The traditional libertarian viewpoint isn't that the government shouldn't use the money it has to foster innovation, or that the government shouldn't have any money to use for anything, or even that the government should be tiny. It's that the government should be more decentralized.
And while the libertarians in the US today have a large number of differences with the more historic libertarians, some of the historic viewpoints can be seen in the contemporary US.
One of the main defining points for libertarianism, historically and currently, is individualism. Individualism isn't strictly anti-government, but anti-authoritarian. The government using its means to foster innovation is completely separate from most other points. Even small or distributed government should foster innovation if possible.
When a few individuals own all the land other individuals have to choose between selling themselves short for others' gain, or starving. The whole anti-authoritarian thing goes out the window when property laws need enforcement.
It has been discussed extensively by left libertarians since the 1800s (most famously by Proudhon's What Is Property?).
But most right-wingers consider property something like a god-given right (usually called "natural rights"), which makes discussion as impossible as trying to convince an young-earth creationist of evolution.
(Though to be fair, not everyone in that side of the field believes the same. Mises is particular wrote that property is just an human device, "it is not sacred". Which makes for a good laughs when you point it out, along with the fact that Ron Paul is a supporter of the Von Mises Institute, in one of those right-wing discussion forums).
"Even small or distributed government should foster innovation if possible."
Yes, but it turns out that big governments are much more effective at some kinds of innovation and expertise than small governments. There is no Missouri Institutes of Health, or if there is, you have not heard of them, but you sure know of and expect the best from the NIH.
So in effect, decentralization implies the a retrenchment of the scope of government.
And while the libertarians in the US today have a large number of differences with the more historic libertarians, some of the historic viewpoints can be seen in the contemporary US.
One of the main defining points for libertarianism, historically and currently, is individualism. Individualism isn't strictly anti-government, but anti-authoritarian. The government using its means to foster innovation is completely separate from most other points. Even small or distributed government should foster innovation if possible.