An Unusual Problem that Completes the Free Market Ecology Puzzle.

J.W. Sher
October 24, 2024

This is a follow-up to my earlier articles on Free Market Ecology.

While talking with Willam ‘Monty’ James at Zelar.City we discovered an interesting problem with free market ecology around barter between producers. This is caused by factors of production not being universally tradeable with money.

The Barter Problem in Production

We have an aluminum manufacturer scrapping a plant and wanting to turn the excess aluminum into plastic pipettes to start a biotech company. How does he do this? How do non-consumable factors of production turn into other factors of production in an efficient barter system?

In the normal capitalist economy, he would find someone to sell the plant to, or he might not, and it would be a loss. In that case, he could just let the bank take his assets and walk away.

In the free market ecology world, the plant owner would have a balance sheet full of stuff in the plant that was partially depreciated. If the plant had run for some time, the owner could sell the profit markup on materials used by the old plant in production for the new plant startup materials.

Then, the owner could take the depreciated materials used in the plant construction and be able to sell them on a central exchange for some discount to the full value because end consumers had used their personal ESI to take the full value of the resources off the factory owner’s hands when they paid for the depreciation included in their products. Then, you could use the ESI profits, the resold depreciated materials, and the owner’s fresh empty balance sheet to borrow some ESI investment and invest in the new venture.

A way this would work is that he would contact a drone maker who had razor-thin margins and would like to increase them. He would sell his aluminum ESI at a discount to him from full value, and the drone maker would exchange with him some crude oil and hydrogen allocation that he used in production. The drone maker would make fewer drones because of the complimentary factors of production would be reduced for drone making because he gave away his hydrogen and crude oil, but would have bigger margins thanks to the discounted aluminum that he made the drones with.

This would be made easier by the full transparency of resource usage by all businesses. In fact, it could be automatically calculated what would be the most advantageous trade in the economy. It could even be proposed that a completely simulated AI controlled resource allocation could be determined optimally and almost automatically within an entrepreneurial competitive economy.

Further, this makes sense because since there are not unlimited resources, a new venture has to necessarily take away factors of production from other businesses which can be done most efficiently by them reducing their marginal production and increasing profits with the newly depreciated and recycled factors of production from the scrapped business. I’d argue that this in some ways is more optimal than current capitalism because the materials have to actually be used in the new venture to be useful instead of horded for their commodity value.