The Know-It-Alls

If moguls like Gates, Andreessen, and Zuckerberg started as ambitious young hackers who discovered that their obsession with computers could lead to great wealth and power, Peter Thiel was something like the opposite—an ambitious young man who discovered that his obsession with great wealth and power would lead to computers. After graduating Stanford with both a B.A. in philosophy and a law degree in the early 1990s, Thiel pursued a conventional career in finance, briefly working for a blue-chip corporate law firm and then shifting to become a Wall Street banker. By 1998, however, Thiel was running his own small investment firm back in the Bay Area, where the dot-com gold rush was in full effect.¹ He had already helped friends with start-ups that had “sort of blown up in catastrophic ways” and was determined that, the next time, he would be involved from the beginning and do things differently.² Later that year, Thiel returned to the Stanford campus to give a guest lecture—fittingly, his talk was held in a small room in the not-yet-torn-down Frederick Terman Engineering Center. It was there he would find the ambitious hacker to help him on his way.³

The subject of Thiel’s talk was currency trading, his investment specialty, but inevitably he touched on a broader political point—how market globalization would lead to political freedom. “It was a topic dear to his heart. . . . Peter’s philosophical underpinnings were influenced by accounts of totalitarian oppression such as the works of Aleksandr Solzhenitsyn,” writes Eric Jackson, who had just graduated from Stanford and knew Thiel as the founder of the conservative campus magazine, Stanford Review, where he had been on the staff.⁴ Among the small handful in the audience was Max Levchin, an intense, libertarian-leaning Soviet Jewish émigré who had recently graduated with a computer science degree from the University of Illinois at Urbana-Champaign.

Levchin had arrived on the Illinois campus in 1993, just as Marc Andreessen was leaving, declaring the Midwest an entrepreneur-free zone and taking the best programmers with him to Silicon Valley. Levchin was among the undergraduates hired as their replacements at the supercomputing lab where the Mosaic Web browser was developed, but he wouldn’t be as naive about business opportunities. He started companies while still in school, and was clamoring to head to Palo Alto as soon as he could convince his immigrant parents that he wouldn’t be pursuing a higher degree. Levchin’s life goals had been fundamentally transformed by Andreessen’s example from “somebody who thought of myself first and foremost as a scientist/future academic to someone who thought there’s no better way to be than to create businesses. Be an entrepreneur, that’s what it’s all about.”⁵

Upon graduation, Levchin was invited by a friend from the computer lab to stay on the floor in his small Palo Alto apartment, which lacked air-conditioning. To say cool in the hot summer of 1998, Levchin snuck into talks on the Stanford campus, which is how he says he found himself listening to Thiel discuss financial markets and political freedom. “I went to see this random lecture at Stanford—given by a guy named Peter, who I had heard about but never met before,” he recalls. Because there were so few people in the audience, Levchin was able to buttonhole Thiel afterward. What do you do? Thiel asked. I start companies, Levchin replied. That’s great, I invest in companies, Thiel answered. The two committed to working together on a start-up. “We hit it off really quickly—I have this IQ bias—anybody really smart I will figure out a way to deal with,” Levchin says. “When we met, we sort of hung out socially, and then one night we had this showdown where we sat around in this café for like eight hours and traded puzzles to see who could solve puzzles faster—just this nonstop mental beating up on each other. I think after that we realized that we each couldn’t be total idiots since we could solve puzzles pretty quickly.”⁶ It was a match made in heaven, or in Terman’s Stanford, at least. Two young strivers—one proficient in the ways of computers, the other in the ways of law and finance—but each eager to promote radical change in a society they barely understood.

After some fumbling with other ideas, Thiel and Levchin came up with PayPal, which would create “a new Internet currency to replace the U.S. dollar.” Thiel pitched the idea as fulfilling his anti-government dream of a global market that protects the welfare of the public by empowering them as consumers: “What we’re calling ‘convenient’ for American users will be revolutionary for the developing world. Many of these countries’ governments play fast and loose with their currencies. . . . Most of the ordinary people there never have an opportunity to open an offshore account or to get their hands on more than a few bills of a stable currency like U.S. dollars.”⁷ But there was that other thing, too, the chance to make a fortune. If you happened to create and own a new digital currency, you could collect a cut from each online transaction. You would become the middleman of e-commerce, as David Shaw and Jeff Bezos had sketched out, without incurring a retailer’s burden of keeping track of orders, maintaining warehouses, and making deliveries.

There, in microcosm, were the two sides of Thiel, and two sides of disruptive Silicon Valley values: the self-proclaimed advocate for personal liberation who dreams of overthrowing the current order, as well as the ruthless entrepreneur dreaming of making a large fortune at Internet speed. Rather than those two identities’ being in conflict, Thiel discovered, each can bolster the other. An appetite for the utopian social destruction represents a higher purpose than pure greed as your employees sacrifice to build your business. On the flip side, business success becomes vindication of all that destruction and proof that the right man is in charge.

Thiel was born in Frankfurt-am-Main in 1967, to German parents. His peripatetic father was an engineer who traveled around the world, briefly settling in, among other places, Cleveland, Ohio, where he studied at Case Western Reserve University and where Peter first arrived in the United States as a one-year-old and became an American citizen.⁸ At age six, he spent two years and a half years in apartheid South Africa and South West Africa (current-day Namibia), where his father worked for a uranium mining company. When Peter was ten, the family settled down in Foster City, outside San Francisco.⁹ By Thiel’s account, his was a conventional, if overachieving, upbringing: “My path was so tracked that in my eighth-grade yearbook, one of my friends predicted—accurately—that four years later I would enter Stanford as a sophomore.”¹⁰

At Stanford, Thiel studied philosophy and began to separate even further from the pack. In June 1987, he started the right-wing publication Stanford Review, which Thiel reckons was his first entrepreneurial venture, and a successful one at that. He introduced the Review to give voice to young conservatives, who he felt were not being heard during the divisive debates of the day, like whether to allow military recruiters on the Stanford campus, or in the highly publicized fiasco over whether Stanford should agree to house the Ronald Reagan presidential library. Thiel put together the first issues of the Review in his dorm room with the help of a high school friend, but in barely a year, there were forty staffers who distributed twelve thousand copies of each issue.¹¹ Three decades later, the magazine still flourishes, with ample financial support from former editors, many of whom have reached the heights of Silicon Valley by following in Thiel’s footsteps.

The topic that sustained the Review from the early days was the fight against “multiculturalism,” the movement to make higher education more inclusive and welcoming to women, gays, blacks, and Latinos. Multiculturalism championed two main causes at Stanford in the late 1980s. The first was to overthrow a curriculum of “dead white males”—otherwise known as the Western canon—by insisting that Stanford’s required courses on literature, philosophy, and art include more racial and gender diversity among the writers and artists being taught. The second was to demand that the university admit more women and minorities and protect them on campus by, among other things, aggressively punishing hate-filled student behavior.

The Review saw these efforts as trampling on university traditions, whether that be the tradition that students can say whatever they want on campus, including something hateful, or the merit-based system whereby the academy anoints the Great Writers and selects who can study at Stanford. When these two causes were taken together, it appeared to Thiel and his comrades, multiculturalism had the single, overarching purpose of coddling the weak. Stanford students, some of the most talented young people of their generation, shouldn’t need to be shielded from occasional strong language or from the uncomfortable fact that the world’s best thinkers were not neatly divided among various racial, sexual, ethnic, and social groups.

In The Diversity Myth, Thiel’s look back at those times written with his friend David O. Sacks, a former editor of the Review, Thiel and Sacks describe a campus that has lost its grip on reality.¹² For example, they describe how women on campus didn’t have it any harder than men, and mock a professor who argued that “women are so oppressed that we don’t even know how oppressed we are—there are layers upon layers of institutionalized oppression.” Not very intellectually rigorous, they write, since under this argument, “oppression was both pervasive and undetectable. Once again, sexism . . . had been defined as to be nonfalsifiable.”¹³ The same sleight of hand occurred on behalf of racial minorities. “The primary problem for multiculturalists is that there are almost no real racists at Stanford or, for that matter, in America’s younger generation,” the two wrote back in 1995. “The few exceptions, like the ‘skinheads,’ are highly visible (precisely because they are so few) and are not often spotted at elite schools like Stanford.”¹⁴ Ditto for gays and Latinos. All were being conned by their leaders to think that they were oppressed in order to avoid the burden of personal responsibility. There was class envy, too: “In the multicultural allegory, the wealthy are per se oppressive, because their success creates misfortunes for others. The other two possible causes of poverty—bad fortune or bad choices—are rejected a priori. Quite naturally, multiculturalists conveniently overlook the fact that without productive people paying taxes, there could be no welfare for the poor.”¹⁵

Interestingly, the root conflicts of Stanford’s culture wars—“merit” versus diversity (or lack thereof), and “freedom” versus tolerance (or lack thereof)—are precisely the ones that weigh so heavily on Silicon Valley today. Questions like: How do we bring more women and racial minorities into the tech world? Should we even try? And do we need limits on speech to make the Internet more welcoming to women and minorities who are frequently threatened online by hate-filled comments? Thiel and Sacks then, and now, resist official interventions on behalf of tolerance and diversity. Their vision at the time was of a campus of strong individuals who navigate their way in the world, judged by their deeds and their deeds alone, not asking for help nor wasting any time to take offense. That’s pretty much the vision Silicon Valley is selling now, too.

An early incident involving graffiti on a picture of Beethoven became a cause for the Review. Two white students, Gus and Ben, had a heated discussion with a black student at Ujamaa House, Stanford’s African American–themed dormitory, that culminated in the black student, B.J., claiming that Beethoven was African.¹⁶ Thiel and Sacks pick up the story in The Diversity Myth: “The following evening, Ben noticed a Stanford Symphony recruiting poster featuring a picture of none other than Beethoven himself (in the poster, Beethoven appeared white). Inebriated, Gus and Ben used crayons to color in the Beethoven flier with the stereotypical features of a black man—brown face, curly black hair, enlarged lips—and posted the flyer on a ‘food for thought’ bulletin board adjacent to B.J.’s door.”¹⁷

Thiel and Sacks agreed that the drawing was “certainly in bad taste,” and that, undoubtedly, “the black residents did not consider the satire amusing,” but they also detected hypocrisy in the reaction: “Overnight, with the most minute shift in inflection, the symbolic significance of the claim that Beethoven was black had changed 180 degrees—from a source of multicultural pride to a point of multicultural derision.” The importance of context—who says what when—appeared to mystify Thiel and Sacks. “B.J.’s words and the two white students’ drawing had said precisely the same thing. Nevertheless, the fact that these students were of different races made B.J.’s expression legitimate and the white students’ something of a crime.”¹⁸ Is their description of these events another provocation? That is, are they “trolling” minority students, to use the popular term for online harassment, or did Thiel and Sacks sincerely think there was no difference in how a black student might say he believes that Beethoven was black, and how a drunk white student might? In a sense, the answer doesn’t matter. The message is clear either way—we are tired of all this complaining from women and minorities and don’t dare tell me what I can say.

The two freshmen who defaced the Beethoven poster were kicked out of student housing for the fall and winter quarters, but avoided any additional punishment when the university’s top lawyer concluded that the racist graffiti was protected speech.¹⁹ This solution left neither side happy: people sympathetic to the black student in the case were angry that the university ultimately concluded that painting stereotypical big lips, big nose, and an afro on a poster left next to a black student’s room was permissible speech on the Stanford campus. People more sympathetic to the white students, including the Review editorial team, were angered that the stakes had become so high that a pair of freshmen were in danger of being expelled from Stanford over what they saw as at worst a joke in poor taste, which was made while intoxicated.

The university itself was left flailing, unable to find a workable middle path. During these tense events, tetchy Stanford administrators, as we’ve seen, removed a joke about a cheap Jew and a cheap Scotsman on an Internet Usenet group, which led John McCarthy to rally his computer science peers to fight for an uncensored Internet. Their victory in that fight, McCarthy says, laid the groundwork for the anything-goes Internet we live with today, which he considered one of his greatest accomplishments. Though the Review crowd didn’t advocate for an unfettered Internet from a hacker’s perspective, they shared the view that the Internet—and offline life, too—should be beyond the reach of meddling authorities. They, like the hackers, insisted they were living in a world where the effects of racism and sexism could be willed away, if they even existed in the first place.

There were other free-speech martyrs championed by Thiel and the Review, including Keith Rabois, a former editor at the Review who attended Stanford Law School with Thiel. Walking by a dorm that was led by a resident fellow the Review editors considered overly politically correct, Rabois yelled toward the home of the resident fellow there, “Faggot! Faggot! Hope you die of AIDS!” The hateful words were intended to educate the students who witnessed them about the extent of free speech protections on campus, Rabois explained.²⁰ “The entire point was to expose these freshman ears to very offensive speech,” he wrote in a column for the Stanford Daily defending his actions. “Admittedly, the comments made were not very articulate, not very intellectual, nor profound. The intention was for the speech to be outrageous enough to provoke a thought of ‘Wow, if he can say that, I guess I can say a little more than I thought.’”²¹

When administrators wanted to talk with Rabois about the incident, he told them he wasn’t interested, confident he was beyond their discipline. “My time’s too valuable,” he told them. “Whatever was said was certainly legitimate criticism. I’m a first-year law student. I know exactly what you can say and what you can’t.”²² Later, Rabois was hounded out of Stanford Law School by his peers, rather than school administrators, and transferred to the University of Chicago. “For all practical purposes, he was expelled,” Thiel and Sacks write.²³ He reunited with Thiel at PayPal, one of at least ten former Stanford Review editors who “had played a vital role in shaping the direction of the company.”²⁴

There was a complicating factor about this particular campus incident, however: Rabois and Thiel were themselves gay, though both were still well in the closet. Homophobia was prevalent on college campuses throughout those years, and not just among conservative students, but especially among them. No doubt, the pressure of hiding who they were played out in bizarre tales like the “faggot, die” episode and in the Review’s criticism of an openly gay lecturer in computer science, Stuart Reges, who now teaches at the University of Washington. The Review took Reges to task for a comment he posted to a bulletin board at Stanford calling on gay students to be more vocal on campus to show administrators the hostility they faced. He proposed staging a kiss-in outside a gym known for homophobic incidents, or having gay couples attend fraternity parties to “find out just how open they are.” This fit the pattern Thiel and Sacks observed among women and minority groups on campus—“the need to manufacture incidents indicates that there is not much of a problem.”²⁵ How else could a libertarian-leaning publication like the Review oppose individual sexual freedom? Gay rights had to be seen as yet another minority group’s attempt at special treatment.

Thiel was publicly outed as gay in 2007 by the Silicon Valley–based Web site ValleyWag, one of the Gawker family of Web sites that revel in making public the private lives of celebrities, or the sort of well known.²⁶ The headline was an exuberant “Peter Thiel is totally gay, people.” Thiel has described the experience as like facing a terrorist attack: “I don’t understand the psychology of people who would kill themselves and blow up buildings, and I don’t understand people who would spend their lives being angry; it just seems unhealthy. . . . Terrorism is obviously a charged analogy, but it’s like terrorism in that you’re trying to be gratuitously meaner and more sensational than the next person, like a terrorist who is trying to stand out and shock people. It becomes this unhealthy dynamic where it just becomes about shocking people.”²⁷

Already a wealthy investor at that point, Thiel began a long-term strategy to turn the tables, helping to bankrupt Gawker Media by spending what he said was as much as $10 million to sponsor lawsuits against the online publisher. Nearly a decade after the ValleyWag item appeared, Thiel drew blood with a particularly potent grievance from the professional wrestler known as Hulk Hogan. Hogan, whose given name is Terry Bolea, sued Gawker over the publication of a tape showing him having sex with his friend’s wife. When a Florida jury awarded Hogan $140 million in damages, Gawker had suffered a mortal blow.²⁸ Thiel says he didn’t sponsor the lawsuits to exact revenge against an institution that did him wrong but, rather, to make the world a better place. His sub rosa campaign against Gawker, he said, was “one of my greater philanthropic things that I’ve done. I think of it in those terms.”²⁹

During the 2016 presidential campaign, Thiel was forced to confront some of the more extreme arguments in The Diversity Myth—like its description of date rape as sometimes masking “seductions that are later regretted” by the women making the accusations.³⁰ Thiel apologized for those comments, which he said have been taken, incorrectly, to mean he didn’t think rape in all forms is a crime.³¹ But he didn’t renounce the book in its entirety, which is filled with small cruelties that don’t lend themselves to headlines. As The Diversity Myth recounts in detail, the Review was always trying to get under the skin of its political opponents. If there weren’t any wrenching disputes over race, gender, and class on the Stanford campus, the magazine would concoct them. There usually was some issue at stake—a professor’s alleged abuse of power; conservative students’ being denied a chance to get their views across—but take a step back and these provocations appear to be little more than an excuse to be mean.

There was the time that the Review identified an undergraduate class, Drama 113 (Group Communications), that seemed to lack the intellectual rigor befitting Stanford. Incredibly, to the Review editors, the instructor told her students at the start: “I am not interested in facts—I care about how you feel.”³² Sacks and other Review editors decided to infiltrate the class and start taking notes. One day in class, they reported, a Latina student became emotional while describing her working-class upbringing. “Trying to be helpful, an upper-middle-class person asked whether Tamara wanted her children to be members of the upper-middle class,” Thiel and Sacks write. “Without a moment’s hesitation, Tamara replied: ‘absolutely not’; her children would grow up in a lower economic class as well. Several students responded: Then how could she be sorry for her own childhood?” They never did get an answer, Thiel and Sacks write matter-of-factly, “because the distraught young woman promptly ran out of class,” adding that “those who are taught to run away from hard questions will not even make it past their first job interview.”³³

In addition to his studies and his right-wing agitation, Thiel was elected to the student government both as an undergraduate and as a law student. In his first campaign statement, as a junior, he promised to bring the disruption of an “outsider” to the organization, known as the Associated Students of Stanford University: “I have no experience in the ASSU Senate. I have no experience wasting $86,000 of student money on ASSU office renovations, helping friends pack resumes with positions in the ASSU bureaucracy, and giving them disproportionate salaries on top. As an outsider looking at the current student government, I am disgusted.”³⁴ Thiel rose to become the chairman of the appropriations committee, where he was a stickler about the rules for disbursing money collected from student dues. At one point, Thiel tried to exclude a women’s group that failed to set up a meeting with him, telling the Stanford Daily, “People have got to understand that they have to arrange for an interview.”³⁵ He was overruled. In another case, he stepped in to ensure that the Review received student support after a different committee had voted against it. Thiel’s decision to give the Review nearly a fifth of all the money assigned to student publications was challenged as a conflict of interest, since, of course, he had helped create the Review. But Thiel noted that, according to the bylaws, a conflict would only kick in if he were an officer at the Review, and by that time he was simply a contributor.³⁶

After graduation, Thiel not surprisingly gravitated to a life in law and high finance. His career arc, which began with so much promise, met with an early failure—being passed over for a prestigious Supreme Court clerkship by two conservative justices, Antonin Scalia and Anthony Kennedy. Had he secured this ultimate distinction, Thiel reckoned, he would have had an express route to the top of the conservative legal movement. “But I didn’t. At the time, I was devastated,” he writes. Looking back, though, he smiles: “Had I actually clerked on the Supreme Court, I probably would have spent my entire career taking depositions or drafting other people’s business deals instead of creating anything new.”³⁷

Even after missing out on the Supreme Court clerkship, Thiel was still heavily recruited by top corporate law firms, and he joined a prominent one in New York, Sullivan & Cromwell, as an associate. But the spell was broken. He only lasted seven months and three days, he recalls with uncanny exactitude. When he left the firm, the other young lawyers were astounded, he says, overcome by the same thought: “I had no idea it was possible to escape from Alcatraz.”³⁸ There was another relatively brief stint, as a trader at Credit Suisse First Boston, before he started his own small fund back in California.

Then Thiel met Levchin. Though Thiel wasn’t a hacker, he was an expert chess player and had reason to think a bit about computers. When he was on the Stanford chess team in the late 1980s, computers were raising their game to compete with the best. In an interview with a student reporter, Thiel was complimentary, to a point. “Although some of the computer chess programs are very impressive, they are still far from perfect,” he told the reporter. “Chess computers tend to go through all of the possible moves from a given position, which makes it hard for them to look very far ahead, since the possibilities grow exponentially. Human players, on the other hand, focus on specific goals in a given position. Until the computers become goal-oriented as well, they will probably continue to lose.”³⁹ Thiel wasn’t correct about how computers would need to improve before they could beat the best human players—they succeeded through brute-force calculation—but he wasn’t exactly wrong, either. For all their success in competition against the top chess masters, computers still want for the deeper intelligence that can plan and scheme in pursuit of a goal. This is the type of intelligence reserved to humans. Thiel, the nonhacker, has persisted in this view of computers as “complements for humans, not substitutes,” which pretty much describes the current approach to artificial intelligence in Silicon Valley.⁴⁰

Thiel and Levchin made a nice match, with Thiel thinking about how to harness computers to assist people and Levchin finding the most efficient ways to get computers to do what you wanted. “I’d much rather focus on building than running,” Levchin said.⁴¹ The founders shared a hiring philosophy, too. They brought in people who were comfortable with each other and saw the world in the same way. Levchin assembled his technical staff by leaning on the friends he made at the University of Illinois, while Thiel looked for employees who shared his political views by using the Stanford Review as a feeder organization. If D. E. Shaw & Co. was run like a computer lab focused on understanding finance, PayPal was a computer lab whose administrators happened to come from a right-wing think tank.

These two distinct pools of candidates for PayPal resulted in an initial staff that was nearly all white and nearly all male. Of the six original founders, the one nonwhite person was an immigrant from China. All were men. All but Thiel were twenty-three or younger. Four had built bombs in high school.⁴² A picture of the staff six months later shows that it had grown to thirteen and included one woman, an office assistant.⁴³ “The early PayPal team worked well together because we were all the same kind of nerd,” Thiel recalled. “We all loved science fiction: ‘Cryptonomicon’ [by Neal Stephenson] was required reading, and we preferred the capitalist Star Wars to the communist Star Trek.”⁴⁴

PayPal began as a company named Confinity, a combination of “confidence” and “infinity.” The name was meant to convey the reliability of its initial business, which was transmitting money wirelessly between Palm Pilots, though Thiel and Levchin settled on a more promising business plan of transferring money via email and renamed the company PayPal. Only then did the libertarian rhetoric flow, with the promise of giving “citizens worldwide more direct control over their currencies than they ever had before.”⁴⁵ In practice, however, PayPal never managed to escape the reach of governments, particularly the U.S. government. The company remained tightly moored by state and national regulators who, depending on the jurisdiction, might apply to PayPal the rules for banks or money transmitters.⁴⁶ No revolution was launched; no business was ever done outside of the government’s watchful eyes.

What PayPal offered was an easy, secure way of transferring money via email, a convenience that could become the basis of a powerhouse company once you added a little shrewd thinking about people and markets. The key to success, Thiel and Levchin quickly concluded, was to get enough users of PayPal to convince businesses and individuals that they had to accept its payments. This was the same “network effect” sermon that Andreessen had given before there even was a Web economy. Keep adding users by any means necessary and suddenly people will be begging to join. To start, however, you must do the begging, while also employing some basic Psych 101 techniques to win over the public.

“PayPal was a very friendly name,” Thiel explained. “It was the friend that helps you pay.”⁴⁷ No doubt even more compelling was PayPal’s plan to give users $10 for joining and another $10 for referring someone. The idea of potentially handing over $20 to whoever came knocking wasn’t considered particularly radical at the time. During the dot-com boom, Levchin recalled, “the classic insanity of Silicon Valley was basically selling dollar bills for 85 cents.”⁴⁸ It’s hard not to compare Thiel and Levchin to scientists teaching rats how to complete a maze. Thanks to the immediate connection with its customers through the Web, PayPal could closely monitor how incentives influenced behavior, tinkering with the size of payouts for referring new customers and raising the fees charged for using a credit card to fund a PayPal account to discourage the practice.

Still, growth was slow until PayPal identified a flaw in the growing Web economy: eBay, already a hugely successful commerce site, never created an effective way for customers to transfer money electronically. Most sellers were too small to accept credit cards on their own, and, incredibly, were content to conduct business via snail mail with checks or money orders. “It was a clumsy process for an Internet service, one that PayPal could clearly improve,” writes Jackson, the Stanford Review editor who was brought in as a PayPal executive and describes stumbling on the untapped eBay market.⁴⁹ PayPal focused laser-like on signing up the eBay clientele, knowing that each “power seller,” for example, who signed on to PayPal represented a network in her own right, the center of orbit for buyers.

One tactic was to create “bots,” simple computer scripts programmed by Levchin, which imitated human bidders on eBay. With these bidders, however, there would be a catch, which they explained via email. They could only complete their purchase through a new service called PayPal—maybe you want to join me there? The mysterious arrival of these eager new bidders ought to have been enough reason for sellers to sign up for PayPal, since more bidders at an auction site meant higher prices. But PayPal executives thought of yet another inducement: What if the bots told sellers that the purchases would be donated to charity? Will you sign up for PayPal now?

Pulling off this plan required more than programming skills, however; PayPal had to find a charity willing to accept sight unseen the random knickknacks the bots had bought. Jackson was given this assignment and discovered that many large charities didn’t want to be part of this unusual scheme. Ultimately he found a local branch of the Red Cross that agreed to accept whatever PayPal sent them and the new charitably minded bot was then released into the eBay ecosystem.⁵⁰ With the eBay strategy in place in early 2000, PayPal began a growth spurt. The total number of users increased by more than 5 percent a day, from 100,000 in February to 1 million in mid-April; among the eBay subset, the growth rate was almost twice as fast.⁵¹

EBay initially didn’t take these incursions by PayPal very seriously. Periodically, executives would question why they were allowing another company to build a business off of their own. They would either come up with a plan for an eBay online payment system or choose a finance company to partner with. The efforts were at best half-hearted, while PayPal, as we’ve seen, was always full steam ahead. Later, when eBay executives decided to drop the hammer and try to chase away PayPal by exploiting its obvious advantages with its own customers—say, by adding extra hurdles for users of PayPal—the libertarian-leaning company didn’t hesitate to threaten to enlist U.S. regulators to restrain what they argued was eBay’s anti-competitive behavior. Reid Hoffman, a Stanford friend of Thiel’s who became PayPal’s executive vice president, for a time managed to keep the path clear at eBay by merely raising the specter of government intervention.

At this point, PayPal was committed to losing millions of dollars a month to build up its audience quickly and was succeeding on both fronts. Adding to PayPal’s financial challenges—beyond, ironically, its growing popularity—was an aggressive, direct competitor, x.com, which was four blocks down the road and led by another young, ambitious entrepreneur, Elon Musk. Rather than destroy themselves in competition, the two companies merged after intense negotiations. The combined company kept the PayPal service, renamed X-PayPal, as part of x.com’s suite of online financial services. The company managed to raise $100 million in investment capital just days before the dot-com bubble burst in April 2000. Initially, Musk was the top dog in the merger and Thiel was pushed to the sidelines, so much so that he resigned from the company. Six months later, an executive-led coup brought Thiel back as well as the PayPal identity; Musk left day-to-day operations, but remained the largest single shareholder of the combined company with a stake of more than 10 percent.⁵²

Despite the wreckage all around from the expanding dot-com collapse, PayPal appeared to be in good shape. Growth continued to be frantic and the competition had been kept at bay, either through merger or threat of government regulation. There was money in reserve. Yet PayPal still faced an existential threat in the form of consumer fraud. Solving this problem would be crucial. So crucial, in fact, that Levchin says he prefers to think of PayPal as “a security company that pretends to be a financial services company.”⁵³

PayPal was vulnerable to fraud by customers who, among other things, would use the service to purchase a product and then ask their credit-card company to perform a “chargeback,” claiming something was amiss in the transaction. Levchin jokes about how ill prepared he and Thiel were to deal with scams like that: “Somebody told us, ‘You’re going to be drowned in chargebacks. You’re going to die under all this massive pressure of all these people who are going to be out there just to take your money.’ Peter and I were going, ‘What’s a chargeback? We never heard of this. OK, well, we don’t have to worry about stuff we don’t know.’ So we just went right along. And six months into it, we still had no chargebacks. So we figured that people are actually fundamentally good. ‘It’s all right. No one is going to charge money back.’” Levchin then learned that six and a half months typically pass before the first chargebacks begin to appear, and sure enough, two weeks later PayPal was fast being overrun by fraud, to the tune of $12 million a month in June 2000.⁵⁴

One response by PayPal was to become an early innovator in CAPTCHAs, tests meant to screen out malevolent bots that help in chargeback fraud. The tests involved completing a task—like copying the letters shown in an image—explicitly designed for people. In a bit of AI humor, Levchin called the technique a “reverse Turing test”; that is, instead of trying to welcome machines by offering a broad definition of intelligence, as Turing’s test does, CAPTCHAs were meant to identify and keep out computers by focusing on particularly human qualities. The tests were effective in keeping out conniving computers but were useless in separating honest people from dishonest. To achieve this vital screening, Levchin would apply artificial intelligence to the information PayPal already collected about its users.⁵⁵

The right algorithm, Levchin believed, could search through “immense quantities of behavioral data captured in processing millions of transactions per day” to detect patterns revealing fraud.⁵⁶ Think of all that PayPal knew about its customers—what kinds of items they bought, when they bought them, whom they bought them from, how they paid for their accounts. Levchin named his security program Igor in sarcastic tribute to Russian mobsters who were masters at Internet scams. Igor would have the power to freeze accounts that raised flags. Invariably, there would be “false positives,” innocent people who were denied access to their own money for weeks until a human investigator could follow up, but PayPal forged ahead. A class-action lawsuit over PayPal’s lack of response to consumer complaints, including over frozen accounts, was eventually settled for $9.25 million, part of the expense of creating a security system that could scale, which was a requirement because fevered, automated growth was the priority.⁵⁷

By September 2001, PayPal had 10 million registered users.⁵⁸ The fraud rate, which at its worst amounted to well above 1 percent of the total money being exchanged in the system, was reduced by more than two-thirds because of Igor and other methods. The way was paved for PayPal’s profitability and inevitable IPO. The company went public in February 2002, the first offering after the 9/11 attacks, making the founders and early employees millionaires many times over. The company hosted a party with kegs of beer and a piñata in the shape of a dollar sign, while Thiel chose to celebrate in his own special way. He played chess simultaneously against the rest of the executive staff. Only one opponent of the ten managed to beat him: Sacks, his good friend and the company’s chief operating officer.⁵⁹

Even after the IPO, PayPal was feeling the pressure. EBay again focused on controlling the online payments on its site, and PayPal responded by filing a formal complaint with the justice department and Federal Trade Commission accusing eBay of anti-competitive acts. This was an uncomfortable step for Thiel, Jackson writes: “While philosophically reluctant to get the government involved, Peter recognized that the company’s increasingly unstable competitive situation, coupled with its legal and stock market woes, posed a risk too great to be ignored and consented to filing the complaint.”⁶⁰ That complaint would have an unfortunate blowback not long thereafter, when PayPal agreed to be bought by eBay for $1.5 billion in August 2002.⁶¹ If eBay could exploit anti-competitive advantages in online finance when it had a relatively strong rival like PayPal, how fair and open would the market be once it had absorbed PayPal? PayPal’s own accusations against eBay should have been compelling evidence that one acquiring the other would be anti-competitive. The legal teams for both companies certainly were concerned. But the justice department under George W. Bush chose to keep its hands off.⁶²

The PayPal experience was an intense, three-year ride for a relatively small team that ended in a significant cash payout: Thiel made about $55 million, while Musk left with three times as much.⁶³ But those events from the turn of the millennium remain influential for a number of reasons, not least for releasing into the wild a wealthy, self-satisfied Peter Thiel, a one-man wrecking crew who has been sowing chaos through American society up to this very day.

After PayPal, Thiel created a company, Palantir, that built on Levchin’s algorithms for analyzing and making judgments based on an individual’s highly personal digital records. Named after magical stones in The Lord of the Rings, Palantir helps governments and private companies make judgments from online and offline records based on patterns recognized by algorithms. For example, the company produces software that in seconds can scan through hundreds of millions of pictures of license plates collected by the Northern California Regional Intelligence Center, pieces of information that can be interpreted with the help of other large data sets. Palantir’s chief executive, Alex Karp, a law school friend recruited by Thiel, defends his company’s role in sifting through this material, which was collected by the government, after all. “If we as a democratic society believe that license plates in public trigger Fourth Amendment protections, our product can make sure you can’t cross that line,” Karp said, adding: “In the real world where we work—which is never perfect—you have to have trade-offs.”⁶⁴

For someone identified as a “libertarian,” Thiel has been comfortable operating businesses that relied on analyzing the personal information of its customers or the general public. Just as profiling by PayPal kept it afloat by excluding potential fraudsters, well-conceived government investigations, Thiel contends, keep America safe. After revelations by Edward Snowden about the government’s surveillance capabilities, Thiel was asked if he thought the National Security Agency collected too much information about United States citizens. Thiel didn’t object to those practices from a libertarian perspective but, rather, said he was offended by the agency’s stupidity. “The NSA has been hoovering up all the data in the world, because it has no clue what it is doing. ‘Big data’ really means ‘dumb data,’” he told readers of Reddit who asked him questions. “BTW, I don’t agree with the libertarian description of the NSA as ‘big brother.’ I think Snowden revealed something that looks more like the Keystone Kops and very little like James Bond.”⁶⁵

Similar to Andreessen, Thiel lately has combined the roles of investor and public intellectual. Of Thiel’s many successful investments—LinkedIn, YouTube, and Facebook come to mind—perhaps his most far-sighted has been the decision to publicly back Donald Trump for president, which required Thiel to break ranks with his Silicon Valley peers. In return for his prime-time endorsement on the final night of the Republican National Convention in Cleveland, as well as $1.25 million in contributions to Trump’s campaign through affiliated super PACs and direct contributions, Thiel was rewarded with a place of privilege when president-elect Trump met with tech leaders during the transition, and an important advisory role in the next administration. Who knows what dividends are yet to be collected?⁶⁶

The Trump endorsement reestablished Thiel’s reputation as a uniquely polarizing Silicon Valley figure, a Trumpian character, you might say. Indeed, Thiel has become an almost toxic spokesman for the tech world, so much so that his close friends and business partners, like Zuckerberg and Hoffman, have felt obligated to defend their relationships publicly. During the presidential election, Zuckerberg was confronted by Facebook employees who objected to Thiel’s continued role on the company’s board of directors because of his support for Trump. In a fine example of rhetorical jujitsu, Zuckerberg referred to Facebook’s commitment to diversity to answer those who were appalled by Trump’s disparagement of Mexicans, Muslims, and women, among others, and the idea that a board member could be supporting his candidacy. “We care deeply about diversity,” Zuckerberg wrote in defense of Thiel. “That’s easy to say when it means standing up for ideas you agree with. It’s a lot harder when it means standing up for the rights of people with different viewpoints to say what they care about. That’s even more important.”⁶⁷

No doubt Thiel is an odd bird with a penchant for fringe ideas. In his pursuit of limited government, he has given substantial financial support to seasteading, which encourages political experimentation through the development of floating communities in international waters, presumably outside the reach of governments. He is unusually obsessed with his own death and sickness, a condition he traces back to the disturbing day when he was three and learned from his father that all things die, starting with the cow who gave his life for the family’s leather rug.⁶⁸ Thiel supports a range of potential life-extending innovations, including cryogenics, which involves keeping a body alive by cooling it; genetic research to fight diseases; and, most resonantly, a treatment based on cycling through blood transfusions from young people in the belief that the vigor therein can be transferred to the older recipient. Thiel says he is surprised that his obsession with death is considered weird—for what it’s worth, he considers those complacent about death to be psychologically troubled. “We accept that we’re all going to die, and so we don’t do anything, and we think we’re not going to die anytime soon, so we don’t really need to worry about it,” he told an interviewer. “We have this sort of schizophrenic combination of acceptance and denial . . . it converges to doing nothing.”⁶⁹

Yet, cut through Thiel’s eccentricities and harsh language and you discover that Thiel is simply articulating the Know-It-All worldview as best he knows how. In Thiel’s ideas one finds Terman’s insistence that the smartest should lead, as well as his belief in using entrepreneurism and the market to introduce new technologies to the people. There is the hackers’ confidence that technology will improve society, as well as their suspicion of ignorant authorities who would try to rein in or regulate the best and brightest. There is the successful entrepreneur’s belief that the disruption that has made him fabulously wealthy must be good for everyone. The main difference between Thiel and his peers is that he acts forcefully and openly in support of his ideas, while they are inclined to be more cautious and circumspect.

As we noted above, Stanford may embrace the idea that its students should become entrepreneurs, but only Thiel pays students to drop out and start a business. Larry Page of Google may propose the creation of “some safe places where we can try out some new things and figure out what’s the effect on society, what’s the effect on people, without having to deploy it into the normal world,” but only Thiel backs floating seabased states.⁷⁰ Those peers may privately worry that democracy isn’t the ideal way to choose our leaders, but Thiel will write straightforwardly in a 2009 essay for the libertarian think tank the Cato Institute that “the vast increase in welfare beneficiaries and the extension of the franchise to women—two constituencies that are notoriously tough for libertarians—have rendered the notion of ‘capitalist democracy’ into an oxymoron.” For these reasons, Thiel names the 1920s as “the last decade in American history during which one could be genuinely optimistic about politics,” though presumably 2016 restored his faith in the electoral process.⁷¹

PayPal only managed to become a valuable company under Thiel’s watch because eBay never could squash its tiny rival, thanks in part to the protection of the U.S. government. The decision of PayPal to complain that eBay was anti-competitive can appear hypocritical in light of Thiel’s anti-government views or even in light of the company’s decision to turn around and be acquired by eBay only months later. Yet when you get to brass tacks, Thiel’s complaint against eBay wasn’t so much about its monopoly powers, but that it was becoming a monopoly in online payments instead of PayPal. According to Thiel, a truly free market, with perfect knowledge and perfect competition, leads to failure for everyone. “Under perfect competition, in the long run no company makes an economic profit,” he writes, adding the emphasis. “The opposite of perfect competition is monopoly.” Thus, the goal of any sane start-up should be to create a monopoly.⁷²

When Thiel uses the term monopoly, he hastens to add, he does not mean one based on illegal bullying or government favoritism. “By ‘monopoly,’ we mean the kind of company that’s so good at what it does that no other firm can offer a close substitute,” he writes in Zero to One, his business-advice book.⁷³ Yet for a company involved in online payments or for a social network like Facebook, being good at what one does is directly tied to the network effect—that is, becoming and remaining the service that is so dominant you must belong. Ensuring that your business has no viable competitors is at the heart of monopolistic success in social networks, a lesson that Thiel has drilled into his protégé, Marc Zuckerberg. Under Zuckerberg’s leadership, Facebook has managed to keep growing and growing, spending billions to buy out any rival social networks, like Instagram and WhatsApp, before they could grow to challenge Facebook, with one notable exception—Snapchat. Founded by a pair of Stanford fraternity brothers in 2011, Snapchat rejected a reported multi-billion-dollar offer from Facebook in 2013 and has watched as Facebook aggressively copied its most popular features for sharing photographs.⁷⁴

For Thiel, monopoly businesses like Google, Facebook, and Amazon serve as a welcome replacement for government. Freed from the unrelenting competition of the market, these businesses can afford to have enlightened values, like investing in the future or treating their employees well. They can actually think about society as a whole. Google, he writes, represents “a kind of business that’s successful enough to take ethics seriously without jeopardizing its own existence. In business, money is either an important thing or it is everything.” Dominant tech businesses like Google are “creative monopolies” as well, which means that they won’t sit on their profits in the manner of so-called rent collectors but will push new ideas. “Creative monopolists give customers more choices by adding entirely new categories of abundance to the world,” he writes. “Creative monopolies aren’t just good for the rest of society; they’re powerful engines for making it better.”⁷⁵

Under this theory of benevolent monopolies, government regulations and laws are unnecessary. Taxes are in effect replaced by monopoly profits—everyone pays their share to Google, Facebook, Amazon, PayPal. And in contrast to the government, these profits are allocated intelligently into research and services by brilliant, incorruptible tech leaders instead of being squandered by foolish, charismatic politicians. Levchin, during an appearance on The Charlie Rose Show, was asked about the libertarian cast to Silicon Valley leaders. He said he personally was OK with taxes being used to build and maintain roads, for well-functioning law enforcement and national security. For helping those less fortunate, too. But, he added, “I have relatively low trust in some of my local politicians . . . to spend my taxes on things that really do matter. And so this lack of inherent trust of the local or broader political establishment is probably the most defining, most common feature of Silicon Valley ‘libertarians.’”⁷⁶

In Thiel’s version of this anti-democratic fantasy, where tech businesses set policy priorities rather than elected officials, the public need never learn the truth, that they are in essence paying “taxes” to companies while government can be belittled and whittled away. “Monopolists lie to protect themselves,” Thiel writes. “They know that bragging about their great monopoly invites being audited, scrutinized, and attacked. Since they very much want their monopoly profits to continue unmolested, they tend to do whatever they can to conceal their monopoly usually by exaggerating the power of their (nonexistent) competition.”⁷⁷ And the transfer is complete, from democracy to technocracy, through monopolistic tech companies that are so indispensable they impose a tax on the economy and no one complains.

This surely represents a scary political future, but it bears repeating that Thiel is no marginal character in Silicon Valley. Not only are his views surprisingly mainstream, but he operates at the very heart of the tech world as an investor and a trusted advisor to a new generation of leaders, who first spread his influence in the Valley through a network of former PayPal employees. They provided each other with cash, counsel, and contacts and called themselves, a bit facetiously, “the PayPal mafia.” Their offspring include YouTube, Yelp, LinkedIn, Tesla, and, by extension, Facebook, whose first outside investment opportunity was passed from one PayPal veteran, Reid Hoffman, to another, Thiel, once Hoffman concluded that his new company, LinkedIn, could pose a conflict of interest.

In 2007, a crew of a dozen or so of these “made men” went so far as to pose for a group photo at Tosca, a San Francisco café, garbed in cliché Italian mafia outfits. That photograph, for an article in Fortune magazine, quickly joined the annals of over-the-top Silicon Valley images, right up there with the Time cover a decade earlier that featured a barefoot twenty-four-year-old Marc Andreessen sitting on a throne next to the headline, “The Golden Geeks.”⁷⁸ Levchin is in the front, wearing a black leather jacket; Hoffman sports an open-collared silk shirt revealing a gold chain; others donned track suits. Front and center is Thiel in a dark, pinstriped suit, purple shirt and tie, and pinky ring.⁷⁹