Comprehensive Report on the United States: Vol. 1/65 Ideals of Freedom and Structural Original Sin: The Dual Structure of American Founding and Its Path Dependency
Executive Summary
While traditional institutional economics primarily views institutions as "static constraints," this report presents a perspective that institutions function as "dynamic feedback loops" that self-reproduce through resource allocation, human capital formation, and political participation.
The "dual structure of ideals and exclusion" embedded as an institution during the founding period of the United States has functioned as a "long-enduring institutional model" that compoundingly reproduces capital accumulation, institutional inertia, and policy volatility.
The Institutional Compounding Model (ICM) presented in this report is positioned not merely as a theory to explain the United States, but as an analytical tool to systematically evaluate nation-level risks.
Specifically, it verifies the alignment between founding ideals and institutional design, and then analyzes the impact of institutions on wealth accumulation and human capital formation.
Furthermore, it evaluates the political and social costs associated with institutional reforms, examining how these costs connect to the frequency of policy changes and market environment fluctuations.
Ultimately, the objective is to connect these analytical results to corporate valuation and country risk assessment, thereby evaluating the long-term impact of institutions on the economy in a quantitative and comparable manner.
According to primary data from the Federal Reserve Board's (FRB) Survey of Consumer Finances (2022 SCF), the median wealth of white households is $285,000, whereas that of Black households is $44,890. This means that for every dollar of wealth held by a white household, a Black household holds only about 15.8 cents (a gap of approximately 6.3 times).
The next SCF (the 2025 survey) is not scheduled to be released until late 2026, making the 2022 SCF the most recent comprehensive wealth survey data currently available.
However, according to more frequently updated asset share data (FRB Distributional Financial Accounts), as of the second quarter of 2025, the share of US wealth held by Black Americans was 3.4% ($5.71 trillion), while White Americans held 83.5% ($139.73 trillion). This disparity is strikingly disproportionate when compared to the demographic composition (13.7% Black and 57.5% White).
At the root of this disparity lies the compounding consequences of historical events, such as the loss of approximately 98.9% of indigenous historical land bases driven by Manifest Destiny, and the historical processes of initial capital accumulation through slavery.
This report deconstructs these structural issues within the framework of institutional economics and macro-risk analysis, providing strategic insights to discern the true nature of contemporary policy volatility and country risk.
Chapter 1. Analytical Framework: The Four-Layer Self-Reinforcing Institutional System and the Institutional Compounding Model
Traditional institutional economics has analyzed institutions primarily as "static constraints," explaining how they generate inequality and division.
In contrast, this report views institutions as a "self-reinforcing institutional system" with a feedback loop: institutions dictate resource allocation, which sequentially shapes corporate formation, income, wealth, education, human capital, and political participation, ultimately feeding back to influence institutional design once again.
Crucial to this system is the mechanism of "institutional compounding."
Institutional compounding refers to the process where initial conditions shaped by institutions are repeatedly reinvested through the media of financial markets, educational opportunities, political participation, and human capital formation, causing small initial disparities to accumulate exponentially across generations.
As institutions form a loop through housing, education, income, wealth, and inheritance, and feed back into the institutional setup, a structure emerges where inequality, division, and policy volatility self-propagate.
This report presents this mechanism as the "Institutional Compounding Model (ICM)."
The ICM consists of the following four elements:
ICM-1: Universalization of Ideals
ICM-2: Institutional Exclusion
ICM-3: Compounding Accumulation of Capital
ICM-4: Institutional Inertia
This model differs from traditional institutional economic analysis by emphasizing that institutions do not simply remain as passive legacies of the past, but actively continue to self-reproduce in the contemporary era.
Furthermore, the ICM can function as an analytical lens to compare and diagnose nations.
Specifically, it can be utilized as a framework to relatively evaluate the institutional compounding risks of various countries through a set of indicators such as institutional consistency, frequency of policy reversals, capital fixity, degree of social division, and institutional reform costs.
These indicators are not intended for quantitative scoring but are positioned as conceptual tools to comparatively grasp the structures through which institutions self-propagate.
Chapter 2. Manifest Destiny and the Institutional Mechanism of Indigenous Land Dispossession
A view widely shared in historiography is that the 19th-century territorial expansion of the United States (the Westward Expansion) was not a merely spontaneous frontier development, but a highly institutionalized, state-led military and ideological campaign.
Regarding Manifest Destiny, this report presents the following interpretation as one analytical perspective.
Namely, under the institutional constraints of the founding era (capital shortages, population deficits, and military vulnerabilities), the political leadership of the time selected the path of forced relocation and land reallocation—which allowed for the rapid integration of resources, population, and territory—out of several alternatives, including gradual acquisition centered on treaty negotiations and co-governance models. This is an institutional economic interpretation.
However, this explanation can be criticized for underestimating the agency and moral responsibility of political leaders in history.
The mainstream position in historical scholarship strongly tends to view Manifest Destiny and indigenous forced relocation policies as deliberate policy decisions made by the political leaders of the time, who had alternative options available.
The institutional economic interpretation presented in this report does not conflict with this mainstream historical view, but should be positioned as a complementary analytical perspective focusing on economic and institutional dimensions.
The "Indian Removal Act" enacted in 1830 is the foundational statute that legally institutionalized this policy.
Chapter 3. The Economics of Slavery and the Mechanism of Initial Capital Accumulation
The rapid economic growth achieved by the United States in the global economy during the 19th century was underpinned by the existence of the slave plantation economy.
Economic history research points out that the expansion of the slave plantation system was tied to structural constraints, such as the climate conditions of the South, land productivity, capital shortages, and the limited influx of immigrants.
In particular, because cotton—a highly profitable crop—satisfied the conditions of being "labor-intensive × technology-independent × economies of scale," there was a structure in place where slave labor was deemed economically "rational" by Southern managers of the time. This is the stance of certain studies within new institutional economics.
An important caveat must be stated here.
The claim that "slavery was the only viable institution forced upon the South due to economic constraints" is merely one interpretation presented by this report based on the framework of institutional economics, and it is not a widely accepted consensus in history or economics.
The mainstream historical position views slavery not as an inevitability driven by economic rationality, but as an unjustifiable institution maintained through violent coercion and the racial ideology that legitimized it.
This report presents an analysis from the perspective of economic efficiency, and it must be made explicitly clear that this does not imply any moral justification of slavery whatsoever.
What can be empirically verified is that the Southern economy of the time relied heavily on slave labor, supplying a substantial portion of the global cotton supply, and that this economic structure exerted financial influence over Northern banking, insurance, shipbuilding, and railroad investments.
Research indicates that slavery was not confined to the agricultural sector but influenced the initial formation of the US capital market itself through multiple channels.
Chapter 4. The Architecture of Compromise in the Founding Constitution: Designing Institutional Containment
The Founding Fathers recognized that the contradiction between the ideals of freedom and the maintenance of slavery was a fault line that threatened national unity.
In order to prioritize the preservation of independence and the formation of the Union, the design philosophy adopted was not to resolve this contradiction but to "institutionally contain" it. This is a general understanding in constitutional history.
The Three-Fifths Compromise was an institutional compromise with compounding effects: it institutionalized slavery by factoring it into population calculations, structurally amplified the political voice of the South, and embedded a moral fault line into the federal system.
The view that this compromise served as one of the structural causes of the conflicts that ultimately led to the Civil War is widely shared in constitutional history research.
Chapter 5. The Civil War and the Reconstruction Era: A Regression Failing to Reset the Institutional Equilibrium
The widely shared view of the Civil War (1861–1865) is that the fault lines embedded within the constitutional structure at the time of the founding passed the limits of political compromise as a result of territorial expansion and the divergence of economic models.
From the perspective of institutional economics, the Reconstruction era (1865–1877) can be understood as an example where the resetting of the institutional equilibrium failed to take root, resulting in a regression to the old equilibrium.
Following the withdrawal of federal troops, institutions were reconstructed in the South through racial segregation laws (Jim Crow laws), the substantive disenfranchisement of voting rights, and discriminatory allocations in public education and infrastructure investment.
This suggests that the high reform costs, which were amplified by the compromises made during the founding era, acted in a direction that pulled the institution back toward the legacy racial hierarchy.
Chapter 6. 20th-Century Institutional Continuity: The Financial Institutionalization of Redlining and Spatial Segregation
Even during the expansionary phase of the liberal economy in the 20th century, the structure of exclusion based on race persisted, morphing into the rules of capitalism.
Redlining was an institution that fixed the initial conditions of asset formation by race by embedding spatial segregation directly into the financial system.
Studies by UC Berkeley, the National Community Reinvestment Coalition (NCRC), and others have confirmed that the redlined zones of the 1930s maintain a statistically significant correlation with 2020s home equity values, life expectancy, disease rates, land prices, and educational investments.
Chapter 7. Path Dependency to the Modern Era: Wealth Disparities and Institutional Compounding
The series of institutional designs spanning from the choices of the founding era to the residential discrimination of the 20th century is considered to have exerted a certain degree of influence on the wealth disparities in contemporary American society.
According to the FRB's 2022 SCF, the median wealth of white households is $285,000, while that of Black households is $44,890.
In the US Census Bureau's SIPP (2021 data), the median wealth for white non-Hispanic households is $250,400, compared to $24,520 for Black households (a disparity of approximately 10.2 times).
As for more frequently updated data, the FRB’s Distributional Financial Accounts indicate that as of the second quarter of 2025, the share of US wealth held by Black Americans was a mere 3.4%, while White Americans held 83.5%.
The analytical perspective of this report is that this disparity is highly likely a product of institutional compounding, amplified through the mutual collateralization and reinvestment of housing assets, business assets, financial assets, and inherited wealth.
On the other hand, while this report emphasizes the influence of institutional formation, it does not assert that institutional economics alone can completely explain contemporary disparities.
Multiple factors arising in the latter half of the 20th century—such as technological innovation, educational opportunities, immigrant composition, and shifts in industrial structure—may also influence wealth gaps.
Chapter 8. The Quadruple Structure in Geopolitical Hegemony Formation and Modern Implications
This report presents the perspective that the formation of US hegemony is the product of a quadruple structure: Ideals (Universality) × Institutions (Exclusion) × Capital Accumulation (Compounding) × Geopolitics (Frontier).
Domestic institutional contradictions are observed externally as perceptions of double standards from the international community, a relative decline in soft power, and skepticism regarding the legitimacy of democracy, potentially placing certain structural constraints on US diplomatic assets.
Comparative Analysis: Typologies of Institutional Continuity in Settler States
When comparing the institutional formation of settler states, the following typologies are observed:
Canada is classified as compensatory, Australia as reconciliatory, and South Africa as institutional transformation, whereas the United States possesses characteristics that classify it as institutional continuity.
In Canada and Australia, a certain degree of institutional correction has progressed since the late 20th century through treaty negotiations, compensation systems, and judicial rulings. Meanwhile, in South Africa, wealth disparities have persisted even after the abolition of apartheid.
The defining characteristic of the United States lies in the fact that while it plays a role in universalizing freedom and democracy to the world as its founding ideal, it continues to carry the weight of historical institutional impacts domestically to this day. This divergence between ideals and institutions may form a structure that easily impacts both foreign and domestic policy more intensely than in other settler states.
Chapter 9. Policy Volatility Brought by Institutional Division and Implications for Decision-Making
The institutional division in the United States structurally contains a policy volatility wherein policies flip with every change in administration.
The practical implication derived from this analysis is that corporations must not merely react to individual policy changes, but need to incorporate the institutional structure that generates those policy changes into their analytical framework.
For instance, for a company considering investment in the US, rather than treating tax adjustments or regulatory changes as isolated risks, it becomes rational to transition toward investment decisions that factor in multiple institutional scenarios, operating under the premise that these shifts will repeatedly occur due to institutional division.
What is vital for investors is the perspective to evaluate institutional changes themselves as investment risks, rather than solely focusing on US economic growth rates or corporate earnings.
Because tax codes, corporate regulations, and trade policies toward China can fluctuate drastically with every change of administration, it is desirable to build the probability of institutional shifts into future cash flow projections and adjust the cost of capital or expected returns accordingly. The ICM proposed in this report can be utilized as an analytical framework to systematically evaluate these institutional shift risks.
Chapter 10. The Universality and Limits of the Institutional Compounding Model (ICM)
The Institutional Compounding Model (ICM) presented in this report is not limited to historical analysis unique to the United States but can be applied as a universal framework to analyze other nations.
The ICM is a model that captures a structure in which four elements—universalization of ideals, institutional exclusion, compounding accumulation of capital, and institutional inertia—interact compounding通. This structure can be applied to nations with different historical contexts, such as Taiwan, South Korea, Japan, and China.
On the other hand, limits to the scope of application exist for the ICM presented in this report.
This model holds high explanatory power for nations where institutions endure over long periods and exert cumulative effects on politics, economics, and society.
Conversely, in cases where the institutions themselves are severed—such as through revolutions, state collapses, or large-scale institutional overhauls—institutional compounding does not continue, and the model's explanatory power relatively decreases. Therefore, the ICM is positioned not as a model to predict short-term political events, but as a framework suited for analyzing national structures that endure on a scale of decades.
Connection to the Next Chapter
The structural contradiction between the universal "ideals of freedom" and the "land dispossession and slavery" that supported them generated intense tension within the design of the federal system immediately following the founding.
The Founding Fathers recognized this latent fault line, but to prioritize the maintenance of the state, they had no choice but to opt for "institutional containment" rather than resolving it fundamentally.
In the next chapter, we will structurally analyze from an institutional economics perspective how the US Constitution, which internalizes this dual structure, was designed, and how that compromise ultimately brought about a massive institutional catastrophe in the form of the Civil War.
Conclusion and Strategic Implications (So-What)
The greatest implication shown by this report lies in the point that risks in the United States should be grasped not as isolated events, but as a structure in which institutions compoundingly self-propagate.
For corporations, it is crucial to design multiple scenarios based on the premise of institutional division regarding supply chains and regulatory compliance. For investors, reflecting the probability of institutional shifts into DCF models and quantitatively evaluating policy reversal risks is required. For governments, it is necessary to quantify institutional reform costs in advance and consider policy sustainability at the institutional design stage.
Against the institutional economics perspective adopted in this report, there is a counterargument stating that "contemporary disparities can be sufficiently explained by modern factors such as education levels, industrial structures, demographics, and family structures."
This point holds a certain validity; indeed, studies have reported that when controlling for these variables, the direct explanatory power of racial factors shrinks.
However, while those analyses primarily aim to decompose disparities at the present moment, this report targets the long-term institutional formation process of "how those initial conditions were shaped." Therefore, the two are not mutually exclusive theories, but should be understood as complementary analytical frameworks explaining different time horizons.
By adopting the Institutional Compounding Model (ICM), whereas conventional analyses could only fragmentedly capture the "cumulative impact that institutions exert on the present," it becomes possible to consistently analyze institutions as a self-propagating structure. This viewpoint provides an effective analytical framework to understand institutions not as legacies of the past, but as structures that actively continue to operate today.
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