It is a principle I endeavoured to establish in The Wealth of Nations that the prosperity of any commercial undertaking depends, in the end, upon whether its revenues exceed its expenditures by some honest margin. I did not, I confess, anticipate an age in which this ancient arithmetic might be suspended indefinitely by the collective enthusiasm of subscribers, but the present instance of the rocket manufactory known as SpaceX obliges me to examine the matter with fresh attention.
The company — engaged in the remarkable business of conveying goods and persons beyond the atmosphere of the earth, and returning its vessels to the ground for subsequent re-employment — completed, within the last fortnight, what the gazettes have described as a blockbuster public subscription of its shares. The sum raised and the valuation thereby placed upon the enterprise were of a magnitude that I shall not attempt to convey in the currency of my own century, except to observe that the figure contained more zeroes than the receipts of several sovereign kingdoms combined, and that the company, by the reckoning of its promoters, earned none of them.
What arrests my attention is not the offering itself — ambitious ventures have always sought the savings of the publick — but what followed it. Less than two weeks after the conclusion of this celebrated subscription, the same enterprise has presented itself to the bond market, cap in hand, seeking yet further sums upon promise of future repayment with interest. The shares, meanwhile, have declined in price by a tenth from their issue, which is to say that those gentlemen and ladies who subscribed most eagerly at the moment of greatest festivity now find themselves the poorer for their enthusiasm.
In The Theory of Moral Sentiments I observed that the desire of bettering our condition comes with us from the womb and never leaves us till we go into the grave. I did not intend this as an operational model for corporate treasury management, and yet here we find it faithfully enacted: the condition was bettered by the IPO, found insufficient, and is now to be bettered again by bonds, the whole cycle having required approximately eleven days.
The bondholders, for their part, are in a position somewhat different from the shareholders. They do not participate in the glory of ascent; they receive only the promise of repayment, secured against assets that are, by their nature, occasionally returned to earth at very high velocity. Whether this constitutes adequate collateral is a question I leave to the underwriters, who are, one trusts, well compensated for the exercise of their judgment.
What the present episode illustrates, with a clarity that no lecture could improve upon, is the distance that may exist, in the modern age of manufactures, between the price at which a thing is valued and the income it presently produces. That distance is bridged, in practice, by fresh subscriptions, and then by bonds, and then — one supposes — by subscriptions again. The wheel turns. The capital is raised. The atmosphere is, in some quarters, briefly exited. The accounts remain open.