The original jam band, The Grateful Dead owed their huge popularity to their marathon live concerts rather than the studio recordings they made between 1965 and 1995. Much of their early success can be attributed to the activities of the colourful counterculture figure Owsley "Bear" Stanley. A long-time associate of the psychedelic group from San Francisco, Stanley manufactured LSD on an industrial scale and fed it to their audience of hippies and freaks during the Summer of Love in the Haight-Ashbury area of the city, helping them tune into the Dead's potent brand of improvised, free-form music.

But his role went much further. In 1966, he became the band's financial backer and began to buy and design sound equipment. The public address system he devised for the Dead the same year – a few months after the Beatles had played Shea Stadium using the venue's basic amplification – included monitor speakers so the musicians could hear themselves on stage. It became known as the Wall of Sound and paved the way for the emergence of arena and stadium shows and huge festival events such as Woodstock. Stanley also served as sound engineer with the Dead and oversaw several of their live albums, including History of the Grateful Dead, Volume One (Bear's Choice) in 1973, and Steal Your Face in 1976, named after and illustrated with the famous lighting red white and blue bolt skull logo, based on a stencil he designed with Bob Thomas to spray-paint the group's amplifiers.

"The Dead in those days had to play in a lot of festival-style shows where the equipment would all wind up at the back of the stage in a muddle," he once explained. "Since every band used pretty much the same type of gear, it all looked alike ... I decided that we needed some sort of marking that we could identify from a distance."

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However, his role as manufacturer and purveyor of LSD tended to overshadow his other achievements and have passed into counterculture lore via the bands and songs he inspired, including Blue Cheer – the proto-heavy metal group were named after a particularly potent batch – Jimi Hendrix's "Purple Haze", the Jefferson Airplane's "Bear Melt" and "Mexico", Frank Zappa's "Who Needs The Peace Corps?" and Steely Dan's "Kid Charlemagne", as well as the Dead's own "Alice D Millionaire", a pun on a 1966 article about him in the Los Angeles Times headlined "LSD Millionaire".

"I never set out to change the world," he said. "I only set out to make sure I was taking something that I knew what it was. And it's hard to make a little. And my friends all wanted to know what they were taking, too. Of course, my friends expanded very rapidly."

Born Augustus Owsley Stanley III, he came from a political family and was named after his grandfather, who had been the governor of Kentucky from 1915 to 1919 and represented that state in both the House of Representatives and the US Senate. Owsley's father was a government attorney but he rebelled against his middle-class upbringing and in 1967 legally shortened his name to Owsley Stanley. He owed his "Bear" nickname to the body hair he developed in his early teens. Later on, because of his antics while tripping on acid, he was sometimes called "The Dancing Bear".

In the 1950s, he spent a year studying engineering at the University of Virginia and 18 months in the US Air Force and subsequently enrolled in a ballet course at the University of California, Berkeley. In 1963, he dropped out and took a job at local station KGO-TV. After discovering the recipe for making LSD in the Journal of Organic Chemistry at the university library, he began producing the drug, which was not declared illegal in California until October 1966, and across the US two years later. He began manufacturing it first on a small scale in the bathroom of a house, and then on a much bigger scale after moving to Los Angeles. Between 1965 and 1967, with the help of Melissa Cargill, his girlfriend and a qualified chemist, Stanley supposedly made more than 1.25 million doses of the psychedelic drug. He became the supplier of choice to Ken Kesey and the Merry Pranksters for events like the Muir Beach Acid Test in November 1965 and the Watts Acid Test in February 1966, where he met the Dead.

"Psychedelics are a gift of nature that brings tribalism to people; they bring an understanding of the ecology of the planet and the interaction of all living things, because that's one of the first things you become aware of when you take psychedelics, how everything is alive and how everything depends on everything else," Stanley wrote. "You go take a look at every indigenous culture that has a respect for its environment – unlike the hierarchical approach of the feudalistic structures that the world is now run by – and you will find that these people use psychedelics of some sort, usually in a regular, ritualized manner."

In early 1966, looking for methedrine, Berkeley police raided his makeshift lab. Since LSD wasn't yet illegal, Stanley successfully sued for the return of his equipment. He was arrested again in Orinda in 1967 but only went to jail after a 1970 marijuana bust inOakland prompted a judge to revoke his bail. "I wound up doing time for something I should have been rewarded for," he said of the two years he spent at Terminal Island near Los Angeles. "The way I look at it, I was punished for political reasons. Absolutely meaningless. Was I a criminal? No. I wasa good member of society – only my society and the one making the laws are different."

Stanley began recording Dead concerts and rehearsals to improve the way he mixed the group's live sound. He created a veritable treasure trove which has enabled the band to release many concert albums and to add countless bonus tracks to the expanded, remastered editions of their '60s and '70s studio recordings. He also taped many concerts in the Bay Area by the likes of Quicksilver Messenger Service, Janis Joplin and Big Brother and the Holding Company and Santana. The Dead always encouraged fans to tape their gigs and have continued to do so in their various reincarnations since the passing of guitarist Jerry Garcia in 1995.

Stanley's interest in sonics led him to found the high-end instrument manufacturing company Alembic Inc and the concert equipment maker Meyer Sound Laboratories in Berkeley. For many years, he refused to be interviewed or photographed, but mellowed in later years and started posting reminiscences on his own website.

In the 1980s, he moved to Australia and settled in Queensland, a region he considered ideally located to survive the next ice age he predicted would come. He lived on an all-meat and dairy diet and particularly disliked broccoli, a vegetable his mother had force-fed him as a child. He made and sold gold and enamel jewellery and art pieces through his website.

Stanley died instantly after losing control of his car during a storm. His wife suffered a broken collarbone.

"I met Owsley at the age of 18. I had just left home, having run off with a rock and roll band," said Bob Weir, a founding member of the Dead. "Bear, as we knew him, was one of my all-time biggest influences. Always, when I think of him, I think of the endless stuff he taught me or somehow made me realise, all stuff that I've been able to use to the benefit of countless people who probably don't know much about him or how deeply he influenced me and the rest of the band."

Augustus Owsley Stanley III, sound engineer, counterculture figure and businessman: born Kentucky 19 January 1935; married (two daughters, two sons); died near Cairns, Queensland, Australia 13 March 2011.