Spice and Wolf Economics Explanation

Okay, normally I don't really take too much time writing about the anime I watch because one, it highlights how much of a nerd I am and two, anime is supposed to be readily digestible cartoons made for hyperactive children and needs no further elaboration.

Spice and Wolf has continually proven itself as an exception. Set somewhere in a medieval world, the story follows the exploits of a merchant named Craft Lawrence as he moves from city to city to earn money through trade. Joining him is a wolf goddess who wants to go back to her home town in the far north, livening up Lawrence's life along the way.

While the premise is simple enough, the concepts of the anime uses to keep things keep on surprising me, as complex ideas like short selling, marginal profitting, and psychological price resistances are routinely presented to what I can only imagine as a core audience of 14-18 (the likely age where nearnaked cartoon characters should sell the most)

(spoilers and actual explanation begin after jump)

After looking around the internet for some existing explanation for the last few episodes (Season 2, ep 1-6), I couldn't find any. Granted I've been studying the very same things in a more localized scenario lately, I've decided to write down and share what I've been able to make of the show.

The climax of the arc is about Lawrence selling off his partnership with Horo (the wolf girl) to that other merchant Amati (guy with crush on Horo). Amati strangely reminds me of Quatre Winner of the Gundam Wing franchise, actually.

Anyway, all the while a festival is going on in town. In the middle of it, a strange commodity called Pyrite is accumulating demand for the hype brought by a travelling fortuneteller. Hype usually increases the price of a commodity more than its actual production value, the same way trendfags pay wads of cash for iPods that pretty much do whatever other cheaper products do.

Amati, being the trader that he is, planned to gain the amount he needs to pawn off Horo by accumulating a large amount of pyrite early on and waiting for the demand to push the price higher up to a target price that will enable him to sell his stash at a value equal or greater than 1000.

The price Amati is waiting for is called the Target Price or Target Exit Price, and this sort of baseline can be seen even in our modern commodity/stock markets. The behavior exhibited by Amati is called the Target Price Oriented Action Strategy (PAOS)

The town's market in Spice and Wolf has its own primitive commodities/stock market control, similar to our country's Philippine Stock Exchange. The primitive board is actually a display board of the number of people willing to buy/sell a commodity at a certain price.

In case you're wondering what the big board does, here's a breakdown:

One row on the board represents one commodity whose symbol is indicated in the middle. The roman numerals basically display the current price of a commodity if you sell it (highest buying price) on the left and the current price of a commodity if you buy it (lowest selling price) on the right. The wooden bars show the current stocks of merchants willing to sell/buy at that certain price.


Not too different from what we have.


If the stock gets exhausted from buying and nobody is willing to sell at that price anymore, the price goes up to a price where people are willing to sell again. If the buyers are all given what they want and nobody wants to buy anymore, the price lowers until people want to buy again.

For the case of Pyrite, the demand is so high, nobody who holds pyrite wants to let go of their stash. The stock exhaustion kept on happening and the price of pyrite skyrockets. Meanwhile, Amati, having lots of stash at hand, is a happy sunnovabitch.

Craft Lawrence, realizing he's going to get screwed if the trend continues, then devices a plan to "jockey" the pyrite price. To jockey a stock means to artificially introduce stimuli into a market to influence the people, and consequently the price, to behave in a certain way. This concept is widely used even in our existing markets, specially in smaller commodities/company stocks.

His plan is to incite panic to the Pyrite market by making it look like the price is going to crash. While it looks devious, it's perfectly legal in most situations, as long as nobody loses an eye, dies, or gets pregnant.

See, the Pyrite market is already at an "overbought" condition, which is basically what happens when the demand is so high that the price is driven up waaaay beyond the actual price (pryite is just a rock but is currently being sold as a talisman, so we can just imagine how much overpriced this is). When a commodity is already overbought, current holders of the item tend to get antsy to let go of their stashes, because they start to think the price may no longer go any higher (and what doesn't come up will most certainly go down)

The jockeying idea of Craft is to become the first few people to start cashing in at the highest price. When somebody sells, the other merchants may take it as a cue that the price is no longer going up and the second market condition (no more buyers) will drive the price down. Volume helps support this idea, which is why Craft needs a lot of pyrite from Deanna - to make his action more psychologically significant.

Another idea he had as a supplement is to let a kid say something about now being the right time to buy wheat, while in a public area. The logic behind this is that the antsy merchants who are already earning good profits may suddenly think that the underpriced commodity of wheat to be the next place where profit can be made. This commodity exodus can also drive a selling spree which will drive the prices of pyrite down due to overstock.

In the end, Horo helped Lawrence out by dumping her share at the same moment as Lawrence, triggering the price crash that he actually needed.

As for the deal that Lawrence did with Amati where he bought some pyrite on credit, this is what the modern stock world calls Short Selling, which is basically selling somebody a computer you don't have and promise to deliver it after 3 days, and then buying at the last day when a stock is already at a lower price. In effect, you bought stocks today cheaply and sold it yesterday at a higher price, which is kinda like timetravel trading.

For Lawrence's case, he sold pyrite to Amati 2 days before he crashed the market, and then bought pyrite after he crashed the market and gave Amati the stash, telling everybody how to earn even from a market that's already tumbling down. This activity is not contributary to the main story, but it's the author's way of saying LOL I LOVE TRADING

Short selling drives the market even lower, but helps maintain a healthy price movement range. It's illegal in some countries including here in the Philippines.

Alright. That's basically it.

Questions?