You need to trade with one of the NPC towns and buy stone.
Go to the World Map
Create an Army from your Home City
Add some Gold and/or some resources/livestock to sell for Gold
Send your army to one of the NPC towns that you can trade with.
Enter the town and Buy 300 stone
Return to your Home City and Speak with Fred Firkinson again
Note: not all towns sell Stone but there should be at least one in your region.