The Physics of Wall Street: a brief History of Predicting the Unpredictable

Physics Hits the Street 
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tellectual innovation as in making a big trade. Wall Street would never 
be the same.
on october 4, 1957, the Soviet Union launched Sputnik, the first man-
made object to enter earth’s orbit. America panicked. eisenhower 
immediately ordered the fledgling U.S. space program to schedule its 
own launch. the date was set for december 6. the event was tele-
vised live across the nation, as American scientists attempted to prove 
they were equal to the Soviets. Millions tuned in as the first American 
spaceship ignited on the launch pad, and then inched off the ground
— for about four feet, before falling back to the tarmac and exploding. 
the performance was a humiliation for the American scientific es-
tablishment. four year later, the Soviets did the Americans one better 
still, by propelling Yuri Gagarin into orbit and successfully launching 
the first manned spacecraft. Kennedy responded within the week by 
asking nASA to find a new challenge that the Americans could win. 
on May 25, 1961, Kennedy announced his commitment to put the first 
man on the moon.
Physics had been on the rise in the United States since World War 
II. But after Sputnik was launched, physics interest skyrocketed. About 
five hundred physics Phds were awarded in 1958. By 1965, that number 
was closer to a thousand, and by 1969 it was over fifteen hundred. this 
rapid growth was in part a matter of nationalism: becoming a rocket 
scientist was a fine way to serve your country. But even more, it was 
a matter of funding. nASA’s annual budget increased by a factor of 
seventy from 1958 to its peak in the mid-sixties. In 1966, nASA was 
given almost $6 billion — 4.5% of the total federal budget — to devote 
to basic science. other government funding agencies, like the depart-
ment of energy and the national Science foundation, were also flush 
(though none could compete with nASA). even mediocre graduates 
of mid-tier doctoral programs were guaranteed jobs in science, as 
either professors or government researchers. Physicists were in high 
demand.
on July 20, 1969, neil Armstrong and Buzz Aldrin became the first 
men to step foot on the surface of the moon. America and its allies 
rejoiced — finally, an American victory in the space race. And almost 

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immediately, the physics job market collapsed. As the space race ac-
celerated, so too did America’s commitment to the war in vietnam. 
the success of the Apollo 11 mission gave nixon an excuse to divert 
funds from nASA and other research groups to the military effort. By 
1971, nASA’s budget was less than half what it had been in 1966 (in real 
terms). Meanwhile, college enrollment began to drop, largely because 
the Baby Boom years were over. once the “Boomers” had graduated, 
universities stopped hiring new faculty members.
emanuel derman was a South African physicist who experienced 
this funding roller coaster firsthand. He entered graduate school, at 
columbia University, in 1966, at the high point of U.S. science fund-
ing. He worked on experimental particle physics — a field far from 
nASA’s central interests, but a beneficiary of the uptick in govern-
ment support for physics nonetheless. Like most graduate students, 
he slogged through, living on a small stipend and working long hours. 
the students he knew when he first arrived in graduate school went on 
to positions at universities around the country. But by the time der-
man graduated, in 1973, there were no permanent jobs left. derman, 
and other physicists who had done excellent work, were barely able 
to scrape together a series of temporary research positions. derman 
spent two years at the University of Pennsylvania, followed by two 
years at oxford, and then two years at rockefeller University, in new 
York. By the end of the decade, he was ready to give up. He considered 
quitting physics for medical school but decided to go to Bell Labs and 
work as a programmer instead.
As the seventies droned on, the number of physics Phds awarded 
in the United States dropped, to about one thousand per year. While 
this was significantly lower than the peak in 1968, it was still far more 
than the flailing job market could support. this meant that by the time 
Black moved to Goldman Sachs, in 1983, there were thousands of very 
talented men and women with graduate degrees in physics and related 
fields who were either unemployed or underemployed.
Black’s move to Goldman Sachs coincided with another change, 
too. By 1983, options were a growing business, making people with 
training like Black’s attractive on Wall Street. But bond trading — al-
ready a mainstay of the financial industry — was in the midst of a sea 
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t h e p h y s i c s o f wa l l s t r e e t

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