kscans

Chapter 165 - Episode 4: Part Two, The Mechanism for Turning Information into a Commodity

"Let me explain in detail," I said.

First, I had obscured the issue with abstractions. Next, I would build upon that by laying out one by one the obvious, imaginable steps.

When I nodded at Natalie, she affixed a red mark to the opposite bank of the great river. It was at a bend in the river, facing a tributary that flowed into it from the Blood Mountains.

"Please imagine that a trade relay hub has been established here. As you can see by looking at the map, it is located in a place where routes from Kurtheite can be consolidated by using the Royal Capital, Bertold, and the great river. In other words, it is ideal for gathering goods. Next is people. For merchants from the Empire, this would be a land connection, and for people from the Kingdom, it would be their own country. There is a kind of neutrality here. This means it is perfect for merchants from different countries to conduct direct exchanges and business negotiations. Oh, and being far from the fussy Royal Capital is also a big plus, isn't it?"

Who was it that said inserting small jokes is fundamental to a presentation? Everyone looked at Craig with an awkward expression, didn't they? I really shouldn't try things I'm not used to.

"Ahem. By gathering people and goods, this city will be able to operate large-scale warehouses and grand trading houses for business negotiations. And if trade is entrusted to the merchants themselves, a vast amount of information that has not previously surfaced will be unleashed. This will lead to an increase in the variety of goods that can be exported. I also believe that the development of new products will become possible. Incidentally, as a mechanism to achieve this, we are considering holding events similar to the new carriage exhibition and explanatory sessions we conducted in the Royal Capital last year. As a result, even more people and goods will gather here."

At my words, the assembled members regained their composure. More efficient transportation of goods and more active business negotiations are benefits any merchant could imagine. More active information exchange as a result of that should also be within the realm of imagination. Merchants understand that information itself generates wealth.

"With a large number of people and goods gathering and interacting freely, unprecedented transactions can be concluded here. That is..."

I paused, cutting my words short, to allow the participants to brace for the next shock. Amidst their anxious faces, wondering what I would say next, I could see several expressions indicating, "Here we go again."

"That is, transactions that determine the future price of goods. A commodity futures market."

When I gave Natalie a signal, she affixed the next sheet of paper. It depicted many merchants bidding prices on certificates that listed commodity names and delivery dates, essentially standardized contracts. Comparing it to my memories of Earth, it was an auction or bidding venue. Incidentally, Vinaldira drew the picture.

"Simply put, it might be an open business negotiation. The most important information for commerce is 'when, for how much, and what quantity can be bought or sold.' The futures market creates that information."

I continued my explanation. For producers who make goods and consumers who use them, this means lower prices due to the swift resolution of supply and demand gaps, and new demand opening up due to the guarantee of stable supply. There are countless products that are technically possible but never realized because the supply is unstable.

The fact that rare specialty products and diverse meals, like those we presented at the Shoken Festival and trade fairs, attract attention is precisely because they are difficult to achieve.

"To deliver goods swiftly and stably from those who produce them to those who use them. That is the essence of a merchant's role. The most crucial information for this is when a product can be bought or sold, and for how much."

I repeated the three elements of commercial transactions once more. Although futures trading often carries the image of speculation, its essence is hedging. Its greatest significance is not to reduce merchants' risks, but to provide a stable foundation for producers and consumers mediated by commercial activities, in other words, for society as a whole.

"Let me give an example. Natalie-san is currently making yokan, which is gaining a reputation in the Royal Capital. One of its main ingredients is adzuki beans."

I explained. Even if new demand for adzuki beans arises, it takes a long time for producers to increase adzuki bean production. Besides the difficulty of growing a different crop than before, there is no guarantee of when or for how much they can sell it.

However, if there were an adzuki bean futures market, that guarantee would be obtained. To put it another way, information about new products would quickly circulate in the form of price information on the futures market.

Incidentally, if adzuki bean paste becomes widespread, adzuki beans will transform from an inferior grain into a cash crop. Look, the expressions of Grand Duke Grynisias, a bean producing region, and Giverny, connected to the Chancellor, subtly shifted. Natalie-san almost dropped the paper she was holding. This level of publicity is a perk of the job.

"Does that not mean making prices transparent to everyone?"

The chairman of Kenwell raised his hand. His face was slightly flushed. Considering his position, I should say he controlled himself quite well. Dorefano or Calest might have decided at that very moment to crush me by any means necessary, and it wouldn't have been surprising.

Of course. For Kenwell, who handles large quantities of grain and thus influences "overall food prices," price information is an extremely important weapon, that is, information that must be kept exclusively.

"Exactly," I affirmed. I tried to maintain a calm expression. Half of it was bravado. However, I believe this will ultimately not be to his detriment. No, he could be the biggest beneficiary.

"...It would be impossible to conduct public transactions for every single commodity, wouldn't it?"

Perhaps having seen my expression, the chairman of Kenwell changed his approach. It was enough that he didn't outright reject it.

"Yes. We cannot create a futures market for every commodity. Only a limited number of items, such as grains and mineral resources, would be handled. As you might surmise, the first and largest commodity will probably be wheat."

There are conditions for items that can be traded on a commodity futures market. They must be commodities with large quantities, many buyers and sellers, preservable, and standardized.

Grains meet all these criteria. In Japan, it would be rice. It is no coincidence that the world's first modern futures market was created in Osaka during the Edo period, at the Dojima Rice Exchange, where rice from all over the country gathered.

Even with other foodstuffs, it is much more difficult for fruits, which have large, irregularly shaped individual pieces, vary widely in sweetness, and are difficult to preserve. At least with the technology available in this world, such goods can only be traded directly. In the case of meat, fresh meat is difficult without freezing facilities, but it is not impossible if the form is changed, such as by cutting and drying it into jerky.

Of course, it is not as simple as it sounds. In my previous life on Earth, the extreme importance of the supply and demand gap was largely due to production and transportation being incredibly efficient, making it possible to produce as much as needed.

The world I live in now is not like that. No matter how much demand there is, there is little room to increase supply. However, this means that resolving the supply and demand gap has great significance, but in the opposite sense of modernity. To put it extremely, whether honey skyrockets or plummets, it doesn't significantly affect society. But grains are different.

"So, in exchange for relinquishing the monopoly on price information, one gains a guarantee against risk. Is that it?" the head of the Food Guild said, his face troubled.

The direct benefit of a futures market is the guarantee. But scale is itself a guarantee. For a large merchant like Kenwell, while not worthless, he would consider whether it balances out bearing the greatest disadvantage.

If the value on the futures market rises, information that Kenwell had monopolized, such as a poor harvest in a certain region, would be exposed to public scrutiny.

However, hedging is not the fundamental benefit of the futures market's existence. What is produced as a result is what is important.

"First, the influence of grains, particularly wheat, on overall food prices will not be lost. Rather, it will expand. Food, essential for life, and grains, which make up the largest proportion of that food, should inherently be linked to all other commodities. The fact that this only happens to a limited extent is because accurate information is not publicly available. In other words, reliable information does not exist. The futures market is a mechanism for creating that reliable information. When I first said that the new city's greatest commodity is information, that is what I meant."

If the monopoly on information disappears, the influence of information itself will broaden. The profit margin for a single piece of information will decrease, but demand will expand even more. And, in terms of supply and demand, information is a commodity whose supply is easy to increase.

"And that information will transform wheat into a special commodity."

It won't merely increase in value, but become a stable value. It will become a value accompanied by trust. As a result, the value of grain will approach that of gold itself. Think about it: it's storable, can be traded in units, and holds value for many people. These are qualities common to currency.

Rather than saying the value of gold fluctuates with trust, trust itself is the value of gold. And if the value and trust of the commodities gathered in this city are combined, it means the trust of the city itself will rise. If that happens... No, this is getting ahead of myself. How long will it take just to list wheat as a commodity on the futures market?

"So, you mean grains will approach the nature of gold, then?"

I could tell the chairman of Kenwell swallowed. Half of a commodity's price is made of trust. If that trust increases, its value will naturally increase. Moreover, invisible commodities like information can be increased at nearly zero cost, unlike farmland.

My initial goal for revitalizing commercial activity in this world, that is, accelerating information distribution, was to establish a general trading company. I thought that was the optimal solution within what "I" could do.

However, walking this path with the members of Central Garden, I came to realize that I didn't need to establish a general trading company myself, but merely needed to create a new "container," a new city, to accommodate them.

This is its developed form. An international commercial city centered on a futures market. No, an international commercial and financial city. That is my new answer.

Now, what I have explained so far is merely the concept. Whether it can actually be realized depends on everyone present here.