“Let’s begin with a question. What is the most fundamental form of business?”
I began the lesson. It felt like going back to my university days, coaching one of my juniors. That was a far more peaceful lesson without involving royalty, though...
“Is it offering honey... umm, merchandise, and receiving money for it?” Alfina replied after thinking it over for a moment. Properly trying to think things through is one of her good points.
“That would be about half-correct. What we’re going to be talking about is a little more abstract than that. Ready? The most fundamental form of business is making money by spending money.”
Alfina cocked her head at the phrase I had prepared beforehand. I then piled 10 copper coins on the table like casino chips. Alfina looked at them, blinking in surprise. I completely ignored the sheltered princess’s, “Oh my, and what is that, I wonder?” look, and moved on.
“To be more specific, we buy ‘something’ with these 10 copper coins, and sell it to someone else for 20 copper coins. In this example, we turned 10 copper into 20. That’s business.”
I placed the initial stack of 10 to the side of the empty plate, and placed a new stack of 20 copper coins on the other side. I then pointed at the plate in the center.
“Meaning, the merchandise in the middle is irrelevant.”
By modern Japanese standards, a single copper would be something like 100 yen. However, owing to the difference in the standards of cost of living as well as the general cost of foodstuffs and merchandise, especially in the case of luxury goods, that sort of simple conversion doesn’t really mean anything. Suffice to say that copper is the lowest denominator of currency here.
“Sir? Even though you said you were being more specific, I think it’s still far too abstract.”
“You’re right. Let’s see... Okay, suppose we open a store to sell this confection.”
I moved the last piece of French toast over from the frying pan and into the plate. Their gazes were now affixed on the golden bread.
“Please consider a business where we aim to sell this confection, Fre— Hmm... How about we call it ‘pain perdu?’ Pain perdu is made of bread, eggs, milk, and honey. And let’s say that the cost of ingredients for a single unit is 10 copper. And now we take our pain perdu, and sell it to our customers for a price of 20 copper. How’s that?”
I put the 10 copper coins on the right of the frying pan, and the 20 on the left. This would be a fair price for a slice of French toast. If the honey didn’t come from our own business, though, the cost may have to hike up to 100 copper, or even start being measured in silver.
“So you take the ingredients you purchased with money, and use it to gain more money, right? But... The ingredients alone aren’t enough to make this, are they?”
The results of Mia drilling into her the price of what’s required for business over the last three days were beginning to show. She did, in fact, turn completely pale upon asking how much profit flew out the window from just the single jar she broke.
“Correct. Practically speaking, we have the costs of transportation, the kindling, and even the frying pan to consider. Of course, we must also consider the cost of living of the one making the pain perdu as well. In this case, that’s me. Let’s say that all of these together roughly comes up to three copper per unit; this means the essence of this business is taking 13 copper to make 20. We’re selling confections, but in practice, it’s about the relationship from money to money. Do you follow along so far?”
I put three more copper coins on the cost stack to the right.
“I finally understand... But, um... It somehow sounds rather frightening, doesn’t it?”
“I won’t deny it. But please set that aside for now.”
Our talks here replaced the value of everything with money. There are, of course, exceptions. However, I’ll start by having her think of money as the basis. There are plenty of reasons for this, like how money is required to survive. But the most important reason is that it’s far “simpler” than topics including factors other than money.
“Let’s go back to the topic of business. We can split costs into two categories: fixed costs and variable costs. Let’s begin with fixed costs. The easiest example to understand is the rent for the shop. Let’s assume that renting the shop for one month costs 300 copper. If we’re able to sell one slice of pain perdu per day, that would mean the cost of rent for each unit can’t be covered by three copper. It requires 10 copper.”
I added seven more copper coins to the stack on the right.
“The ingredients cost 10 copper, and the rent costs 10 copper, so the total is now 20 copper. There are other expenses aside from rent, so this will end in a loss, right?”
“Precisely. However, what if we’re able to sell ten units of pain perdu per day? The cost of rent for a single unit will then go down to one copper. The nature of fixed costs is that it honestly adheres to the number of sales, and goes down accordingly.”
I removed nine copper coins from the right stack.
“On the other hand, the 10 copper for ingredients doesn’t change all that much, no matter how many we sell. There are also costs which become more efficient the more we’re able to sell, like the kindling.”
“Even though we’re thinking only in terms of money, it’s still rather complicated, isn’t it?” Alfina nodded in admiration.