Restoring the Republic’s Productive Power

From a Consumer Economy to a Producer Nation

For decades economic policy has treated consumption as the engine of prosperity. Every stimulus, every boom and bust, and every political promise has turned on the same assumption: if consumers spend more, the economy will grow. 

But what if that assumption is backward? What if true wealth comes not from spending but from producing—building, inventing, and improving the physical foundations of life?

This is the premise of the Political Economy Project: to rebuild a moral and scientific understanding of national wealth measured not by money but by the productive powers of labor. The goal is to replace speculative finance and consumer illusions with a production-centered economy rooted in human creativity and the physical economy.

The Equation of National Health

The health of a nation can be measured by how its people’s potential power of labor is developed and how resources are allocated. Every worker, machine and factory contributes to one of four essential functions. Together they reveal whether a society is building its future or consuming its past.

1. Variable Capital (V): The labor that produces essential goods and services—food, housing, clothing and health care—that sustain the workforce itself.

2. Constant Capital (C): The labor that maintains and repairs the nation’s tools, factories and infrastructure. Neglecting this category leads to the slow rot of the productive base.

3. Overhead (S): The non-productive but sometimes necessary work that keeps the system running, such as bureaucracy, finance, defense, law enforcement and care for the unemployed. When this category grows beyond proportion it becomes a parasitic burden.

4. Absolute Surplus (S′): The reinvestable surplus, the part of the workforce and resources devoted to building new productive capacity—new factories, railways, research and innovations. This is the true engine of growth.

From these four components comes the key formula:

Rate of Profit (r) = S′ / ((C + V) - S).

This equation measures how much of the national effort builds the future (S′) compared with how much is needed to maintain the present (C + V). 

A healthy, developing economy is one where the ratio is rising and, more importantly, where it is rising at an increasing rate. In mathematical terms, the second derivative is positive. That acceleration signifies an economy whose productive power is compounding.

Diagnosing Decline: The Consumer-Driven Economy

Viewed through this physical-economic lens, the American economy is revealed to be structurally unbalanced. Up to 70 percent of its activity now comes from consumer spending while real productive investment has stagnated. The nation’s labor allocation shows the consequences:

• Absolute Surplus (S′) is negligible. Few workers build new productive capacity. Factories close faster than new ones open.

• Overhead (S) has ballooned, absorbing millions in retail, finance, bureaucracy, unemployed and underemployed, and the carceral system.

• Constant Capital (C) is starved. Infrastructure crumbles, manufacturing tools decay and public utilities age.

• Variable Capital (V) is weakened. Workers struggle to afford the goods that sustain them and labor productivity falls.

This structure is not sustainable. 

It mirrors what political economists once called “asset stripping,” consuming the nation’s inherited wealth instead of renewing it. Consumer stimulus, no matter how large, cannot reverse this decline because it feeds spending rather than production. It lifts demand temporarily but does not expand capacity. Once the stimulus ends the growth disappears.

The result is a society living off yesterday’s capital, trapped between debt and decay. The cure requires a complete reorientation toward the physical economy.

The Production-Centered Alternative

A healthy economy allocates more labor and capital to production and less to speculation. 

It focuses on raising the productivity of labor through science, technology and infrastructure. When the productivity of labor rises, the same number of workers can maintain society (C + V) while freeing more capacity for surplus investment (S′). The rate of profit (S′ divided by C + V) rises naturally.

The model has three features:

1. A growing Absolute Surplus (S′): The nation continually expands its physical capacity through new infrastructure, energy, industry and research.

2. Efficient maintenance (C and V): Automation and innovation make it cheaper to sustain the workforce and infrastructure, freeing labor for creative work.

3. A right-sized Overhead (S): Bureaucracy, finance and social costs are proportional to the productive base they serve, not bloated beyond it.

This approach is not theoretical. It has deep roots in American history in the policies that built the nation’s strength.

The American System of Productive Credit

Hamilton’s National Bank (1791)

The first Treasury secretary, Alexander Hamilton, established the nation’s financial foundation on a simple principle: public credit must serve production. His First Bank of the United States issued long-term, low-interest loans for manufacturing, shipbuilding and infrastructure. 

By investing in productive labor instead of monetizing speculation, Hamilton turned the new republic into a credit-worthy industrial power. His system raised both Constant Capital and Absolute Surplus at once.

Lincoln’s War Economy and Industrial Policy (1862–1864)

During the Civil War, Abraham Lincoln revived Hamilton’s philosophy on a national scale. 

The Legal Tender Act created “greenbacks,” sovereign money backed by national production rather than gold controlled by London. The National Banking Acts centralized credit under federal oversight. The Pacific Railway Acts financed the transcontinental railroad, expanding industrial infrastructure. The Morrill Land-Grant Acts founded universities for agriculture and engineering, raising the productive powers of labor. 

These measures raised S′ and the overall ratio of productive to maintenance labor. Lincoln’s system unified moral purpose, national credit and industrial progress.

The New Deal and the Reconstruction Finance Corporation (1932–1935)

Franklin Roosevelt’s New Deal continued the same lineage. 

A snapshot of programs include the Reconstruction Finance Corporation acted as a public investment bank, channeling capital into railroads, utilities and housing. The Tennessee Valley Authority electrified the rural South, building dams and power grids that raised productivity for generations. 

At the same time, the Glass-Steagall Act of 1933 separated commercial and investment banking, protecting the real economy from speculative contagion. The Securities Exchange Act of 1934 created the SEC to regulate markets and ensure transparency. 

This dual architecture—productive credit combined with speculation control—made it possible for S′ to expand while S (overhead) contracted.

Bretton Woods and the Postwar Boom (1944–1960s)

After World War II, the United States institutionalized productive finance on a global scale. 

The Bretton Woods system established capital controls and fixed exchange rates to encourage trade and industrial reconstruction while preventing speculative flows. Domestically, the Export-Import Bank provided credit for manufacturing exports. The Defense Production Act gave the government authority to prioritize key industries. The Interstate Highway Act of 1956 became the largest public works program in history, transforming logistics and national productivity. 

Together these measures kept credit tied to physical production and kept speculation in check.

The Era of Deregulation and Decline

In the late 20th century this productive tradition was dismantled. Deregulation removed the walls that had separated banking, insurance and securities trading. 

The Gramm-Leach-Bliley Act of 1999 repealed core parts of Glass-Steagall, allowing financial conglomerates to gamble with depositor funds.

The 2008 financial crisis was the inevitable result: an economy where credit creation no longer served production but speculation. Post-crisis reforms like the Dodd-Frank Act of 2010 and the Volcker Rule restored some guardrails, but later rollbacks again weakened oversight. Each wave of deregulation expanded S (overhead) and reduced S′ (productive surplus), pushing the nation’s ratio downward.

The moral of history is clear: productive credit raises civilizations; speculative credit destroys them.

Positive vs. Negative Finance

Type	Purpose	Example	Effect
Positive Finance	Credit for production, long-term growth and innovation	Hamilton’s bank, Greenbacks, RFC, TVA, Interstate Highways, Export-Import loans	Raises S′, strengthens C and V, accelerates productive power
Negative Finance	Speculative trading, asset inflation and short-term arbitrage	Derivatives, leveraged buyouts, stock buybacks, housing bubbles	Swells S (overhead), drains C and V, lowers the national profit ratio

Positive finance turns money into tools and knowledge. Negative finance turns money into paper claims. The former builds; the latter extracts.

The Policy Blueprint for Renewal

To restore productive growth, national policy must pursue two complementary strategies: expand productive credit and contain speculation.

1. Build the Credit Engine

Create a modern National Investment Bank, modeled on the Reconstruction Finance Corporation, to provide 20-to-40-year credit for infrastructure, advanced manufacturing and energy. Expand the use of the Defense Production Act to rebuild supply chains in semiconductors, machine tools and critical materials. Strengthen the Export-Import Bank to link industrial exports with domestic employment. Launch new regional development authorities, like a “Second TVA,” to revitalize neglected regions through energy and transport projects. These measures raise the numerator in the national equation—Absolute Surplus (S′).

2. Reinstate Financial Firewalls

Restore the practical separation of commercial and investment banking. Implement a new Glass-Steagall Act. Impose reasonable taxes or reserve requirements on high-frequency speculation. Manage cross-border capital flows to prevent destabilizing surges and financial attacks. These measures reduce unproductive overhead (S) and stabilize the denominator (C + V).

3. Strengthen the Human and Physical Base

Invest in technical education, apprenticeships and research universities as modern extensions of the Morrill Land-Grant system. Ensure that health, housing and infrastructure spending directly enhance labor productivity and improve the life of Americans. Provide predictable maintenance funding for utilities and transport so that Constant Capital (C) is never sacrificed to short-term fiscal games.

Measuring What Matters

Gross Domestic Product measures spending, not progress. A true measure of national health must capture the physical process of production. 

The Political Economy Project proposes using the Absolute Surplus Ratio, written as (S′ divided by C plus V), as a central economic indicator. 

When the ratio rises, the nation’s capacity to produce grows faster than its cost of maintenance. When it falls, the nation is living off past capital. The goal is not merely to raise the ratio but to accelerate its growth over time, creating compounding increases in productive power.

The Moral Dimension of Political Economy

This framework is more than arithmetic. It expresses a moral law. A society that devotes its labor to creative production elevates its citizens; one that devotes it to speculation and consumption degrades them. 

The purpose of credit, labor and government is to improve the productive powers of humanity. 

That belief unites Hamilton’s financial system, Lincoln’s war economy and Roosevelt’s New Deal. It defines the American System of Political Economy—the system that once made the nation the industrial and moral leader of the world.

Rebuilding that system today is not nostalgia but necessity. Infrastructure decay, technological stagnation and social division all stem from the same cause: a financial order divorced from production. By realigning credit with creation, the nation can again achieve rising productivity, higher wages and a sense of shared purpose.

Toward a New American Renaissance

Imagine the equation (S′ divided by C plus V) applied to policy. Every bill, budget and investment would be judged by one question: does it raise the productive power of labor? Does it increase the portion of the workforce building the future relative to that maintaining the present? Does it compound?

If the answer is yes, it belongs to the American System. If not, it belongs to the speculative order that history repeatedly condemns.

The task before policymakers is to choose. Continue the path of a consumption-driven, speculative economy that generates debt, inequality and decay, or build a production-centered republic that renews its infrastructure, educates its people and restores its moral alignment as found in the Declaration of Independence:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.--That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, --That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. 

And the Preamble of the Constitution:

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

History provides the blueprint. Hamilton, Lincoln and Roosevelt proved that sovereign credit directed toward productive ends can transform a nation. 

The same principle built the canals, railroads, dams and highways that made the United States a modern power. The same principle can build the industries of the 21st century—reliable, abundant energy, advanced manufacturing, high-speed transportation and digital infrastructure—if we summon the political will.

Conclusion

True prosperity is not measured by how much we consume but by how much we create. 

The wealth of a nation is the cumulative power of its citizens to improve the world around them. When credit serves that purpose, the ratio of Absolute Surplus to maintenance costs—(S′ / ((C + V) - S))—rises. When it accelerates, the future expands faster than the present and civilization advances.

This is the mission of the Political Economy Project: to make economics once again a science of physical creation and moral purpose. It calls on policymakers, entrepreneurs and citizens to rebuild the institutions of productive credit, to regulate speculation and to measure progress by the growth of human potential. 

Only by doing so can we achieve a self-sustaining renaissance worthy of the republic’s founding ideals.