Superphysics
Primary Arbitrage
January 25, 2022 3 minutes • 639 words
Table of contents
Capital is combined with effort in order to produce real exchangeable value.
Primary Arbitrage is the difference between the real value perceived by the producer with the nominal value perceived by the buyer.
Chapter 1 gave a scenario with 4 cake-makers, each with different skills in making cakes. Here we add their different desires for cake.
| Person | Effort to make 1 cake as baker | Nominal Value as buyer |
|---|---|---|
| Chef | 2 | 2 |
| Arun | 4 | 3 |
| Bhaskar | 6 | 4 |
| Chandra | 8 | 5 |
We combine the supply and demand of the 4 people regarding cakes:
| Baker/Purchaser | Purchaser Chef 2 | Purchaser Arun 3 | Purchaser Bhaskar 4 | Purchaser Chandra 5 |
|---|---|---|---|---|
| Baker Chef 2 | 0 | 1 | 2 | 3 |
| Baker Arun 4 | -2 | -1 | 0 | 1 |
| Baker Bhaskar 6 | -4 | -3 | -2 | -1 |
| Baker Chandra 8 | -6 | -5 | -4 | -3 |
This exposes the following information:
- the biggest primary arbitrage is with Chef as baker and Chandra as purchaser
- the most negative arbitrage is with Chandra as baker and Chef as purchaser
- Bhaskar and Chandra should not be bakers
- If Arun starts a baking business, he will struggle more than Chef
- Chef should engage in baking
In Economics, this is similar to the concepts of core compentency and comparative advantage.
This can be expanded to countries. For example, there are 3 countries thinking of engaging in rice exporting
| Country | Effort to make 1 kilo of rice | Nominal Value as importer |
|---|---|---|
| India | 1 | 3 |
| Vietnam | 2 | 2 |
| Philippines | 4 | 6 |
This will lead to the following primary arbitrage table:
| Exporter/Importer | Importer India 3 | Importer Vietnam 2 | Importer Philippines 6 | |
|---|---|---|---|---|
| Exporter India 1 | 2 | 1 | 5 | |
| Exporter Vietnam 2 | 1 | 0 | 4 | |
| Exporter Philippines 4 | -1 | -2 | 2 |
This exposes the following information:
- The best trade partners are Exporter India and Importer Philippines
- India is the best exporter of rice
- India and the Philippines can improve their local production to address their local demand
- The Philippines should not export rice
How to Improve Primary Arbitrage: Purpose Maximization
Primary Arbitrage can be improved in 2 ways:
- Reducing the real price
The real price is the cost in toil or trouble to the producer or seller.
This is done by:
- focusing on self-purpose or core competency
- education and training
- capital accumulation as to create economies of scale and other efficincies
- technology and infrastructure
In Economics, these steps lead to specialization and comparative advantage.
- Increasing nominal price
This is in finding who are the best customers for your product or service. This is already implemented in business through the Pareto principle.
This is done by:
- market research and business development
- marketing and advertising
We call the increase of primary arbitrage as Purpose Maximization.
The Neglect of Real Value Leads to the Neglect of Primary Arbitrage
The invention of money as bank notes, and of certificates of stock in the 16th century increased the speed of exchange, as the Mercantile system.
This led to the dominance of nominal and market prices over real and natural prices.
Thus, real value was neglected in favor of market value
The Mercantile system prioritized secondary arbitrage in order to focus on profit maximization, which we overhaul into Market Maximization.
Supereconomics creates more wealth than Economics because it will have 2 arbitrages:
- Primary or personal
- Secondary or social
Having two arbitrages ensures that a supereconomy will be more dynamic than an economy. In fact, Smith predicted that people will work so hard in such a system that caps on revenue would have to be decreed to protect the people’s health:
