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Conventional wisdom paints Silicon Valley as the offspring of massive federal research, development, and procurement funding beginning during World War II and exploding during the Cold War. But, as historian Stephen B. Adams explains, the valley’s roots in the academic-military-industrial complex go back farther than that. Palo Alto, in the Santa Clara Valley, centered a region of large-scale electronics manufacturing backed by the federal dollar before the transistor and long before the silicon chip.

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The area’s first high-tech company was the Federal Telegraph Company (FTC). It was awarded its first military contract in 1913, even before the technology gold rush sparked by America’s entry into the first of two World Wars. Adams writes that

without reliable, large-scale demand, American wireless (radio) development at the turn of the twentieth century might have remained in the hands of amateur inventors and academics. The federal government provided such demand. This […] proved crucial in the region’s development as a center of high-tech innovation.

He portrays the nascent academic-military-industrial complex as an aspect of American empire-building. The US Navy wanted radio equipment for its far-ranging ships and its bases around the globe. These far-flung outposts—many acquired by victory in the Spanish-American War (1898)—needed to be networked. FTC provided the technology to do that as the company became intertwined with both War and State Departments in an effort to wrest global communications away from British hegemony. The United Kingdom controlled two-thirds of undersea cables, and London was the corporate HQ of radio pioneer Guglielmo Marconi.

FTC was founded in 1909 by Stanford University alum and lecturer Cyril F. Elwell with help from university engineering professors and investments from Stanford’s president, among others. The company was originally called Poulsen Wireless Telephone and Telegraph, after the Danish inventor who sold Elwell a license to his arc transmitter technology. Poulsen’s arc system turned out be “quieter and more efficient” than the competing Marconi spark system. (Though Marconi had an American affiliate, it was considered a British company.)

In 1911, FTC set up the first transmission from California to Hawai‘i. The Navy was impressed with FTC’s radio range and quiet operation. This was lucky for FTC, whose commercial business took a big blow the next year when Midwestern thunderstorms put a serious damper on their efforts to expand their radio station network east. Without the deep pockets of what we’d now call “Angel” investors or venture capital, and unable to compete with the East Coast-based electrical giants, FTC was a start-up in danger of being an end-up.

“Steady government work saved the firm” writes Adams. FTC became “an industrial extension of American foreign policy,” especially in Latin American where the US moved to dominate radio in a tech updating of the Monroe Doctrine.

When Congress appropriated a million dollars for a chain of radio stations connecting America’s off-shore bases in the Philippines, Guam, Hawaii, Samoa, Puerto Rico, Cuba, and the Panama Canal Zone, FTC got the nod. The contract was written so that only FTC could meet the Navy’s requirements. In 1918, the Navy ended up buying FTC’s stations and patents to keep them out of the hands of the Marconi radio empire.

All that big money meant plenty to skim off in “commissions” and the like. Military procurement scandals are nothing new: the twentieth century just added more zeros to the sums. FTC’s president Washington Dodge resigned under a cloud of corruption in early 1919 and killed himself a few months later. The patents were sold back to FTC in 1921, at a big loss to taxpayers.

By 1931, FTC was a New Jersey company, but it had set the template for the valley of its birth. The Office of Naval Research would fund Stanford University and by extension the Palo Alto area for decades. Vacuum Tube Valley turned into Transistor Valley turned into Silicon Valley.

One of the FTC employees who stayed in Palo Alto was Frederick Terman, who became Stanford’s Provost in the late 1950s and early 1960s. Terman, the “Father of Silicone Valley,” helped guide the Stanford/FTC/Navy model—melding the academy, the capitalists, and the military together—toward such bonanzas as war in Vietnam, the Space Race, personal computing, and, ultimately, the little communicator/computer in your pocket.

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The Business History Review, Vol. 91, No. 2 (SUMMER 2017), pp. 329–359
The President and Fellows of Harvard College