WATCH: Silicon Valley Exists Thanks to Tax Cuts

We often hear that government created the internet. It's funny what a myth that is, that government had anything to do with creating the technological revolution. Now the real story is that when government was really involved in dominating the technological sector back in the 1950s, it wasn't really producing anything for the American economy. It's when government decided to get a little smaller through the tax rate cuts of the 1960s that Silicon Valley took off.

Going Back to the Start

Let's go back to the 1950s, when you really start seeing the Valley begin to expand under Frederick Terman. You start to see lots of new companies coming in there. What we would call startups today – but they didn't call them that then – of engineers came to San Jose, California to start making things. Virtually all of these people were paid under government contracts – for example, Shockley Semiconductor, easily the most famous and important Silicon Valley company in the 1950s. They were mainly interested in producing guidance systems for the missile arrangements of the Defense Department and all sorts of government contracts.

What you don't see in the 1950s and the early 1960s in Silicon Valley is the development of personal products that are technological products that are broadly useful to the American economy at large. You don't see the personal computer revolution, all sorts of devices, all sorts of applications that people in the private sector can use. It almost exclusively is a phenomenon of government contracting.

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