Silicon Valley was little more than orchards and fields back then. But in that fabled, out-of-the-way outpost, a small group of pioneering entrepreneurs and venture financiers -- Arthur Rock and Tommy Davis, Eugene Kleiner, Tom Perkins, and a dozen or so others -- were developing new model of venture capital-financed start-up innovation. Within a couple of decades, they did it: They created a powerful network and social structure for innovation, a culture that valued ideas and merit over corporate hierarchies, and a venture-capital system that drew its resources from limited partners far and wide, that funded companies based on equity and shared risk -- and that empowered and rewarded the techies who made it all possible.

This system of innovation is based on three key principles: technology, talent, and tolerance. A great university like Stanford or MIT is a necessary but in-itself insufficient condition for success. It's the same with venture capital. This system, this social structure of innovation and new firm formation, requires a constant flow of especially talented people -- and not just scientists and investors, but entrepreneurs with the vision and skills to follow through, executing and building companies. This can only happen in an environment that's open, meritocratic, and diverse, where it doesn't matter what you look like or where you are from, or what your ethnic background or sexual orientation is. More than half of all the Silicon Valley startups launched over the past couple of decades have had an immigrant on their founding teams.

Silicon Valley is very much a product of the open thinking and counter-cultural environment of the Bay Area--hippie culture, some might say. Hippies are what Jobs and Wozniak looked like, with their long hair, ripped jeans, and beards. "Doing LSD was one of the two or three most important things I have done in my life," Jobs famously told The New York Times' John Markoff. Try to picture Jobs and Wozniak in one of the leading centers of banking or industry- New York or Boston, Philadelphia, Detroit or Pittsburgh -- back in the 1970s. They would have never had the chance to pitch their invention -- they would have been turned away by the security guards in the lobby. When I met Donald Valentine, the founder of Sequoia Capital and an early venture investor in Apple, and asked him how in God's name he knew to bet on those two, his answer summed up the spirit of the Valley's start-up culture. "It's a mistake to look only at the shell," he told me. "It's what's inside the shell that really mattered." And he reminded me that it was his job as a venture capitalist to "identify the something special inside [new companies'] shells."

What Valentine could see in Apple's unlikely founders, the leaders of America's emerging economy are seeing generally today: the limitless potential of the new. As brutal as the force of destruction has been for some of us in the contemporary economy, the power of creativity remains even greater -- and we are only beginning to tap it.

Image: IR Stone/Shutterstock.

We want to hear what you think about this article. Submit a letter to the editor or write to letters@theatlantic.com.