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The Education of an Industry

By Alex Planes - Updated Apr 7, 2017 at 12:40PM

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Learning from the market's past to understand its present.

On this day in economic and financial history...

One of the most influential institutions of higher learning in the United States first opened its doors 121 years ago today. Stanford University welcomed its first class of 555 young men and women on Oct. 1, 1891. The university would later become a focal point of the Silicon Valley culture of innovation. So many notable Stanford alumni have gone on to found, lead, or shepherd important technology companies that you might even say the entire Nasdaq stock exchange is a multitrillion-dollar chronicle of Stanford's legacy.

Hewlett-Packard (NYSE: HPQ) was founded by two Stanford alums. Their famous garage is considered the unofficial birthplace of Silicon Valley, and has been a prototype for all the later Silicon Valley startups that claimed similarly humble beginnings.

Sandy Lerner and Leonard Bosack met each other while at Stanford, and would go on to found Cisco (NYSE: CSCO), a company that developed its first network routers in its founders' garage.

Sun Microsystems, now a part of Oracle (Nasdaq: ORCL), was founded by three Stanford students (and one Berkeley grad) and would be one of the earliest major companies to take advantage of networked computing. The company developed the Java platform years later, and its current ownership has used that platform's patents as legal cudgels against Google and its Android mobile operating system.

Google, which is winning that tussle, was famously founded by Stanford grad students Larry Page and Sergey Brin to capitalize on PageRank, an algorithm that now facilitates over three billion searches every day. Google quickly became the preferred search option to Yahoo!, which was founded just three years earlier by Stanford grad students Jerry Yang and David Filo. Google later one-upped Yahoo! with its 2006 YouTube acquisition, buying out founder and Stanford graduate Jawed Karim, who'd also been a key employee at PayPal, where he worked with PayPal co-founder and Stanford Law School graduate Peter Thiel.

Other notable Stanford alumni that have founded large tech corporations include Netflix CEO Reed Hastings, Electronic Arts founder Trip Hawkins, LinkedIn founder Reid Hoffman, and Cypress Semiconductor CEO T.J. Rodgers.

HP and Cisco are just two components of the Dow Jones Industrial Average (INDEX: ^DJI) that have been shaped by former Stanford students. Cell phone service pioneer Craig McCaw, who built one of the largest early wireless telecoms and later sold it to AT&T for $11.5 billion in 1994, began his business career while a senior at Stanford. Current Microsoft CEO Steve Ballmer dropped out of Stanford Business School to become Bill Gates' first business manager. Former Pfizer CEO Henry McKinnell and former Intel CEO Craig Barrett also earned degrees from Stanford.

The Valley's economy was worth about $170 billion in 2010, placing this strip of Northern California between the countries of Peru and Hungary on the global GDP rankings. Its impact on the global economy might easily be estimated in the trillions of dollars. Stanford, though not the only driving force behind Silicon Valley's dominance of the global tech industry, deserves much credit for the impact its education has had on so many high-tech leaders.

You can have any color, as long as it's black
The first Ford (NYSE: F) Model T rolled off the assembly line in Detroit on Oct. 1, 1908. According to

Before the Model T, cars were a luxury item. At the beginning of 1908, there were fewer than 200,000 on the road. Though the Model T was fairly expensive at first (the cheapest one initially cost $825, or about $18,000 in today's dollars), it was built for ordinary people to drive every day. It had a 22-horsepower, four-cylinder engine and was made of a new kind of heat-treated steel, pioneered by French race car makers, that made it lighter (it weighed just 1,200 pounds) and stronger than its predecessors had been. It could go as fast as 40 miles per hour.

Over 15 million Model Ts would be built by 1927. The auto industry has become an integral part of the American economy, supporting millions of jobs and hundreds of billions of dollars in salaries paid every year. Today, nearly as many cars and trucks are sold in the United States each year as were built by Ford's Model T assembly lines over two decades.

Revolution and repression in the Far East
A long, bloody civil war between Communists and nationalists came to a definitive end on Oct. 1, 1949, when Mao Zedong assumed leadership of the newly created People's Republic of China. The Communist regime assumed control of a nation of 541 million people with a nominal GDP of about $41 billion.

Mao ruled Communist China until his death in 1976. The country's population exploded during his term, reaching 930 million by 1976. GDP had grown to $151 billion by 1976, which had slightly more than doubled nominal per-capita GDP from 1949. By the standards of Western nations, this was a horrible underperformance -- from 1949 to 1976, America's nominal GDP per capita increased nearly fivefold.

It was only after the Tiananmen Square protests in 1989 and former Chairman Deng Xiaoping's reformist "southern tour" that China's GDP began to truly take off. When Deng concluded his tour in 1992, China's GDP was $423 billion. Today, it stands at $7.3 trillion. The Chinese economy has grown at an incredible rate of 16% per year from 1992 to 2011, leaving other countries in the dust as it continues to transition toward a more open market. Who knows how powerful the Chinese economic engine might be today, had it not used the wrong fuel for so many years?

Stanford helped create a technological revolution that's made millions of investors fantastic returns. Where will the next revolution occur? The Fool thinks manufacturing is ready for a high-tech makeover, and we've got the research to support that claim, complete with stock picks you can capitalize on. Find out more about "The Three Stocks to Own for the New Industrial Revolution" in our most popular free report. Just click here to get all the information you need at no cost.

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Stocks Mentioned

HP Inc. Stock Quote
HP Inc.
$37.55 (-0.24%) $0.09
Ford Motor Company Stock Quote
Ford Motor Company
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Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$34,580.08 (-0.17%) $-59.71
Oracle Corporation Stock Quote
Oracle Corporation
$88.24 (-1.95%) $-1.75

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