It is a comforting story, perhaps the foundational myth of modern American capitalism. It goes something like this: In the beginning, there were two guys in a garage in Palo Alto. They had a soldering iron, a dream, and a total lack of regulatory oversight. Through sheer plucky genius and the magic of the free market, they built the future.

This narrative is incredibly useful for tech billionaires bemoaning capital gains taxes from their compounds in Woodside. It is also, as a matter of historical and economic fact, almost entirely nonsense.

The reality is that Silicon Valley, and the economic powerhouse that is modern California, is not a testament to libertarian individualism. It is perhaps the most successful example of large-scale industrial policy in human history. The engine of innovation that drives the modern world was built by the American taxpayer, funded by the progressive tax structures of the Cold War era, and sustained by the state of California acting as a massive social democracy.

To understand how we got the iPhone and ChatGPT, you have to understand the world of the 1950s and 60s. This was an era when top marginal federal tax rates hovered around 90 percent under Eisenhower, and later 70 percent. Where did that money go? A massive amount went into the Pentagon.

We tend to forget that in its infancy, the technology sector had no consumer market. The first microchips were miracles of engineering, but they cost thousands of dollars apiece. No one was going to put one in a toaster. They existed because the Department of Defense needed lightweight guidance computers for Minuteman II nuclear missiles, and NASA needed them for the Apollo program.

For years, the U.S. government was essentially the only customer for advanced integrated circuits. This was “demand-side” economics on steroids. By buying nearly 100 percent of early production without much regard for cost, Uncle Sam de-risked the entire semiconductor industry, allowing private firms like Fairchild and Intel to achieve the economies of scale necessary to eventually sell chips to civilians.

The list of taxpayer-funded groundwork is exhaustive. The internet began as ARPANET, a Pentagon project. GPS was solely a military asset long before it guided your Uber. This wasn’t the invisible hand; it was the visible, heavily taxed hand of the federal government creating markets where none existed.

But the federal government only provided the demand. The supply side, the ecosystem of talent and infrastructure that made California the only place capable of meeting that demand, was built by California state tax revenue. If you want to know the real secret of Silicon Valley, look at the 1960 California Master Plan for Higher Education.

In the mid-20th century, California made a political decision to treat higher education not as a private luxury but as a public good akin to roads or electricity. Through robust state funding, the University of California system (along with the State University and Community College systems) provided virtually tuition-free education to residents.

For decades, the California taxpayer subsidized the R&D departments of Hewlett-Packard and Apple by providing a limitless pipeline, world-class engineers from Berkeley, UCLA, and various state colleges. This was an unprecedented investment in human capital that private industry could never have afforded to build itself.

Furthermore, the physical reality of tech manufacturing required massive state intervention. You cannot fabricate microchips in an arid valley without enormous quantities of water. The State Water Project, financed by bonds paid back by California ratepayers and taxpayers, re-engineered the state’s hydrology to ensure the labs stayed open.

Even in later years, when Washington retreated from basic science, California used state resources to fill the gap. When the Bush administration restricted stem cell research, California voters passed billions in bond measures to create the California Institute for Regenerative Medicine, single-handedly keeping the state at the forefront of biotech.

This brings us to the profound historical amnesia we are witnessing this week on X. The irony today is thick. We see captains of industry, standing on peak upon peak of public investment, declaring themselves self-made men and decrying the very tax structures that built the foundations of their wealth. Over the last few days, the timeline has been flooded with hysterical threats from the “PayPal Mafia” and various VC luminaries. They are declaring their intent to flee to Austin or Miami in response to California’s proposed “2026 Billionaire Tax Act”.

It is difficult to overstate the irony here. These fortunes were built on a foundation laid by a tax system far more aggressive than anything proposed today. The ecosystem that allowed these men to become billionaires was funded by a society that taxed its highest earners at 90 percent. That revenue bought the basic science, educated the workforce they hired, and built the literal pipes and roads that made their industry physically possible.

Now, having harvested the fruits of that massive public investment, they are shocked, shocked! That the state would ask for a return on its equity. They are fleeing to Texas, a state that notoriously underinvests in the very public goods that made their success possible in the first place. They are essentially diners who ate a three-course meal at a Michelin-star restaurant built by the public, and are now flipping the table because the waiter brought the check.

The lesson of California isn’t that the government should get out of the way. The lesson is that real innovation requires the kind of patient, high-risk capital that only the public sector can provide. The garage is a nice story. But the taxpayer paid the mortgage, and the tenants are trying to skip town before the rent comes due.