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Trade is Error Correction

Trade consists of correcting errors. That's why it's profitable.

The errors are errors about who has what property.

As with all error correction, criticism and knowledge are central.

All trade requires knowledge: you have to know that it'd be a good idea to trade X for Y or you won't do it.

All trades require criticizing and wanting to change the status quo. I haven't got an iPad, *but that's a mistake*, I should have one! I haven't got anything to eat for dinner, but I should change that! Or more advanced, "That company is doing some useful stuff, but I have an even more valuable project for them to work on than their current one, so I'll buy them out and change their focus" or "That store is doing ok but if i owned that particular building I could provide more value there, so I'll buy it".

When you're right, you buy a store (say) for $110, that had a value of $100 to the old owner, and then you make a profit of $200 from it. So by correcting the error (store being used in a way with $100 of value instead of the new way worth $200), value is creating and both parties to the trade gain.

When you're mistaken -- i.e. you don't correct an error -- then you buy for $110, but only make $90. So you come out behind. But at least your mistake didn't hurt the other guy, it's only your problem, which is good.

In this way, correcting errors is encouraged, and creating errors is discouraged.

Elliot Temple on November 14, 2010


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