX holds continues to widen. The mega rocket Elon Musk hopes will bring humans to Mars one day, blasted off over South Texas skies Tuesday night. That's the story of SpaceX through twenty twenty five, a very impressive private company that against the odds picked up NASA's drop torch and drove human progress towards the stars Investor Mahere Desaill believes that the stock market can be a mirror or a lamp tool to measure how valuable a company is today how valuable it might be tomorrow BaceX up until this month was not publicly traded But had it been You could have bought it because you believe launching satellites is a good business today orr because you believed in Musk's claims about tomorrow T tomorrow, he'd be running rocket ships to Mars mirror and the land That's how you might have understood it until very recently When Elon Musk decided he wanted to compete in the AI race and started changing the way he talked about SpaceX. Elon Musk, since he founded the company years ago is obviously becoming a much more complicated figure He swallowed up Twitter, was swallowed up by it. He used it to promote crypto, Tesla stock, fringe right wing political ideas He's also, in that time developed a real mastery of attention in the internet ability to persuade his followers into a kind of magical thinking, a cult of Musk At ability, he sometimes even uses to influence markouts Power is maybe his best shot at competing in the AI race A race that at first caught him fl footed She founded XAI in twenty twenty three, well behind open AI and anthropic Musk doesn't have the most data centers or the best LLM But the lever he could pull to amass lots of capital And in February of this year, he makes a move He takes his extremely unprofitable AI company, XAI and stuffs it into SpaceX a very exciting presentation for you We reached out to SpaceX for comment, didn't give a response, but this February, Elon Musk appeared at an all hands meeting at XAI, speaking to his employees, but really addressing a larger audience, the public, the internet. This was broadcast online He's here right after the XAI and SpaceX merger to justify it paint a grand vision of the future that his new conglomerate is going to lead humanity toward. You have to go out there and you have to explore the universe To understand it And that's the motivation U behind the combination of Space X and XAI U is to accelerate humanity's future in understanding the universe and extending the light of consciousness to the stars I found this red right so not very illinating. sci fi slot, but I wanted to understand the real business case underneath it. so I asked Eric Berger. What did you make in twenty twenty six when SpaceX buys XAI? Like was that a moment you paid attention to? And if so, what does it mean to you You know, twenty twenty six has been a really interesting year for SpaceX watchers because it has become increasingly clear That SpaceX is not a space company, it's an AI company So I think the acquisition of XAI was part of the process of realizing that. You know Musk started talking in twenty twenty five about Orbal data centers and it became clear that he was predicating all of the company's future valuation providing Data center services from space orbital datenters at the hundred to two hundred gigawatts per year. level Not cumulative, I mean per year Ean Musk has talked about this theory a lot The data centers make more sense in space, where they can run on cheap infinite solar. And he reiterates that dream in this all hands meet. att his most hyperbolic scale. He says SpaceX plans to launch a terawatt of compute per year. What he's claiming is that every year he'll create nine times more compute than our entire current global capacity. And all of it will be in space repeporter Eric Berger pointed out to me why. Even the early parts of that plan would be very hard to work out in practice Because obviously it's a heck of a lot cheaper to build stuff here on Earth rather than having to build a very specialized piece of equipment that's radiation hardened and has huge solar panels and launched into space. That's still super expensive And so SpaceX is trying to make that trade with the Starship rocket and becoming very good at building satellites, but it's not at all clear whether they'll get there But Musk's promises they go even further Beyond orbital data centers circling the Earth, beyond a mere terawatt per year What if you want to go beyond a mere terrorite year In order to do that, you have to go to the Moon So by having factories on the moon building AI satellites and having a mass driver, which is the kind of thing you really need to learn about in read about in science fiction But we're going to make it real We're actually going to have a mass driver on the moon This entire all hands meeting was so sci fi that after I watched it, the next YouTube video to autoplay was, I swear, just the movie contact What I notice is how the version of Musk telling this far out story It is just so different from the musk I encountered in that old PBS interview W back when he was thirty five It's not just that he looks synthetically younger than the less wealthy version of himself from decades before It's that this version of Musk has also surgically removed from his personality the part of himself that could publicly admit weakness. the possibility of failure He's describing this improbable future, like it's an inevitability in the staff meeting. Watching him speak what I notice. It's not that he himself is that charismatic. He doesn't possess the magnetism of a great politician It's that the audacity of his promises contains its own charisma You don't have to believe them You just have to believe that other people might That a promise this big cannot be constrained by the gravitational well of ordinary skepticism that normally rains in public markets Musk saying, Look at the future I see