San José State University
Department of Economics
Thayer Watkins
Silicon Valley
& Tornado Alley

The Origins of the Silicon Valley

From the late 19th century the Santa Clara Valley was a major fruit growing area. Pears and apricots were grown but the Valley's specialty was a French plum that could be dried into prunes. One could say that the Santa Clara Valley was the Prune Capital of the world. It produces about 30 percent of the prunes of the world. Later it was a major producer of canned tomatoes and cut flowers.

In the 1890's the British field marshal, Lord Kitchener, visited the Santa Clara Valley and dubbed it The Valley of Heart's Delight. Here is a painting which shows what it looked like.

Although the high technology industrial complex known as The Silicon Valley did not develop until after World War II there were some early episodes that indicated something of the involvement of this area in the development of electronics. In Palo Alto there is a house with a plaque that labels it as the birthplace of electronics. It was in that house in 1912 that Lee de Forest and his collaborators first successfully utilized the vacuum tube to amplify sound. This technology became the basis for radio, radar, television, tape recorders and ultimately electronic computers. De Forest and his associates were working for the Federal Telegraph Co. which had been established in Palo Alto in 1909 by people associated with Stanford University.

Federal Telegraph became the source of other companies in electronics. Two employees who left Federal Telegraph invented the loud speaker and formed a company that eventually became Magnavox. Charles Litton left Federal Telegraph to create Litton Industries of Redwood City.

The first commercial radio broadcast were from downtown San Jose at San Fernando and First Street. Later, in 1927, the first all-electronic transmission of television was achieved in San Francisco.

But the broadscale development of the electronics industry would not come until much later. The key figure in this development was Frederick Terman.

Federick Terman

Terman did his undergraduate work at Stanford but went to M.I.T. for his Ph.D. in electrical engineering. He returned to Stanford to join the faculty and in 1925 was teaching a course in radio engineering. Terman worked to build up Stanford's program in electronics and electrical engineering. He was successful but the after receiving a topnotch education at Stanford graduates had to move to the East Coast to find suitable jobs.

In 1937 Terman began encouraging Stanford faculty and graduates to start businesses locally. The first and most famous firm founded in this way was Hewlett-Packard. H-P was founded on the basis of an audio-oscillator invented by William Hewlett under the guidance of Terman. David Packard was a former faculty member of Stanford whom Terman encouraged to work with Hewlett on the development of the audio-oscillator. One of the first big contracts of Hewlett-Packard (HP) was to provide the audio-oscillators used by the Disney Corporation in making its classic cartoon movie, Fantasia.

Another firm founded with the encouragement of Terman was Varian Brothers. The product, in this case, was a device for generating microwaves that could be used in radar, among other things.

During World War II Terman left Stanford to head a research project in anti-radar research at Harvard. In 1946 Terman returned to Stanford as the dean of the engineering school. In this capacity Terman continued to encourage the development of local businesses in electronics.

Stanford University was founded by Leland Stanford in memory of his son who had died while in Europe where he had gone to get a high quality university education. Leland Stanford endowed Leland Stanford, Jr. University with a gift of money and a cattle ranch he owned in the Palo Alto area. The ranch was large, 8,100 acres, and the terms of Stanford's gift precluded the University from selling any of it.

Terman created an industrial park on 660 acres of Stanford's land where the land was leased to electronics and other high technology companies on long-term leases. Hewlett-Parkard and Varian Brothers were among the first tenants. This provided income to Stanford and created an agglomeration in high tech industry. At first industry came to Palo Alto to have access to the expertise at Stanford. Later the level of technical expertise in industry in the area exceeded the academic expertise of Stanford. At that point the electronic industry expanded to cities near to Palo Alto, first Mountain View and later Sunnyvale.

The Semiconductor Industry

After leaving Fairchild Semiconductor, Robert Noyce, Gordon Moore and Andrew Grove founded Intel in 1968 to produce integrated circuits. Orginally Intel's major business was supplying memory chips for mainframe and minicomputers. Now its major business is producing microprocessors which are the central processing units of microcomputers.

This is how the Silicon Valley is faring economically in the 21st century.

The Gross Domestic Product (GDP) of the Silicon Valley
(Santa Clara Co.) in millions of current value dollars,
2001 to 2008
119,750 111,025 110,885 116,752 125,354 135,323 145,343 146,687

The Silicon Valley's output is comparable to a major country, such as the New Zealand ($130.7 billion in 2008), but not quite so great as that of Singapore ($181.9 billion in 2008).

(To be continued.)

Gene Bylinsky's "California's Great Breeding Ground for Industry," Fortune June, 1974, pp. 128-135f.

AnnaLee Saxenian's Regional Advantage, Harvard University Press 1994

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