Feelgood corporate logo, acid house icon and txt msg emoticon: one chirpy yellow emblem has kept grinning since the first summer of love. Jon Savage celebrates the life of Smiley

In the official poster for the forthcoming blockbuster, Watchmen, the Smiley badge takes centre stage. The image shows The Comedian being punched out and you see the virgin Smiley a second before it receives the small "five to midnight" blood stain that is the Watchmen logo.

As anyone who has read Alan Moore and Dave Gibbons's novel will know, The Comedian's murder sets in train a sequence of events that culminates with the destruction of half of New York and a fragile world peace. In the process, the Watchmen have to confront their own contradictions and fears, their own pasts and, in some cases, their own deaths.

This dystopian story features the Smiley as a key symbol; it reappears throughout the book. It works like the homicidal clown, that staple of American horror movies: a great counter-intuitive twist that pits the vapidity of everyday affirmation against an overwhelming sense of doom.

The Smiley has travelled far from its early 1960s origins, changing like a constantly mutating virus: from early-70s fad to late-80s acid house culture, from millennial txt option to serial killer signature and ubiquitous emoticon. That's quite a journey for a simple logo that began in kids' TV and corporate morale-building.

The classic Smiley arrived in the early 1970s. Within a perfect circle, there is the simplest, most childlike depiction of a happy face: two vertical, oval eyes and a large, upturned semi-circular mouth. The choice of yellow as a background colour was inspired: it's the colour of spring, the sun, a radiant, unclouded happiness.

While the origin of the design is contested, it seems that it first appeared during the early 1960s. In 1963 there was an American children's TV programme called The Funny Company, which featured a crude smiley face as a kids' club logo: it was shown on their caps, in the end titles and the final message, "Keep Smiling".

At the same time, Harvey Ball – a commercial artist in Worcester, Massachusetts – designed a simple Smiley for a local company, State Mutual Life Assurance. Noting the depressing ambience of the town (which is real, believe me, I've stayed there), State Mutual started "a friendship campaign" so that their employees would feel good when they interacted with the public and each other.

Ball was paid $45 for 10 minutes work. However, neither he nor the company copyrighted the design, which has left its precise origins open: a Seattle designer called David Stern has also claimed authorship. But the Smiley is based on such an archetypal child's doodle that it could have come out of the ether.

What is not disputed is the extent to which the Smiley took off. In September 1970 two brothers based in Philadelphia, Bernard and Murray Spain, came up with the classic Smiley design to sell novelties. Adding the words "have a nice day", the Spains shifted at least 50m Smiley badges in 1972.

And that wasn't all. There was an eruption of Smiley ephemera: coffee mugs, tea trays, stationery, earrings, keyrings, bumper stickers, bracelets etc. The fad hit the post-1960s mood: a traumatised American public turning to visual soma in order to forget the war in Vietnam and presidential meltdown.

The Smiley was the perfect feelgood symbol of a moment when 1960s ideas of freedom, hedonism and experimentation hit the American masses. The fad was so mainstream that it bypassed the iconography of post-hippy rock, which, still remaining in thrall to counter-cultural ideas, ignored such mass pablum.

It did hit the comics, though. In May 1972, Mad magazine published a Smiley cover – with the distinctive facial features of Alfred E Neuman contained in one of those yellow circles. A failed DC attempt from 1973/4 called Prez: First Teen President featured the first sinister use of the symbol in the figure of Boss Smiley, a Smiley-faced leader of an ultra-rightwing militia.

This was prescient. The Smiley presented such a fixed facade of childlike contentment that it was ripe for subversion. Evil was rendered even more sinister by this blank, expressionless face, a trigger horror image like a girl's doll with a broken eye, a prom queen (remember Carrie?) or 1950s style suburbia.

This continued in the late 1970s. If there was one thing that punk railed against, it was false consciousness. The Smiley was an icon worth mutilating, and the cover for the UK 12-inch of the Talking Heads' Psycho Killer picked up on the Taxi Driver vibe that would later inform Watchmen with an image of a distorted Smiley on the putative killer's T-shirt.

In 1979, Bob Last and Bruce Slesinger put together a collage of Californian Governor Jerry Brown and a Nuremberg-style rally to illustrate the UK Fast Records release of the Dead Kennedys' California Über Alles. Behind the podium were large red, white and black banners: in place of swastikas were large Smileys.

Written during 1985 and published in 1986, Watchmen used the Smiley as a visual metaphor for a narrative that examines guilt, failure, megalomania and compromise with a corrupt power structure. All is not well beneath the idealised superhero surface, as the novel spirals into an existential crisis of betrayal, mass extinction, the transience of human existence.

The Smiley is worn by the most corrupt and violent superhero, The Comedian. It even travels to Mars, when Jon and Laurie end up in the midst of a rock formation shaped like a Smiley. (Life followed art, as in early February 2008 it was reported that an orbiting satellite had spotted a big Smiley drawn on the face of the red planet).

Then came the explosion. In February 1988, Bomb The Bass released the first pop reference to Watchmen, using the blood-stained logo on the cover of their hit Beat Dis. Tim Simenon has used the Smiley repeatedly: in the videos for the summer '88 hit Don't Make Me Wait (and for last year's Butterfingers). In the previous month, Danny Rampling had used the Smiley in a flyer for his club Shoom. He'd got the idea from seeing the designer Barnzley at the Wag Club in a shirt covered "in a lot of smiley faces". Embedded into the second "o" in Shoom, the symbol took a few weeks to catch on, but when it did, it swept the country as the logo of acid fashion.

As acid house became acieed that year, the Smiley flip-flopped from dream symbol to harbinger of wickedness. Just as the early days of acid were beatific, so the media's initial response to this new youth cult was positive. This changed in the autumn as "smiley culture" was associated with headlines like "Evil Of Ecstasy" and "Shoot These Drug Barons", and the fad quickly subsided.

This negative association continued into the early 1990s. Mutations of the symbol were used by Nirvana (crossed-out eyes, drooling mouth) on their famous "Corporate Rock Whores" T-shirt, as well as in the 1991 Fangoria comic Evil Ernie (angry eyes, mouth with bared teeth).

During the last decade, the Smiley has become an acknowledged part of pop culture history. In the US, it's become a shorthand for the high 1970s, referenced in that great touchstone of modern history, Forrest Gump, where Tom Hanks's mud-spattered T-shirt provides the origin for the design.

Quite apart from the Watchmen associations, the Smiley is coming back in the UK as part of acid retro fashion, just in time for the 20-year revival. Coincidental to this, it has also been used as a sinister signature – left at murder sites by a US group called The Smiley Face Gang who, it is alleged, have been responsible for around 40 killings. The symbol still oscillates between Heaven and Hell.

As you might expect, the Smiley has also been surrounded by copyright controversies ever since the early 1970s when a Frenchman, Franklin Loufrani registered the trademark as Smiley World in some European countries. Wal-Mart tried to copyright the Smiley in 2006, but lost the case to Smiley World.

It has also swept the digital world via emoticons, suggesting various moods from confused to secret-telling, sarcastic to psychotic. (Naturally, the emoticon trademark has already been claimed, by the Russian company Superfone).

It may seem weird that such a bland symbol should be used to convey emotion, in such a way that creates as much distance as real empathy. But then there is something powerfully archetypal about an image of a happy face that resembles the sun. Infantilisation or greater communication, joy or horror: the Smiley can encompass everything. It pretends to be our servant, but it will rule us all.

• Watchmen is out on 6 March