Space Is the New Free-Market Frontier

Revisiting a visionary book published in the same year SpaceX was founded.

Rainer Zitelmann — Sep 17, 2024

Summary: The 2002 book Space: The Free-Market Frontier shows how entrepreneurial capitalism can overcome the stagnation of government-led space travel. In retrospect, this collection of forward-thinking papers correctly predicted the vital role of private enterprise in advancing space exploration, as shown by SpaceX’s achievement of drastically reducing the cost of space launches. While some forecasts did not materialize, such as space tourism’s rapid growth, the book accurately anticipated the transformative impact of market-driven innovation on the space industry.

Space: The Free-Market Frontier is an exceptional book that presents a collection of farsighted papers from a Cato Institute conference in March 2001. The book was published in 2002, the same year that Elon Musk founded SpaceX and launched the space travel revolution. It is fascinating to revisit this book 22 years later to see what the renowned authors got right—and what they got wrong.

First, the book’s fundamental thesis has proven to be correct: Private space travel is the cornerstone of the future of space exploration. Entrepreneurial spirit and capitalism have rescued space travel from the cul de sac in which it had become trapped following the conclusion of the Apollo program. The question posed by the 21 contributors to this volume was: “What has happened in the past three decades to delay humankind’s full exploitation of space, and what can be done to change the situation?”

In one paper, Robert W. Poole Jr., founder of the Reason Foundation, identified the main stumbling block: “the central planning approach: the assumption that engineers and government planners can devise the one best way to launch payloads to space . . . and that it is simply a question of pouring enough funding into the chosen model for long enough to make it succeed.”

Buzz Aldrin, the Apollo 11 lunar module pilot for the first human landing on the moon, was equally critical: “The fundamental building block of the US space program is the transportation capability that provides access to space. With the exception of the Space Shuttle, American space access capabilities have changed little in the past four decades and no progress has been made in solving the greatest obstacle to space development—the high costs of space access.”

However, disillusionment had also taken hold with regard to the shuttle program, particularly as promises of cost reductions at the beginning of the program were never fulfilled. Tidal W. McCoy, chairman of the Space Transportation Association, criticizes “the enormous cost of maintaining the Shuttle, not to mention the cost of launch alone, which is close to $500 million every time.” That equated to about $10,000 to $12,000 per pound of cargo per launch, which was comparable to the costs associated with the Apollo flights. The transportation of one pound of payload was approximately 10 times more expensive than optimistic forecasts had initially predicted and was no less than that of traditional, nonreusable rockets.

Following the deaths of seven astronauts in the first shuttle accident in 1986, another seven astronauts lost their lives in a second accident in 2003, just one year after this book was published. The shuttle program was ultimately discontinued in 2011. The subsequent nine years marked a low point in American space exploration, as the United States was forced to depend on outdated Russian spacecraft to transport its astronauts to the International Space Station.

In 2022, the X-33 and X-34 projects, which had cost over $1 billion, were canceled. The X-33 was an experimental spaceplane developed by NASA and Lockheed Martin in the 1990s as a prototype for a reusable space transportation system called VentureStar. The project was abandoned in 2001 before it ever flew. The X-34 was an unmanned hypersonic aircraft developed by NASA, also in the 1990s, designed to test cost-effective reusable spaceflight technologies, but after successful ground tests and several delays, it was terminated in 2001. “X-33 and X-34 both demonstrated that NASA has a less-than-stellar track record in picking the right technologies,” complained Marc Schlather, director of the Senate Space Transportation Roundtable.

What alternatives did the book propose? Robert W. Poole suggested: “Instead of defining in great detail the specifications of a new launch vehicle . . . these government agencies would simply announce their willingness to pay US$X per pound for payloads delivered to, say low Earth orbit (LEO). In other words, instead of the typical government contracting model, which has failed to change the cost-plus corporate culture of aerospace/defense contractors, NASA and the other government agencies with space transportation needs would purchase launch services.”

This is exactly what happened over the next few years. In 2002, Musk established SpaceX and started to design his own rockets, free of the constraints of NASA’s strict guidelines and specifications. Musk rejected the “cost-plus” business model, which had encouraged companies to inflate costs because that allowed them to maximize their profits. Instead, Musk sold his services to NASA at a fixed price, as had been suggested in this book. This approach incentivized Musk to cut costs, a goal he achieved. While launch costs had remained stagnant for nearly four decades, Musk has managed to slash them by an impressive 80 percent so far, and it looks as if he will succeed in achieving further dramatic cost reductions in years to come.

This was precisely what Dana Rohrabacher, chair of the House Subcommittee on Space and Aeronautics, predicted in his paper: “We all know that the costs of going into space are very high. We also know that the private sector has proven again and again that it can bring the costs of goods and service down and the quality up. Therefore, an obvious way to reduce the costs of access to and enterprise in space is to involve the private sector as much as possible.”

Doris Hamill, Philip Mongan, and Michael Kearney from the company SpaceHab called for a paradigm shift in their article “Space Commerce: An Entrepreneur’s Angle” and correctly predicted: “This approach to attracting commercial users does not require the space agencies to perform market development activities, to command its contractors to find efficiencies that will undercut the contractor’s revenue stream or to establish limits on how much they will subsidize commercial research. They only need to agree to purchase commercial services that meet their research needs within their budgets. The rest will happen by itself.” And that is exactly how it happened.

Of course, in addition to many accurate forecasts, the volume also contains predictions that did not come to fruition. For example, Aldrin predicted that the number of satellites launched into space would not increase significantly and that space tourism would emerge as a major industry. We know 22 years later that things turned out differently, but as space travel expert Eugen Reichl points out, “If you take SpaceX out of the equation, then Aldrin was not all that far off the mark. SpaceX is in a league of its own, far ahead of other countries’ and manufacturers’ space operations. Today, SpaceX launches roughly two-thirds to three-quarters of all satellites worldwide, and they are mostly Starlinks. SpaceX currently sends more than 2,000 satellites into orbit and beyond every year. As far as Aldrin’s perspective on space tourism is concerned, its time is yet to come. Richard Branson led the industry into a dead end with SpaceShip2, which used the only partially scalable hybrid engine of SpaceShip1. It was simply the wrong concept. There were also two serious accidents with a total of four fatalities.” Nevertheless, the arguments put forward in Space: The Free-Market Frontier in favor of private space travel as an attractive business sector are fundamentally convincing.

It is certainly possible that some of the predictions outlined in the book are still on their way. Overall, the volume shows that the paradigm shift initiated with the founding of Space X was correctly predicted even before the company’s inception. “What the United States needs,” wrote Poole, “is a policy toward space that is consistent with free markets and limited government.”

Buenos Aires Times | Macroeconomic Environment

Inflation in Buenos Aires City Slows to Monthly 1.6 Percent

Jun 10, 2025

“Consumer prices in Buenos Aires City rose 1.6 percent in May, lower than the expectations of most analysts and a slowdown from the previous month.

The news will be welcomed by President Javier Milei’s national government, which is awaiting the publishing of the INDEC national statistics bureau’s national figure later this week.

According to data from the Buenos Aires City Statistics Office, prices in the capital were up 1.6 percent, down from the 2.3 percent recorded in April. Most private consultancy firms expected a rate of around two percent.

Inflation so far this year in the capital totals 12.9 percent – a massive drop on the 48.3 percent recorded over the same period in 2024.”

From Buenos Aires Times.

Curiosities | Trade

The Real Story of the “China Shock”

May 30, 2025

“The total number of jobs remained largely stable in the U.S.—and even slightly increased—as people adapted to competition from Chinese trade. Trade-exposed places recovered after 2010, primarily by adding young-adult workers, foreign-born immigrants, women and the college-educated to service-sector jobs.

Lost in the alarm over jobs is that trade with China delivered substantial benefits to the U.S. economy. Most obvious are the lower prices Americans pay for everything from clothing and electronics to furniture. One study found that a 1 percentage point increase in imports from China led to about a 1.9% drop in consumer prices in the U.S. For every factory job lost to Chinese competition, American consumers in aggregate gained an estimated $411,000 in consumer welfare. This so-called Walmart effect disproportionately helped middle- and lower-income families, who spend a bigger share of their budget on the kinds of cheap goods China excels at producing.

U.S. businesses also reaped advantages. Manufacturers who use imported parts or materials benefited from cheaper inputs, making them more competitive globally. An American appliance company, for example, could buy low-cost Chinese components to lower its production costs, keep its product prices down and potentially hire more workers.”

From Wall Street Journal.

Curiosities | Cost of Services

Service Costs Aren’t Exploding Anymore

May 30, 2025

“The trend of increasing service costs defined many of our economic debates for a decade. There was just one small problem — by the time we started talking about how to address this trend, the trend had changed…

Until around 1990, health spending rapidly ate up a bigger and bigger portion of our national income. Then the increase slowed down, but it did go up some more until around 2009. But after that, it leveled off; in 2024, Americans didn’t spend a greater percent of their income on health care than they did in 2009…

Higher education has been getting more affordable for years, and the decrease in affordability in the late 2000s and 2010s was significantly overstated. The popular narrative that college is getting less and less affordable is wrong…

These changing trends don’t mean that services are cheap and we can stop thinking about service costs. First of all, there are still some services that are getting less affordable over time — most notably, child care. Second, the recent mild increases in affordability for health care and higher education haven’t erased the big cost increases that happened in the 1980s, 1990s, and early 2000s; Americans still pay a lot more for these things than Europeans or Asians do, relative to their incomes. So there’s still probably scope to bring down the costs of health care and college.

But with all that said, the change in the trends in service costs and service productivity mean that our debates about these topics need to change.”

From Noahpinion.

Blog Post | Cost of Material Goods

From Silk Stockings to Synthetic Diamonds

Capitalist innovation makes luxury commonplace.

Marian L. Tupy — May 20, 2025

Summary: The economist Joseph Schumpeter explained capitalism’s power to transform luxuries for the elite into affordable goods for the masses. From silk stockings once reserved for queens to synthetic diamonds now within reach of everyday consumers, capitalist innovation drives this democratization of consumption.

In his 1942 book Capitalism, Socialism and Democracy, the Austrian economist Joseph Schumpeter explained one of the most important characteristics of free market economies. He wrote:

It is the cheap cloth, the cheap cotton and rayon fabric, boots, motorcars and so on that are the typical achievements of capitalist production, and not as a rule improvements that would mean much to the rich man. Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls.

Schumpeter’s anecdote about Queen Elizabeth and silk stockings illustrates capitalism’s remarkable ability to democratize consumption.

Initially, silk stockings symbolized privilege reserved only for royalty and elites. Yet capitalism’s true achievement, Schumpeter argued, is not merely supplying luxury to the rich but making such goods affordable for ordinary people. Entrepreneurial innovation, mass production, competition, and technological advances – driven by profit incentives – bring previously unattainable products within everyone’s reach.

This phenomenon elevates the living standards of the less fortunate by breaking down class barriers and spreading prosperity more broadly. Capitalism’s transformative force, according to Schumpeter, lies in continually converting luxuries into everyday essentials, thereby enhancing human well-being across social strata.

The diamond industry today exemplifies Schumpeter’s insight perfectly. Historically, diamonds represented wealth and exclusivity, accessible primarily to the affluent. However, technological advancements, particularly synthetic diamond production via High Pressure High Temperature (HPHT) methods and Chemical Vapor Deposition (CVD) technology, have dramatically changed this dynamic.

Chemical Vapor Deposition (CVD), for example, is a technique for creating synthetic diamonds by depositing carbon atoms from a carbon-rich gas onto a substrate. In this method, a diamond seed crystal is placed in a vacuum chamber filled with gases such as methane and hydrogen. When heated to very high temperatures, these gases break down, and carbon atoms accumulate layer-by-layer on the seed crystal, slowly forming a diamond. This process enables precise control over diamond purity, size, and quality, making it highly efficient and cost-effective compared to traditional diamond mining methods.

Not only have synthetic diamonds become more widely affordable, but they have also placed a downward pressure on natural diamond prices. As a recent article in The Guardian explained:

Natural diamonds cost 26% less in shops than two years ago, a drop during a time of high inflation that would be extraordinary were it not dwarfed by the poor fortune of their identical twins, lab-grown diamonds, which are now 74% cheaper than in 2020.

Furthermore, synthetic diamonds may appeal to modern consumers by offering ethical and environmental advantages over mined diamonds. Instead of sourcing diamonds from some of the world’s bloodiest conflict zones marked by human rights abuses and environments destroyed by primitive forms of mining, today’s diamonds increasingly come from the lab.

Much like silk stockings transitioned from royal exclusivity to widespread accessibility, diamonds today are undergoing a similar evolution. Synthetic diamonds eliminate historical barriers of price, scarcity, and exclusivity, transforming diamonds from symbols of privilege into everyday commodities.