Here we derive equations for optimum allocations of goods and services in the global economic model of Chapter 4*. The equations are dynamic, and represent rules for determining the optimum mix of consumption and investment in capital goods. The criterion for optimality adopted here is the present value of well-being across the generations (Chapter 10). For vividness, we may imagine that the social evaluator, who was introduced in Chapter 10, performs the optimisation exercise and derives the movement of accounting prices of goods and services over time. The procedure is at the heart of a decentralised economy guided by the state on matters where the price system performs badly. We confirm that the dynamical equations that govern the movement of accounting prices are none other than the arbitrage conditions of Chapter 1 (Box 1.3). That is why in Chapter 10 the social evaluator was also referred to as the citizen investor.

Trade allows goods and services to move great distances from where they are produced to where they are consumed. It has allowed a decoupling of local endowments of natural capital, and production and consumption of goods and services that depend on those assets. As noted in Chapter 4 and 4*, achieving Impact Equality is a condition for global sustainability. But sustainable management of ecosystems at smaller scales remains of key concern. Imbalances between demands on ecosystems and their sustainable supply also occur, affected by where goods and services are consumed and produced, and flows of those goods and services, enabled by domestic and international trade. For example, it is unlikely, indeed near impossible, that a city would be able to meet the needs of its citizens with the ecosystems within its administrative boundary, but this is not necessary if the city can benefit from ecosystem services provided elsewhere.

Finance is an enabling asset that facilitates investments in capital assets, including natural assets, and plays a role in influencing both sides of the Impact Equation (Chapters 1 and 13 discussed the distinction between capital goods and enabling assets in more depth, respectively). In other words, finance plays a role in determining both the stock of natural capital and the extent of human demands on the biosphere.

On the supply side of the Impact Equation (Chapter 4), finance enables investment in conservation and restoration of ecosystems and their biodiversity (Chapters 18 and 19). This investment enhances our stock of natural capital and their regenerative rate (i.e. S and G(S)).

What should we mean by human well-being across the generations? How ought we to take the interests of people in the distant future into account when making our own decisions? In which normative language should we deliberate over the rate at which our society invests for the future? What considerations should inform the way a society balances its investment portfolio among produced capital, human capital and natural capital? What role do social capital and other forms of enabling assets, such as financial institutions, play in protecting and promoting well-being across the generations? What should the balance be between private and public investment in the overall investment that a generation makes for the future?

For many people today, there is a simple answer: “Let individuals in the market-place decide.”

That is not an outlandish thought. The idea would be that people have a right to judge for themselves how best to reach answers to the questions.

Humanity’s future will be shaped by the portfolio of assets we inherit and choose to pass on, and by the balance we strike between the portfolio and the size of our population. Assets are durable objects, producing streams of services. Their durability enables us to save them for our own future, offer them as gifts to others, exchange them for other goods and services, and bequeath them to our children. Durability does not mean everlasting. Assets depreciate, but unlike services they are not fleeting. Perhaps because financial capital has figured prominently in economists’ writings, the qualifier ‘capital’ is sometimes added to assets, as in ‘capital assets’. Assets acquire their value from the services they provide over their remaining life (Chapter 1).

This chapter constructs a two-way classification of assets and identifies an inclusive measure of wealth based on them. It then establishes a series of propositions that reveal a deep connection between inclusive wealth and intergenerational well-being.

In this and the following two chapters, we create a language in which to study the three factors that were identified as comprising humanity’s impact on the biosphere (the left-hand side of the Impact Equation in Chapter 4): population (N), the standard of living (y), and the efficiency with which we transform the biosphere’s goods and services into the goods and services we produce and consume (α). Our aim is to explain the Impact Inequality.

Processes driving a wedge between our demand for the biosphere’s goods and services and its ability to supply them without undergoing decline harbour externalities. These are the unaccounted-for consequences for others, including future people, of actions taken by one or more persons. The qualifier ‘unaccounted-for’ means that the consequences in question follow without prior engagement with those who are affected. Inefficiencies in the production, consumption and exchange of goods and services are an expression of externalities.

On our 4.5-billion-year old planet, life is perhaps as much as 3.7 billion years old, with photosynthesis and multi-cellularity (appearing dozens of times independently) around 3 billion years old. Oxygen levels began to rise some 650 million years ago or even earlier (coinciding with the Metazoan stage); plants, animals, and fungi emerged on land perhaps 480 million years ago; forests appeared around 370 million years ago; and modern groups such as mammals, birds, reptiles, and land plants originated about 200 million years ago. The geological record shows that there have been five global mass extinction events, the first of them about 540 million years ago. The records also suggest that 99% of the species that have ever existed (perhaps 5 billion in number) have become extinct.

Ecosystems are capital goods. Biodiversity is a characteristic of ecosystems. In the terminology introduced in Chapter 1, it is an enabling asset.389 Biodiversity loss is not the same as environmental pollution. Air pollution would be bad even if it did not emanate from activities that harm biodiversity; we dislike pollution if only because it is bad for human health. In contrast to biodiversity, pollutants are a form of capital stock (but with a negative accounting price; Chapter 2).

In Chapter 2, we studied the sense in which ecosystems that are rich in biodiversity are productive. So one can argue that biodiversity’s value is derived from the productivity it confers on ecosystems. Against that is the view that biodiversity also has a value independent of its effects on the biosphere’s ability to produce goods and services for us.

We consider a timeless model of a common property resource (CPR) in which N herdsmen are able to graze their cattle.264 The model has been constructed deliberately along orthodox economics lines. That enables us to study alternative institutions in a sharp way. For example, the model eschews non-linearities in the processes that drive a CPR’s productivity. The model allows us to explore three regulatory regimes for managing CPRs: (i) privatisation of the CPR; (ii) communitarian management; and (iii) state management. In Section 8*.3 we show how features of the socio-ecological world we know can be introduced into the basic model. Only empirical evidence on the significant features of each of the three institutions can tell us how to modify the model. The context will be found to matter. Grazing fields are different from crop fields, and coastal fisheries are different from rain forests. As in all other matters in the socio-ecological world, there is no unambiguous answer.