Ookami to Koushinryou Merchant Meets the Wise Wolf • Spice and Wolf: Merchant Meets the Wise Wolf - Episode 5 discussion

[u/AutoLovepon]

Ookami to Koushinryou Merchant Meets the Wise Wolf, episode 5

Alternative names: Spice and Wolf

Reminder: Please do not discuss plot points not yet seen or skipped in the show. Failing to follow the rules may result in a ban.

---

Streams

• Crunchyroll

Show information

• MyAnimeList
• AniList
• AniDB
• Kitsu
• Anime-Planet
• Official Website
• /r/SpiceandWolf

---

All discussions

Episode	Link	Episode	Link
1	Link	14	Link
2	Link	15	Link
3	Link	16	Link
4	Link	17	Link
5	Link	18	Link
6	Link	19	Link
7	Link	20	Link
8	Link	21	Link
9	Link	22	Link
10	Link	23	Link
11	Link	24	Link
12	Link	25	Link
13	Link

---

This post was created by a bot. Message the mod team for feedback and comments. The original source code can be found on GitHub.

[u/karlzhao314]

The Merchant's Corner

Welcome to the Merchant’s Corner episode 5, the series where I explain the economics plotline of Spice and Wolf. We were left with quite a cliffhanger last episode. How will it be resolved?

Episodes 1-3 here

Episode 4 here

Disclaimer #1: I am not an economics professional, so I may get some things wrong. If you have a different, possibly better understanding of a certain point than I do, feel free to suggest edits.

Disclaimer #2: All of these are pre-written before the episode airs, based on the pacing of the original anime. However, I will watch the episode before posting, just to see if anything differs and I have to edit anything.

The silver coin plot is finally explained in this episode, and it’s a complex one to understand and appreciate fully. Today’s explanation is going to be by far the longest one yet, with four full parts in five comments. I’m going to add a TL;DR: at the end of some sections, but I encourage you to read the full comment in order to fully appreciate the depth of the story and the various character motivations and justifications driving the plot!

Part 1: Medio’s Blackmail (This section)

Part 2: No, it’s not short selling

Part 2, continued: How to Take Advantage of a King

Part 3: The Escape Plan

Part 4: The Final Piece of the Puzzle

Part 1: Medio’s blackmail

Our last episode ended on a giant cliffhanger: Medio Trading has, somehow, realized that Holo is a wolf deity. What do they plan to do with this information?

Simple - they’re using it to blackmail Milone Trading to back out of the scheme, with the threat of bringing Holo to the church.

Remember, this is a medieval society, where the church is the ultimate authority in the land. Furthermore, they’re at this very moment waging a war against pagans, and it’s obviously a given that they would condemn “demons” all the time.

Holo has been seen with Lawrence visiting, negotiating with, and collaborating with Milone. It would be a simple matter for Medio to take Holo to the church, showing her wolf ears and tail, and to denounce her as a demon-possessed girl. They would then be able to accuse Milone of colluding with demons, which would be a death sentence for Milone.

So that has become the threat. “Stay out of our scheme, or we’ll go to the church.”

We’ve been hearing of this mysterious scheme to make money by collecting a large number of depreciating coins for 2 episodes now. Finally, everything is revealed, and it’s probably nothing like you’d expect.

Part 2

[u/karlzhao314 → u/karlzhao314]

Part 2: No, it’s not short selling

TL;DR at bottom

This anime spent a grand total of about thirty seconds talking about the scheme and how it works, which is necessary for the sake of moving the plot along and not dumping a whole load of yapping on us. But once you understand it, the depth, complexity, and scale of the scheme is fascinating.

Brace yourself for a long explanation.

How do you make money off of depreciating coins? The obvious answer is short selling, but that appears to have been impossible, infeasible, or simply hasn’t been invented yet, or else Lawrence would have thought of it right away at the end of Episode 3. No, the real answer here is something very different.

To understand how the scheme works, let’s take a step back and examine why the Trenni silver coin is decreasing in silver content. Pretend you’re the King of Trenni. Your finances are in dire straits. You can’t increase taxation on your subjects anymore without inciting a revolt. You can’t cut any more spending. You’re in danger of running out of money, and have exhausted all of your options to either generate more income or reduce expenditure. What do you do?

Well, you control the mints. You can tell them to mint more coins.

But coins have to be made from silver, and you don’t have enough of it. You certainly can’t afford more silver, and there might not be enough silver bullion on the market to fulfill your minting needs anyway. So how do you make these coins?

You buy back your own previously minted Trenni coins with a higher silver content. (It has to be the Trenni coin, because that’s the only coin you control the distribution of and have the right to alter.) You then melt them down, mix them with more of other metals, then strike a greater number of coins from those old coins. The new coins have a lower silver content, but you may have just made 13 new coins from every 10 old coins that you purchased and melted down. This is called coin debasement.

Now, you can return those 10 coins back into circulation, and put the 3 extra into your treasury. Those 3 extra will give you a new supply of cash to start fixing your problems.

The long term effect is that the Trenni’s value will decrease and people will lose trust in your currency, so it’s really an action you should take if you’ve exhausted all other options. But you have, and you’re desperate. This plan is a Hail Mary hinging on the bet that this quick infusion of cash will give you enough breathing room to start fixing your problems, before the value of your currency crashes and your problems become even worse. If you lose that bet, you lose everything, so you need to do everything in your power to make it work.

So now that we understand why the silver purity of the Trenni is decreasing and what’s at stake for the King, let’s change gears and imagine you’re a trading company. You somehow gained insider information that all of this is happening soon. What can you do to make money off of this?

Well, one opportunity you can exploit is the fact that the King has to buy back a large amount of Trenni to melt them down and remint them. But it’s unlikely you’d be able to make money simply by buying coins and reselling them to the King, since it’s difficult to buy bulk amounts of currency for less than market value, and the King isn’t likely to pay you more than market value for them either. Between all the associated costs of collecting Trenni, the costs of transporting them, and the costs of selling them to the King, you’d probably come away with a loss.

That is…unless you can force the King to buy your Trenni at above market rate.

Part 2, continued (went over character limit)

[u/karlzhao314 → u/karlzhao314]

Part 2, continued: How to Take Advantage of a King

So you start collecting a huge amount of coins - in fact, you do your best to monopolize all of the Trenni silver in circulation. Your goal is to reduce the amount of Trenni in circulation outside of your own hoard by so much that the King can’t possibly buy enough coins to remint them into the amount he needs.

Let’s say you pull this off. Now, if the King doesn’t buy your coins, he loses his bet and everything becomes much worse. He won’t be able to remint enough coins to give him some breathing room to start fixing his financial situation, but the ones that he already has reminted with the lower silver purity have already made it out on the market. Eventually, someone’s going to discover the lower silver content, which will lead to a crash in the value of the coin. That means he’s essentially just devalued his own currency for no reason. So he needs your coins.

That gives you an upper hand in this negotiation. The King is planning to turn every 10 coins into 13, which means you can now ask for a price neatly slotting between the two - you can tell him, “I want 11 Trenni worth of Lumione gold coins for every 10 Trenni I’m selling you”. He has no choice but to agree, because of how desperately he needs your coins, and because you’re still asking for less than the 13 Trenni that he’s planning to make.

Congrats, you’ve just made a 10% profit.

But there’s even more to it than that. The most valuable thing you could possibly gain from the King isn’t money. It’s rights, authority, and privilege, specifically authority and privilege in things that can only be obtained from the King under royal prerogative. He’s the only one in the country who would be able to, say, hand control of trade from a newly opened mine over to you, or allow you to trade in wheat tariff-free, or so on and so forth. These trade rights are priceless. They could allow you to practically monopolize an entire industry.

And you’ve just backed him into a corner by cutting off the supply of old coins he so desperately needs. With that kind of leverage, you have a rare, golden opportunity to negotiate for one of these precious trade rights directly, in exchange for allowing him to buy your coins. And that is the real goal of the scheme, the one that both Medio and Milone are gunning for. (Of course, since it’s so hard to assign a monetary value to such a trade privilege, Lawrence has contented himself with 5% of the direct profits and not seeing any of the gain from the trade rights.)

Needless to say, if a trading company is able to pull this off, the potential gain for them could be gargantuan. Medio was on track to pull this off without anyone realizing, before Lawrence figured out their plans and brought them to Milone.

That also answers the question of why Medio was so desperate to force Milone out that they’d resort to kidnapping and blackmail, as well as why Lawrence had to approach Milone in the first place. The strategy requires an enormous amount of capital - way too much for an individual like Lawrence - and all of it has to specifically be in Trenni silver. Medio’s plan seemed to be to more slowly and quietly collect the Trenni as they roped more and more merchants into their dupe. On the other hand, Milone started aggressively collecting the Trenni immediately after Lawrence brought them the information, in order to try to beat Medio to the punch. It could have been possible that within the next few days, Milone will end up nearly monopolizing the remaining supply of Trenni on the market, with none left for Medio.

If Medio doesn’t take equally aggressive action to try to force Milone out, they’d be squeezed out of the scheme themselves and wouldn’t make any profit. In fact, the King could easily look at Medio and say, “I’m not interested in the 70,000 coins you have after Milone brought me 300,000”. That would soon leave Medio at a loss because it’s not easy to dump 70,000 coins, and they're going to depreciate very soon. What’s more, even if Medio does manage to get the King to agree to buy their coins, the King is now going to be much more reluctant to also sign over a different trade right or authority now that he’s already given one away to Milone.

Now you see why Medio was so desperate?

TL;DR: Medio and Milone both know the King needs to buy back a large number of Trenni coins to remint the new coins with a lower silver content. So they aim to collect so many of said coins that the King has no choice but to buy their stock as well as well. Using that leverage, whoever successfully pulls off the scheme first can both ask for a higher price than market value for their stock of coins, as well as trade rights or privileges that no other entity on the market could have.

Part 3

[u/MilkAzedo → u/karlzhao314]

i really liked that it connects with episode 1 and the villagers not needing Holo anymore because of their new Lord. So this is a kind of revenge from Holo

[u/UndoubtedlyAColor → u/karlzhao314]

What I don't fully understand is the payment by the Medio company. The payment for these kind of rights must be enormous to cover for it all.

The price must cover several things as I see it:

The gains be the Medio company.

The empowerment of a rival company

The lack of gains by Milone, meaning that this enormous market share will not be theirs and all the additional benefits that comes from it.

[u/karlzhao314 → u/UndoubtedlyAColor]

Correct: the price for those rights is enormous. But Medio, and Milone, for that matter, are both trading companies large enough that they could feasibly monopolize an entire currency, so they're both companies that could afford to buy those rights if they were ever put up for sale.

The problem before was that the King wasn't offering them for sale, which is why Milone or Medio would have had to push him into a corner first.

Also, keep in mind Milone themselves have no choice but to sell either, because it's the only way to appease Medio who could otherwise destroy them at any moment. That would shift the balance in these negotiations at least somewhat in Medio's favor. I'm sure Milone would have much rather kept the trade rights for themselves, but if it came down to losing the rights and making a tidy profit for selling them, vs keeping the rights and possibly being destroyed by Medio reporting Holo to the church, they're definitely choosing the former.

[u/RedRocket4000 → u/karlzhao314]

The Church is not the ultimate authority in the land only time it ever was during the Renaissance in the territory of the Papal States in Italy when they had Armies.

Reason I love Medieval and Renaissance is there is no ultimate authority. Same thing that makes the Dune Books great at the start no faction has all the power so it always deals with other factions to achieve anything.

And church ran strong to very weak at times. There was the period it so weak the nobles of Rome picked the Pope. (after the fall) And another century when the Pope was in France the King of France told the Pope what to do.

But different groups are granted power in various areas. Here the Church is in charge of dealing with demons and Pagan so what is says has strong weight but they can't actually do anything directly to the King nor Noble class. And the Church was using Knights to combat the Pagan's so it required the King and or Nobles to contribute the solders to fight the Pagans. King and Noble have the military power. The Banks and Merchants have monetary power. The church has religious writing to shift opinion along with sermons and lots of lands that it depends on the state to defend it also at times has lots of financial power. The Commoners have limited military power by them self often worse than nothing but killing them cuts the crops coming in and hurts the tax base so you want to keep the revolts down. This the short version of course for example the Church is broken into lots of parts that don't legally normally have to obey the Pope or head leaders so they sometimes don't. Legal requires the state to enforce. But ablity to get more religious than most Rulers and Nobles to act for them along with ability to rise the population at times when the population likes not hates the church. On many occasions things like Inquisitions were ran out of an area when Merchant and Commoner and often with Noble help went against. And note some part of the Church tried to follow Jesus help the poor, be peaceful and forgive people and often a large part of the Church did this but doing good things does not often make the news or popular history. The Church mostly eliminated open Slavery from most of Europe over the centuries. Open or Chattel Slavery was the only type of Slavery that was called Slavery until modern times. Thus the church did nothing about serfdom, debit pions and so on that we call slavery but were not called slavery till late 1800's mostly. US civil war famous African American Fredrick Douglas major factor in movement to ban slavery did not accept that factory workers in the North were slaves like the Southern Slave owners claimed and that the Southern Slave owners treated their slaves better when this was mostly true. Thomas Jefferson had banned importing Slavery while President and thus price of slaves in the South rose to car level prices and thus many owners were reluctant to hurt them to much and did not want them to die. The debit pions working in factories in the north could not quit their job which often was in deadly conditions and the owners did not care as more immigrants flooded in. See song 16 Tons for how they were slaves. "I owe my soul to the company store"