The greatest lie embedded in the notion of a “free market economy” is the claim that there are no important distinctions between kinds of economic activity. When applied to the U.S. national economy, as it was with a vengeance under the influence of the radical libertarian Federal Reserve Chairman Alan Greenspan, then the rapid cancerous growth of instruments of pure fiction runs amok and strangles the real economy, ergo the great crash and recession of 2008.

The reality masked by so many since that crash lies in the fact that all limits on the capacity to extend leverage on derivatives was eliminated in 2004. Up until then, there was a strict rule that a monetary product could not be leveraged more than 12 times over its original. But under the influence of Greenspan, that limit was abolished and mortgage and other financial instruments began being sold and re-sold in secondary markets with no limits, whatsoever.

So, to the extent the crash was blamed on sub-prime products, this was in fact only a secondary cause. It was the fact that these things were being so interwoven into the world economy by virtue of a newly-created boundlessness that, well, one bad apple could bring everything down, which is exactly what happened.

At the root of the problem that persists for the global economy today is a zealous unwillingness to differentiate between productive and non-productive economic activity. Who would dare make a differentiation of that kind? Historically, in the U.S., it has been the government, beginning with our first secretary of the Treasury, Alexander Hamilton, and his seminal “Report on Manufactures.”

Then it was the Whig economist precursors of the Industrial Revolution, in the persons of Mathew and Henry Carey, who advised the likes of John Quincy Adams and, most importantly, Abraham Lincoln, on the importance of the distinction, and of the need for a “dirigist” economic leadership that designated capital flows into crucial areas for the expansion of infrastructure and invention.

Lincoln did it with a powerful menu of political initiatives: the First Legal Tender Act, the Land-Grant Colleges Act, the Homestead Act, the Pacific Railway Acts, and more. These directed flows of capital into specific areas of productive growth. Once set into motion, they took on a life of their own as the fruits of the inventive fervor of the Industrial Revolution transformed every aspect of the nation’s life.

Without a single shot being fired, for all intents and purposes, the United States grew out of its own horrific Civil War (which in fact was the final phase of the Revolutionary War, since it marked the last gasp of the pro-Southern British to rend the nation in two), to become the economic powerhouse of the globe in the next 50 years.