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Centers of Progress, Pt. 40: San Francisco (Digital Revolution)

Blog Post | Science & Technology

Centers of Progress, Pt. 40: San Francisco (Digital Revolution)

The innovations developed in San Francisco have transformed how we work, communicate, and learn.

Today marks the 40th installment in a series of articles by HumanProgress.org called Centers of Progress. Where does progress happen? The story of civilization is in many ways the story of the city. It is the city that has helped to create and define the modern world. This biweekly column will give a short overview of urban centers that were the sites of pivotal advances in culture, economics, politics, technology, etc.

Our 40th Center of Progress is San Francisco during the digital revolution, when entrepreneurs founded several major technology companies in the area. The southern portion of the broader San Francisco Bay Area earned the metonym “Silicon Valley” because of the high-technology hub’s association with the silicon transistor, used in all modern microprocessors. A microprocessor is the central unit or engine of a computer system, fabricated on a single chip.

Humanity has long strived to develop tools to improve our survival odds and make our lives easier, more productive, and more enjoyable. In the long history of inventions that have made a difference in the average person’s daily life, digital technology, with its innumerable applications, stands out as one of the most significant innovations of the modern age.

Today the San Francisco Bay Area remains best known for its association with the technology sector. With its iconic Victorian houses, sharply sloping hills, trolleys, fog, Chinatown (which bills itself as the oldest and largest one outside Asia), and of course the Golden Gate Bridge, the city of San Francisco is famous for its distinctive views. As Encyclopedia Britannica notes, “San Francisco holds a secure place in the United States’ romantic dream of itself—a cool, elegant, handsome, worldly seaport whose steep streets offer breathtaking views of one of the world’s greatest bays.” Attempts to preserve the city’s appearance have contributed to tight restrictions on new construction. Perhaps relatedly, the city is one of the most expensive in the United States and suffers from a housing affordability crisis. San Francisco has in recent years struggled with widespread homelessness and related drug overdose deaths and crime. With both the country’s highest concentration of billionaires, thanks to the digital technology industry, and the ubiquitous presence of unhoused people, San Francisco is a city of extremes.

Today’s densely populated metropolis was once a landscape of sand dunes. In 1769, the first documented sighting of the San Francisco Bay was recorded by a scouting party led by the Spanish explorer Gaspar de Portolá (1716–1786). In 1776, European settlement of the area began, led by the Spanish missionary Francisco Palóu (1723–1789) and expeditionary José Joaquín Moraga (1745–1785). The latter is the namesake of San José, a city on the southern shore of San Francisco Bay, about 50 miles from San Francisco but located within the San Francisco Bay Area and the San Jose-San Francisco-Oakland Combined Statistical Area. San Francisco was the northernmost outpost of the Spanish Empire in North America and later the northernmost settlement in Mexico after that country’s independence. But the city remained relatively small and unknown.

In 1846, during the Mexican-American War, the United States captured the San Francisco area, although Mexico did not formally cede California until the 1848 Treaty of Guadalupe Hidalgo. At that time, San Francisco only had about 900 residents. That number grew rapidly during the California Gold Rush (1848–1855), when the discovery of gold turned the quiet village into a bustling boomtown of tens of thousands by the end of the period. Development of the city’s port led to further growth and helped the area become a hub in the early radio and telegraph industries, foreshadowing the city’s role as a leader in technology.

In 1906, three-quarters of the city was destroyed in a devastating earthquake and related fire caused by a gas line rupturing in the quake. The city rebuilt from the destruction and continued its growth, along with the broader Bay Area. In 1909, San Jose became the home of one of the first radio stations in the country. In the 1930s, the Golden Gate Bridge became a part of San Francisco’s skyline, and the city’s storied Alcatraz maximum security prison opened, holding famous prisoners such as the Prohibition-era gangster Al Capone (1899–1947). In 1939, in Palo Alto, just over 30 miles south of San Francisco, William Hewlett (1913–2001) and David Packard (1912–1996) founded a company that made oscilloscopes – laboratory instruments that display electronic signals as waves. They named the company Hewlett-Packard. During World War II, the company shifted to making radar and artillery technology. That field soon became linked to computing. That is because researchers at the University of Pennsylvania created a new tool to calculate artillery firing tables, among other tasks: the first general-use digital computer.

“Computer” was once a job title for a person who performed calculations. The first machine computer, named Electronic Numerical Integrator and Computer, or ENIAC, debuted in 1945. It cost about $500,000, or nearly $8 million in 2022 dollars, measured 8 feet tall and 80 feet long, weighed 30 tons, and needed constant maintenance to replace its fragile vacuum tubes. Back when computers were the size of a room and required many people to operate them, they also had about 13 times less power than a modern pocket-sized smartphone that costs about 17,000 times less.

San Francisco and Silicon Valley’s greatest claim to fame came with the dawn of more convenient and powerful digital technology. In 1956, the inventor William Shockley (1910–1989) moved from the East Coast to Mountain View, a city on the San Francisco Bay located about 40 miles south of San Francisco, to live closer to his ailing mother. She still lived in his childhood home of Palo Alto. That year he won the Nobel Prize in physics along with engineer John Bardeen (1908–1991) and physicist Walter Houser Brattain (1902–1987). The prize honored them for coinventing the first working semiconductor almost a decade earlier, in 1947, at Bell Laboratories in New Jersey.

After moving to California, Shockley founded Shockley Semiconductor Laboratory, the first company to make transistors and computer processors out of silicon—earlier versions used germanium, which cannot handle high temperatures. His work provided the basis for many further electronic developments. Also in 1956, IBM’s San Jose labs invented the hard-disk drive. That same year, Harry Huskey (1916–2017), a professor at the University of California, Berkeley, some 14 miles from San Francisco, designed Bendix’s first digital computer, or the G-15.

Shockley had an abrasive personality and later became a controversial figure due to his vocal fringe views related to eugenics and mass sterilization. In 1957, eight of Shockley’s employees left over disagreements with Shockley to start their own enterprise together with investor Sherman Fairchild (1896–1971). They named it Fairchild Semiconductors. Shockley called them “the Traitorous Eight.” In the 1960s, Fairchild Semiconductors made many of the computer components for the Apollo space program directed from Houston, our previous Center of Progress. In 1968, two of the “Traitorous Eight,” Gordon Moore (b. 1929) and Robert Noyce (1927–1990), the latter of whom earned the nickname “the Mayor of Silicon Valley,” left Fairchild to start a new company in Santa Clara, about 50 miles southeast of San Francisco. They named it Intel. Moore remains well-known as the creator of Moore’s Law. It was he who predicted in 1965 that the processing power of computers would double every 18 months.

In 1969, the Stanford Research Institute at Stanford University, some 35 miles southeast of San Francisco, became one of the four “nodes” of Advanced Research Projects Agency Network. ARPANET was a research project that would one day become the internet. In 1970, Xerox opened the PARC laboratory in Palo Alto, which would go on to invent ethernet computing and graphic user interfaces. In 1971, journalist Don Hoefler (1922–1986) published a three-part report on the burgeoning computer industry in the southern San Francisco Bay Area that popularized the term “Silicon Valley.” The pace of technological change picked up with the invention of microprocessors that same year.

Just as the 19th-century Gold Rush once attracted fortune seekers, the promise of potential profit and the excitement of new possibilities offered by digital technology drew entrepreneurs and researchers to the San Francisco Bay Area. In the 1970s, companies such as Atari, Apple, and Oracle were all founded in the area. By the 1980s, the San Francisco Bay Area was the undisputed capital of digital technology. (Some consider the years from 1985 to 2000 to constitute the golden era of Silicon Valley, when legendary entrepreneurs such as Steve Jobs (1955–2011) were active there.) San Francisco suffered another devastating earthquake in 1989, but that was accompanied by a relatively small death toll. In the 1990s, companies founded in the San Francisco Bay Area included eBay, Yahoo!, PayPal, and Google. The following decade, Facebook and Tesla joined them. As these companies created value for their customers and achieved commercial success, fortunes were made, and the San Francisco Bay Area grew wealthier. That was particularly true of San Francisco.

While many of the important events of the digital revolution took place across a range of cities in the San Francisco Bay Area, San Francisco itself was also home to the founding of several significant technology companies. Between 1995 and 2015, major companies founded in or relocated to San Francisco included Airbnb, Craigslist, Coinbase, DocuSign, DoorDash, Dropbox, Eventbrite, Fitbit, Flickr, GitHub, Grammarly, Instacart, Instagram, Lyft, Niantic, OpenTable, Pinterest, Reddit, Salesforce, Slack, TaskRabbit, Twitter, Uber, WordPress, and Yelp.

San Francisco helped create social media and the so-called sharing economy that offers many workers increased flexibility. By streamlining the process of such things as grocery deliveries, restaurant reservations, vacation home rentals, ride-hailing services, second-hand sales, cryptocurrency purchases, and work group chats, enterprises based in San Francisco have made countless transactions and interactions far more convenient.

New technologies often present challenges as well as benefits, and the innovations of San Francisco along with Silicon Valley are certainly no exception. Concerns about data privacy, cyberbullying, social media addiction, and challenges related to content moderation of online speech are just some of the issues attracting debate today that relate to digital technology. But there is no going back to a world without computers, and most would agree that the immense gains from digital technology outweigh the various dilemmas posed by it.

San Francisco
San Francisco from the bay

Practically everyone with access to a computer or smartphone has direct experience benefiting from the products of several San Francisco companies, and the broader San Francisco Bay Area played a role in the very creation of the internet and modern computers. It is difficult to summarize all the ways that computers, tablets, and smartphones have forever changed how humanity works, communicates, learns, seeks entertainment, and more. There is little doubt that San Francisco has been one of the most innovative and enterprising cities on Earth, helping to define the rise of the digital age that transformed the world. For these reasons, San Francisco is our 40th Center of Progress.

Blog Post | Infrastructure & Transportation

The Race to the Sky: How Competition Pushes Humanity Forward

Cities could still be growing quickly upward, but regulations are limiting their growth.

“I would give the greatest sunset in the world for one sight of New York’s skyline.”

—Ayn Rand, The Fountainhead

The story of how the Empire State Building came to dominate Manhattan’s skyline—defeating 40 Wall Street and the Chrysler Building for the title of the tallest building in the world—is an illustration of the power of competition and innovation.

In 1929, the successful businessman George Ohrstrom hired architect H. Craig Severance to design 40 Wall Street. Severance was a well-known architect in New York City and together with William van Alen had built amazing constructions, such as the Bainbridge Building on W. 57th Street and the Prudence Building at 331 Madison Avenue. Van Alen was an innovator and a revolutionary who often challenged the classical and Renaissance styles that had influenced most American cities since the beginning of the 20th century. He often ran into problems with clients who rejected his modern styles. Severance, worried about losing clients, decided that he no longer needed Van Alen’s partnership, and they ended their business relationship in 1924. In 1929, Walter Chrysler hired Van Alen to design a monument to his name, the Chrysler Building.

Competition Incentivized Innovation

In April 1929, Severance learned that his former partner was designing a structure of 809 feet. Ohrstrom and Severance, worried about falling behind, announced that they would add two additional floors to their original design so that 40 Wall Street would end up with a total height of 840 feet. That same year, Empire State Inc., led by former General Motors executive John Jakob Raskob, entered the race—putting pressure on Severance and Van Alen. To keep pace with the other two projects, architectural firm Shreve, Lamb & Harmon and builders Starrett Brothers & Eken accelerated the construction process. According to architectural historian Carol Willis, the framework of the Empire State Building rose four and a half stories per week due to an A-team design approach in which architects, builders, and engineers collaborated closely with each other.

Troubled by both Severance and the Empire State project, Van Alen designed the famous chrome-steel art deco crown for the top of the Chrysler Building and a sphere to stand on top of the crown. The sphere was built inside the crown, hidden from the public, and it was never announced to the press or explicitly mentioned. On the other hand, Severance modified his design one more time and asked permission to add a lantern and a flagpole at the top of the tower, increasing the height by 50 feet. Severance planned to have 40 Wall Street reach the 900-foot mark to secure its place as the tallest building in the world.

On October 23, 1929, the sphere of the Chrysler Building was lifted from the inside of the crown, reaching 1,046 feet and surpassing the final height of 927 feet of 40 Wall Street. The crash of Wall Street on October 28 distracted the press from the trick played by Van Alen, and it was not reported immediately. When Severance found out, it was too late to change his design—40 Wall Street held the title for one month from its opening in the first week of May 1930 to the opening of the Chrysler Building on May 27. The Chrysler Building held the title for only 11 months until the Empire State Building was completed in 1931 and became the new tallest building.

Regulations Limit Us

The Empire State Building held the title of tallest building in the world for 40 years, and it was built in only one year and 45 days. Bryan Caplan, professor of economics at George Mason University, believes that excessive restrictions slow construction today. Regulations such as height restrictions prevent cities from going up. Humanity now has better technology than in the time of New York’s race to the sky, but getting permits to build upward is extremely difficult. Excessive restrictions also generate artificial scarcity, which is slowing the growth of cities and making it difficult (and expensive) to live in them. Cities could grow upward, but regulations limit their growth.

However, we continue to see competition in many industries; technology companies fighting for the dominance of artificial intelligence are creating better and more efficient tools. The race between SpaceX, Blue Origin, and Virgin Galactic is improving the development of innovative technologies. Soon we might even have commercial flights to the moon. History has shown that when brilliant minds have freedom to compete, humanity moves forward.

Blog Post | Financial Market Development

The Promise of Cryptocurrency | Podcast Highlights

Chelsea Follett interviews Jack Solowey about the potential benefits of cryptocurrency and the regulatory challenges it faces.

Listen to the podcast or read the full transcript here.

Let’s start with the big picture. What is cryptocurrency? 

Cryptocurrency is an application of blockchain technology that leverages cryptography and game theory to create public digital ledgers that are highly secure and highly resistant to tampering. In its best form, cryptocurrency could replace the traditional balance sheets at institutions like banks and brokerages with this open distributed ledger. You’d have something like a bank account balance, but rather than being managed by a centralized intermediary, it’s run by computers all over the world that are incentivized to maintain the database and check each other’s work.

What are some of the benefits of cryptocurrency? 

Crypto is relatively young, so a lot of the benefits are potential benefits. However, we do already see use cases around the world.

Vietnam is one example. The blockchain analytics firm Chainalysis publishes an annual survey of the leading countries for crypto adoption, and Vietnam has led that list for a couple of years. An interesting corollary is that 69 percent of Vietnam’s population lacks access to a traditional bank. I think it’s reasonable to say that cryptocurrency is filling that need.

Can cryptocurrency be a hedge against inflation? 

Ultimately, this is an empirical claim that will have to be evaluated over time. There was some thinking initially that Bitcoin could be an inflation hedge because it has an ultimate cap on its supply. According to the protocol, there will only ever be 21 million Bitcoin minted. But that hasn’t borne out empirically, or at least hasn’t borne out yet.

With that said, there are places around the world where we’ve seen both national currency depreciation and relatively high crypto adoption or spikes in crypto adoption around national currency depreciation events. Examples include Turkey, Nigeria, Kenya, Argentina, and Venezuela.

There’s also a class of crypto token known as stablecoins, which are designed to be pegged to the value of another asset, for example, fiat currencies like the US dollar. Stablecoins have actually been growing in popularity in some of the same countries I just mentioned as a way to access the US dollar.

What about the potential of blockchain technology to combat censorship or resist authoritarianism? 

I think it’s helpful to look at the tactics that are used by the totalitarian regime in George Orwell’s Nineteen Eighty-Four. In that story, control was often a matter of changing and deleting the historical record. The thinking is that if there was no evidence of a free society, the idea of freedom or liberty could be extinguished.

And as we know, totalitarian regimes are not mere fiction. The Cato Institute recently awarded the Milton Friedman Prize to Jimmy Lai, who was the founder of the pro-democracy Apple Daily Newspaper in Hong Kong. When the central government in Beijing applied the draconian national security law to Hong Kong and raided the Apple Daily offices, civic and cyber activists were able to maintain a record of thousands of Apple Daily newspaper articles on a blockchain called Arweave. That is one example where blockchain technology thwarted the Orwellian authoritarian ambition.

What are some of the challenges or potential drawbacks of cryptocurrency? 

Like all financial instruments, crypto can be abused by bad actors, who can use cryptocurrencies to fund terrorist activity and trafficking. However, it’s important to keep this in perspective. Even high estimates of crypto-related illicit activity are an order of magnitude smaller than the UN’s estimate of, for example, total global money laundering each year, and law enforcement agencies in the US acknowledge that crypto has a relatively small role in crime when compared to traditional financial technologies.

Another common critique is that cryptocurrency technology is bad for the environment. 

It’s worth distinguishing here between the two mechanisms underlying major blockchains. You have Proof of Work, which helps secure the Bitcoin network, and because it’s compute-intensive, it’s also electricity-intensive. However, there’s also a different mechanism known as Proof of Stake, which has been implemented by the Ethereum blockchain, the second biggest crypto network by market cap. Proof of Stake reduces energy consumption and carbon footprint by over 99 percent. So, some of the critique needs to adapt to the changing nature of the technology.

But I also think it’s important to keep in mind that this critique begins with the assumption that cryptocurrency is not worth its environmental footprint. I think the role of policymakers is to address downside risks, not to assess the benefits. Regardless of one’s preferred environmental policy, it should apply uniformly and should not single out one specific class of technology.

If cryptocurrency is overregulated, what could be the possible impact of that on the average American? What’s the potential loss there? 

If our policies make the US an uncommonly inhospitable place for crypto, we could lose both the potential gains from this class of technology and the competitive pressure that these innovations put on traditional institutions to improve their own products and services. Crypto is already a very useful tool for sending payments across borders quickly and cheaply.

There are two big problems with how regulators have been approaching this space. One is regulatory ambiguity. Securities laws in the US, at the federal level, are almost 100 years old. It’s not hard to conceptualize how technologies that began as paper stock certificates and are now being replaced with decentralized global networks could pose challenges to existing regulations.

In the 1990s, the SEC actually had a fairly rational rule-making process to adapt laws to new technologies, what are known as alternative trading systems. Laws and rules can keep up with technology if regulators are willing to make those changes. Unfortunately, in the US, we haven’t seen the SEC take the same rational approach to cryptocurrency.

In fact, we’ve seen a bit of gaslighting, where the agency can ask projects to register under existing laws, and the project will say, “Okay, great. Let’s do it.” And then SEC says, “Well, we’re not really sure how to register your project.” And then, a little bit later, the project faces enforcement actions for not registering. It’s not a rational approach to innovation and financial markets.

As of the time of this recording, what are some of the current policy initiatives around regulating cryptocurrency? What are some of the concerns people are wrangling with?

The US is unique in that we have two capital market regulators, the Securities and Exchange Commission, SEC, and the Commodity Futures Trading Commission, the CFTC. This presents an interesting question about cryptocurrencies: should they be treated as a commodity or security?

To answer that question, my colleague Jennifer Schulp and I hone in on decentralization. Decentralization addresses some of the risks that securities regulation is intended to mitigate, which are known as managerial risks. Basically, are the issuers of an instrument going to have information that market participants don’t have, and could they use that information to gain an edge over market participants? Things like insider trading and information asymmetries through disclosures. But when you have a fully decentralized crypto token project, there is no managerial body with that information. So, at a high level, crypto securities are those that are centralized, and crypto commodities are those that are decentralized.

One wrinkle here is that crypto tokens can begin life as centralized projects but evolve into more decentralized projects over time.

Say regulators get this right and allow people to realize all the potential gains of cryptocurrency. What kind of gains could people see? 

In addition to the potential benefits of faster, cheaper payment methods, cryptocurrency promises a more decentralized internet and financial system. Loans could be issued permissionlessly. In the same way that you put a dollar in a vending machine to get a can of soda, you could have lending protocols that, once you put in the designated crypto collateral, you could take out a loan in crypto without some of the traditional gatekeeping by financial institutions. And that’s just one example of this broader ecosystem.

The Human Progress Podcast | Ep. 46

Jack Solowey: The Promise of Cryptocurrency

Jack Solowey, a policy analyst at the Cato Institute focusing on financial technology, joins Chelsea Follett to discuss the potential benefits of cryptocurrency and the regulatory challenges it faces.

Wall Street Journal | Science & Technology

Amazon Introducing Robotics to Speed Deliveries

“Amazon.com is introducing an array of new artificial intelligence and robotics capabilities into its warehouse operations that will reduce delivery times and help identify inventory more quickly.

The revamp will change the way Amazon moves products through its fulfillment centers with new AI-equipped sortation machines and robotic arms. It is also set to alter how many of the company’s vast army of workers do their jobs.”

From Wall Street Journal.