How an ecological central bank and private finance work with producers and consumers in Free Market Ecology, including carbon credit and rainforest hardwood trade financing examples.

J.W. Sher
May 23, 2025

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Author’s Note: I changed the name of the substack to “J.W. Sher’s History of the Future” from J.W. Botsford’s. Since I will be promoting the Free Market Ecology economic system more in the serious academic world, I thought it would be better to stop using my pen name and start using my real name: J.W. Sher.

Introduction

The question of finance determines which entities get resources to create future production. Our current system solves this in various ways, including bank loans, venture capital, equity investments, bonds, and other types of financing. In each of these interactions, the investor or lender takes a calculated risk that results in the entity receiving the funding consuming resources for some future business venture returns the initial investment and some return on that investment to the financier.

In our capitalist economy, the return primarily represents more value produced for the same labor. The factory makes a widget for 1/10 the labor of making it by hand, using machines bought with investor money. This productivity increase causes operating profit margins to rise because less labor cost, usually one of the most significant production expenses, is required. These increased operating profit margins justify the capital expenditure to create the machinery and are the source of interest or dividends paid to financiers.

How does this work in an economic system where an explicit requirement is the fixed maximum use of the Earth’s resources? In modern capitalist economics, the economic system leaves the preservation of resources below the limits of what businesses can economically extract to the environmental protection apparatus of government. This ecological protection apparatus functions much like a central planning apparatus of socialist governments. Government bureaucracies must plan and set resource use policies, much like the planners of centrally planned states. When the robotics and AI revolution takes hold, the number of resources businesses can economically extract because of negligible labor costs will rise dramatically and speed us toward the limits to growth at meteoric speed. This rise in economically extractable resources will tend to make the environmental protection apparatus of government larger and extremely busy as environmental protection needs will force it to closely manage the AI/Robotics genie that will proliferate “paper clip maximizer” like overuse of resources in many different places and require close government scrutiny of almost all economic activity to prevent this. This close government scrutiny will create a centrally planned economy, as the environmental protection apparatus is a government bureaucracy that will have to manage most of the economy to protect resources from overuse, but there is a way out.

In Free Market Ecology, governments set the maximum resource usage but let the market determine where businesses and consumers can most efficiently use those resources. In this system, most environmental protection and ecologically wise resource use becomes a private market-oriented function that can function with the same efficiency as the private market uses capital, compared to the inefficiency of how central planners use and create capital in a communist system. This efficiency gain in Free Market Ecology is because entrepreneurs have the information they need to calculate and profit from reducing externalities. In contrast, before, entrepreneurs could ignore externalities or had no access to them because the single-price system buried them in a single opaque price value.

In Free Market Ecology, profit represents a positive increment in the value produced by the same or fewer resources, including labor, by putting all other resources and externality limits on an equal footing based on their scarcity in the market. For example, if a business can manufacture an electric motor that previously used rare earth metals with one with the same characteristics that uses more ecologically friendly iron, it could mark up the resource it sold for in the market to the consumer to that of its competitors. The motor would cost consumers an amount of their rare Earth UBI allocation, even though it contained no rare earth. This markup increases profits since rare earth resource usage rights would be more precious and in demand than iron resource usage rights used to make the product. That markup of resources represents the profit paid to the entrepreneur for more efficient resource usage. The profit comes from the consumer overpaying more for the resources than their cost to the business. In overpaying, they are no longer in possession of those rights and are no longer able to use them for consumption. They have willingly rewarded the business owners for their clever and efficient use of resources by letting the business owner consume the resources instead of that consumer being able to do so. If financiers made loans to this business, this consumer overpayment would be the source of the interest payment to the financiers, and what was left over would constitute the owner’s profit.

The Parties

In Free Market Ecology, the system encapsulates the ecological regulation function done scientifically and politically in the private Ecological Central Bank. The rest of the players are private entities pursuing their economic interests. Criminal environmental laws are still in effect, similar to how they are now. However, private parties use economic calculation to determine how society uses conserved resources to pursue profit. Businesses maximize profit by maximizing value creation and minimizing resource use and externalities within the system.

Ecological Central Bank

The Ecological Central Bank sets a jurisdiction’s maximum resource usage. This resource policy setting remains a government function. Experts and politicians will determine these limits through scientific and political considerations. Earth system scientists will determine the maximum upper bounds whereby the externalities would prohibit sustainability and the lower bounds where they would lead to unacceptable poverty. They would target resource consumption somewhere in the middle of these two extremes. This policy is essentially the “Doughnut of Sustainability” concept popular in the environmental economics community.

Ecological Private Finance

Ecological Private Finance posts collateral, either capital in the form of accumulated resource usage rights or other resource-generating assets, with the Central Bank and opens a resource usage right line of credit. Production Resource Extractors and Users use Ecological Private Finance to secure loans for resource usage rights, which will be henceforth abbreviated as RUR since this article frequently uses this concept. RURs are essentially the right to extract a resource from a resource-generating asset.

Production Resource Extractors

Production Resource Extractors mortgage collateral to receive a loan in RURs. In practice, someone with an oil well mortgages the well to obtain a loan to get 10 barrels of RURs, which permits them to extract 10 barrels of oil. They might sell those barrels for 11 barrels of oil RURs, receiving a markup of 1 barrel of oil RUR when they sell them to Production Resource Users. They will repay the loan of 10 barrels of oil RURs and .1 in interest to Ecological Private Finance, settling their debt, and receive .9 barrels of oil RURs as resource profit.

Production Resource Users

A production resource user is a processor of natural resources, such as a desalination plant, which, if highly vertically integrated with a refinery, would take a barrel of oil purchased from an oil driller, refine it, and use its energy-generating fractions to desalinate salt water. They use their profit in oil RURs from previous operations or loans from Ecological Private Finance to acquire the oil RURs needed to power the water desalination process with oil by paying an oil driller for the oil with oil RURs. They might pay the driller 11 barrels of oil RURs for 10 barrels of actual oil. Depending on market conditions, they might have to loan 11 barrels of oil RURs from Ecological Private Finance and pay back 1.1 barrels of oil RURs in interest or use their retained earnings to pay for the RURs. The desalinated water they sell will include the allocated cost of the oil they bought in RURs so they can pay back the oil RUR loan cost.

One liter of water uses approximately 0.3 ml of oil to desalinate, which the desalinator would include in the cost of the water in RURs. This cost does not include the oil driller’s markup of the oil RURs sold to the water desalinator, which the production resource user must also pay and pass along. Seawater is so abundant that the Ecological Central Bank will likely ignore its consumption, but it could require an RUR if the Bank determines it should be economically conserved.

Externality Mitigators

The Ecological Central Bank might require a carbon credit from the desalination plant because it burns oil. The Ecological Central Bank would create a carbon credit ex-nihilo on behalf of Ecological Private Finance after they posted appropriate collateral with the Ecological Central Bank. Once Ecological Private Finance has verified the Externality Mitigator’s program, Ecological Private Finance will transfer the carbon credit to the Externality Mitigator with fees. When the Externality Mitigator sells the carbon credit to the production resource user, they would include the necessary RURs in the price to pay the fees charged by Ecological Private Finance and all the resources used in their carbon mitigation project.

Consumers

Individual consumers receive UBI, government salaries, wages, and dividends from private industry paid out of RURs and other markups. My other essay about consumer spending covers the mechanics of their behavior. The market described in the linked article, where consumers and businesses can trade all types of RURs for other RURs or cryptocurrency, is an important concept not covered in detail here.

Examples

It’s hard to envision how all these moving parts work in the real world. Thus, below, we give two examples of repurposing this system: first, as a platform for issuing carbon credits, and second, as a platform for issuing permits to extract conserved rainforest hardwoods. We examine how these systems could work in an existing single fiat currency system we currently operate in and how they would work in a Free Market Ecology system. We are currently a part of a single fiat currency system where a national currency is legal tender and used for payments, can be used to pay taxes, and is not subject to capital gains tax. In the future free market ecology system, we will use accounts filled with various RURs that all transfer without capital gains taxes. This future system will also have traditional currency, which buyers may use to pay for human labor, and intangibles like intellectual property use, brand, etc.

Carbon Credits

How can we transfer a cap-and-trade carbon credit scheme to a Free Market Ecology-like system in a fiat currency system, where it functions roughly equivalently but much more efficiently than the current system, and later, when we switch to permanent ecological sustainability, under a complete Free Market Ecology system? Once we create this template, financial system designers can create similar schemes for nutrient credits and other pollution mitigation economies on this platform.

The Finance of Carbon Credits in a Fiat Currency System

In a fiat currency system, the system generates and uses carbon credits as follows:

1. The Ecological Central Bank determines the carbon usage cap.
2. Ecological Private Finance is certified to verify carbon mitigation programs and posts a bond with the Ecological Central Bank.
3. Ecological Private Finance, from step 2, will work with a carbon mitigation project to qualify it to the standards of the carbon credit program. They may ask for a cash bond or other collateral from the carbon mitigation project to be able to penalize them for mitigation deficiencies easily. The Ecological Private Finance Bank will not fund the carbon mitigation program but simply verify the mitigation. Carbon credit creators will obtain financing for operations through traditional finance sources.
4. Once the carbon mitigation project is underway to the extent that Ecological Private Finance sponsoring is satisfied with the compliance of the mitigation program, the Ecological Private Finance entity will request a carbon credit from the Ecological Central Bank that will link to the carbon mitigation project. The Ecological Central Bank will create this on the blockchain as an NFT and assign it to the carbon mitigator with Ecological Private Finance’s confirmation that the carbon mitigation program is acceptable. The carbon mitigator will sell the carbon credit on the open market to compensate for the carbon mitigation program’s cost and the Ecological Private Finance’s oversight cost. Optional restrictions permitting carbon credits to be sold only to carbon emitters can prevent financial speculation by outside players.
5. A power plant buyer will purchase the carbon credit on the open market using fiat currency, have that credit transferred to it on the blockchain, and use that credit to settle the imposed carbon offset requirement of the Ecological Central Bank. The carbon mitigator will use the proceeds from the sale to pay his suppliers, interest, and other costs. The Ecological Central Bank can intervene to sell fiat-created carbon credits to stabilize the market as necessary with interventions sterilized by retiring credits at later dates. However, this will pressure the carbon mitigators and their projects economically.
6. Suppose the mitigation is fraudulent, as determined by Ecological Central Bank audits. In that case, the Ecological Central Bank can seize the Ecological Private Finance entity’s collateral, ban the Ecological Private Finance entity from the program, and/or sue the carbon mitigator for damages or criminal violations. This sort of auditing ensures that Ecological Private Banks work to verify that all aspects of the mitigation comply.

The Finance of Carbon Credits in a Free Market Ecology System

1. The first three steps are the same as the ones above.
2. Once the carbon mitigation project is underway, and the ecological private finance entity sponsoring the mitigation project is satisfied that the mitigator complies with the terms of the mitigation program, the Ecological Private Finance entity will request the Ecological Central Bank create a carbon credit and provide it to the mitigator. The Ecological Central Bank will create it as an NFT on the blockchain and transfer it with the Ecological Private Finance confirmation of the quality of the carbon mitigation project to the carbon mitigator. A carbon emitter can now buy carbon credits from the mitigator to settle its carbon emission RUR debts.
3. A coal-burning factory must borrow carbon emissions RURs from Ecological Private Finance to run its power plant. It would have to sell its power for carbon emission RURs to repay those loaned RUR units. Carbon emission RURs would be scarce due to limitations of their issuance by the Ecological Central Bank in its desire to limit carbon emissions. Power would be unable to be purchased that way to utilize the plant fully, so the coal-burning plant would have to buy carbon credits, repay the loan of carbon RURs with these carbon credits, and sell its power for the RURs needed to pay for the carbon credit, wherein the resources used to generate the carbon credit would be less scarce than carbon emission RURs. It’s important to realize that carbon mitigation uses resources, and using scarce resources to mitigate carbon might be an ecologically damaging trade-off in certain instances, so buyers should consider the cost of the resources used in mitigation.

In the process above, it becomes clear that there is less back-and-forth between fiat and carbon emissions and carbon credits to perform the system’s day-to-day work. Most costs pass through the system as units representing the RURs for the resources used, and the actual externality costs are more visible as they pass through the system.

Rainforest Hardwoods

Users of rainforest hardwoods must properly source them to avoid excessive destruction of sensitive rainforest habitats. Importers can source these as a conserved resource in a fiat system or Free Market Ecology. Verifying the proper harvesting of hardwood in developing countries is a real-world problem for many manufacturers today. Importers of woods such as ebony from such countries as Madagascar selling their products in the United States risk finding themselves in violation of the Lacey Act, which prohibits the importation of illegally taken plants and animals from other countries if they have not certified adequately that the tree harvester harvested the materials in compliance with local laws. Certification organizations like the Forest Stewardship Council already have actively running certification and chain of custody tracking for these forest products. Due to the international nature of this problem, we can also use this use case to elaborate on the international trade mechanisms of Free Market Ecology.

The Finance of Rainforest Hardwoods in a Single Fiat Currency System

1. The Ecological Central Bank of Madagascar sets a limit to hardwood extraction. Let’s say 100kg.
2. That same Central Bank provides 10 kilograms of hardwood RURs to an Ecological Private Finance entity, which is documented on a blockchain after it has posted collateral and the Ecological Central Bank has authorized it as a compliance certifier for that RUR.
3. Ecological Private Finance solicits services to the tree farm to charge them a fee to verify compliance with the legal requirements for tree harvesting.
4. The tree farm harvests the tree and attaches a tag to it, referencing the 10kg of hardwood RURs verified by the Ecological Private Finance entity.
5. The importer bids in fiat for the hardwoods linked to the borrowed 10kg hardwood extraction credits. The importer transfers the money to the harvester, who pays some fees to the Ecological Private Finance entity that verifies that the tree harvester harvested in compliance with local laws. The harvester then transfers the RURs to the importer, who uses these to apply for the export license.
6. The Ecological Central Bank grants the export license after the exporter transfers the hardwood RURs back to it on the blockchain, and the Ecological Central Bank releases the hardwoods for shipment from customs authorities.
7. The importer receives the shipment with complete documentation of compliance with foreign environmental regulations.

The Finance of Rainforest Hardwoods in a Free Market Ecology System

1. The first three steps are the same as the previous example, except the Ecological Central Bank lends the RURs to Ecological Private Finance.
2. The tree farm harvests the tree, takes out the hardwood RUR loan from Ecological Private Finance, and attaches a tag to the hardwood, referencing the 10kg of hardwood RURs verified by the Ecological Private Finance entity.
3. The importer buys 10 kilograms of hardwood RURs on the open market in Madagascar. If no more wood RURs are available because domestic purchasers have used them all domestically or the price, likely in cryptocurrency, as resources in foreign countries will likely not be in high demand on the local exchange, is not affordable to the importer, the importer will be unable to buy. The importer will also have to pay for additional resources used in producing the hardwood that the harvester passes through to the importer, marked up or not.
4. The importer buys the RURs. This RUR and the markup the producer sells the wood for in other resources make up the hardwood producer’s profit and pay his expenses.
5. The importer has settled in cryptocurrency with the harvester and RUR seller in Madagascar, so they will likely need to replenish their cryptocurrency supply by including it in the hardwood’s price when sold in the importer’s country. The ecological balance is complete because the importer bought ebony units at the local market in Madagascar, and the ebony producer used that to settle his debt with his local Ecological Private Financier and Ecological Central Bank. This market scarcity prevented the consumption of the ebony unit in Madagascar. The importer traded equivalent resources for cryptocurrency in the domestic market to support his hardwood importing.
6. The Economic Central Bank can seize the collateral from Ecological Private Finance if it fails to properly oversee the tree harvester’s compliance. The tree harvester can also be criminally prosecuted or fined in the local jurisdiction for non-compliant harvesting if there is any impropriety.

Conclusion

Free Market Ecology is a transformative framework that redefines how we finance and allocate Earth’s finite resources, moving beyond the labor-centric profits of traditional capitalism to a system where value stems from efficient resource use. Integrating the Ecological Central Bank’s sustainable caps with market-driven RURs, private finance, and blockchain transparency ensures that every resource, from carbon emissions to rainforest hardwoods, is managed with precision and fairness. Unlike centralized planning or fiat-based schemes prone to inefficiency and fraud, Free Market Ecology empowers entrepreneurs and consumers to optimize externalities and conserved resources, fostering innovation without breaching ecological limits.

The examples of carbon credits and hardwoods demonstrate its practicality: carbon mitigation becomes a profitable, transparent enterprise, while hardwood sourcing respects sensitive habitats, all without bureaucratic delays. As AI and robotics accelerate resource extraction and threaten overuse, free market ecology offers a decentralized antidote, preventing the centralized control that would otherwise stifle progress. Its global applicability, free from cultural biases, makes it a universal solution for nations facing scarcity, from Madagascar to modern industrial hubs.