Twitter: the most powerful capitalist weapon

Now that I hopefully grabbed your attention, let me summarize what I would like to say:

• Capitalism promise is that the free market is an excellent algorithm to optimize resource allocation.
  
• Resources are exchanged by parties to improve their percieved well being.
  
• Friction in the market causes lack of liquidity and reduces the efficiency of the market.
  
• Lack of trust and asymetrical information is a major source of friction.
  
• Twitter provides a method to establish a trust level with people we never met.
  

Adam Smith was fond of using a village analogy to demonstrate how markets work.  The butcher and the baker will happily exchange bread and meat for their mutual benefit.

What happens when the butcher is in Lima and the baker in Warsaw?

Apart from the problems of rotting meat and stale bread, an additional headache is how can they trust each other:

• Legal system is different and costly to use
  
• No personal contacts to vouch for them 
  
• Transactions take time and are harder to verify
  
• No direct contact to read body language

If they were in the village, the butcher would ask his neighbours and he would get a trust index for the baker, he would visit the baker's shop and see that it is really there, he will look the baker in he eye and know how trustworthy he is, and finally he can resort to the police or his buddies to teach the baker a lesson if he cheated him.

These luxuries are not available to our Lima butcher.

Until now, this kind of business transaction was mostly carried by large institutions at great expense:

• Run credit report
  
• Hire international lawyers
  
• Open letters of credits, bills of landing, etc
  
• A few number of capitalists act as if they were in a village as they know each other
  

The advent of blogs, social media and other new tools is quickly changing this formulae.  However nothing is as powerful as Twitter in creating a global trust system.

Twitter, by providing a public timeline of all its conversations that can be uniformally accessed and searched is the equivalent of a private chat with the village barber of every village in the world.

On Twitter a quick search will yield all past complaints about an individual.  This can be easily searched and with a little hashing (adding simple tags to trust conversations) can be aggregated to give us a quick feel of how trustworthy our counterpart is.

This mechanism acts both as reduction in information assymetry and an enforcement mechanism: we will be very motivated to give a good service since our universal reputation is on the line.

Those who invest in their reputation from an early age will reap great rewards and those who deviate will be quickly rejected from the market.  

Micro transactions can then occur with self-regulation (I know it a dirty word these days), and global capitalism will be able to operate in very similar ways to what Adam Smith envisioned.