Holy Roman Empire

Chapter 272: Chapter 21, The Trap of the Economy
The development of the colonies only involved a small part of the Vienna Government’s efforts, as the main focus remained on domestic issues.

After the Near East War ended, the Austrian economy’s growth should have slowed, yet the capitalism’s free market often behaves irrationally.

The entire economy of the New Holy Roman Empire was like an uncontrollable carriage, speeding uncontrollably forward; by this point, the brakes were no longer effective, leaving onlookers to watch as the carriage dashed further and further down the point of no return.

Government intervention in the market economy? Franz had no desire to shoulder the blame for detonating an economic crisis and indeed could not bear such a burden.

The general overcapacity of production in the capitalist world meant that no matter what measures were taken, an economic crisis would inevitably erupt.

Taking measures could only delay the outbreak of the crisis, and the longer the outbreak was delayed, the more destructive its eventual impact.

This wasn’t a problem for the New Holy Roman Empire alone, but involved all capitalistic countries, and only if all acted together to intervene in the market could there be a chance to smoothly weather the crisis.

At the economic meeting in the Vienna Palace,

Franz distributed a document to everyone and said seriously, “This is the latest economic report; everyone, please review it carefully.

The situation of blind investment within our country is very severe, with many industries experiencing overcapacity and a large pileup of products accumulating unsold.

In the short term, it will be impossible to find a new market to absorb this excess capacity.

The newly developed Balkan Peninsula and African colonies have consumed part of the capacity.

But the speed at which new markets are being created is far slower than the rampant growth of the domestic capital market.

Abroad, the situation is the same, with varying degrees of overcapacity presenting in all the major capitalistic countries. At present, ours and the United States’ situations are the most severe.

This is the risk we had to assume with the large influx of foreign capital. Once an economic crisis bursts, English and French capital will definitely withdraw and exit the stage, and if we cannot manage properly, the resulting consequences will be extremely serious.”

Finance Minister Karl said, “Your Majesty, we cannot directly interfere with the free flow of capital. The best approach now is to guide them towards the real economy.

Once capital becomes factories, railways, infrastructure, and the like, it will be difficult for them to leave.”

When capital becomes immovable property, it inevitably means selling at a loss to exit the market, especially during an economic crisis when these industries are worth little or even finding a buyer is impossible.

Without anyone to take over, the capital invested becomes trapped by the market, and they must wait for economic recovery to free themselves.

However, once the economy recovers, many of these industries again become valuable assets, and there is no need for capitalists to abandon them.

Prime Minister Felix, frowning, said, “Doing this could lead to greater problems. Inviting more foreign capital into the real economy will only exacerbate the issue of overcapacity.

Even if we retain the capital, it will only magnify the scale of the economic crisis, and in the end, we will have to bear the brunt of the damage.”

Finance Minister Karl explained, “Everything has two sides, and if we want to alleviate the crisis to the greatest extent possible, the best way would be to have them invest in urban infrastructure.

For example: We have started projects such as urban safe drinking water projects, redevelopment of drainage networks, construction of urban roads…

There is no overcapacity in these industries, and the New Holy Roman Empire has over three hundred cities. Due to governmental funding constraints, we are only working on infrastructure redevelopment in major cities for now.

These areas can accommodate a substantial amount of capital. However, once the economic crisis erupts and the capitalists’ financial chains break due to banks tightening credit, many unfinished projects will emerge, requiring the government to step in.”

Prime Minister Felix, concerned, asked, “Taking over the unfinished projects is a minor issue. The major problem is that urban infrastructure construction has always been government-funded, and these projects have little chance of turning a profit.

To get capitalists to invest, we first need to show them a profit-making opportunity. The urban safe drinking water projects are an exception since water plants can collect water fees, but how can other infrastructure projects be profitable?”

Finance Minister Karl explained, “Of course, there’s no profit to be had. Infrastructure projects require massive investments, and most of them serve the public good, so it’s virtually impossible for them to be profitable on their own.

Hence, we must adopt a roundabout approach, such as through public tendering. Initially, the government would provide only a small portion of the funds, letting capitalists front the costs, with the government settling the bills only after the projects pass inspection upon completion.

Since none of these projects can be completed in a short time and their investments are substantial, if an economic crisis occurs and banks tighten credit, most capitalists will find their financial chains broken.

Just by stipulating in the contract that we won’t pay for unfinished projects, we can save a lot of money.

Should the financial consortia behind these foreign investors be willing to continue funding the projects to completion, nothing could be better.

With new capital flowing in, construction on these projects can continue, inevitably stimulating many sectors of the economy, and we could pull through the economic crisis.

After all, the money for these infrastructure projects will have to be spent sooner or later. If we can get through an economic crisis smoothly, we’ll end up winning.”

Franz’s eyes brightened; wasn’t this a copied version of Roosevelt’s New Deal policy? The scale was not as large, and the initial purpose was not to overcome an economic crisis, but rather to trap foreign investment.

Indeed, it is a trap. Once money is poured into infrastructure projects, it gets locked in. Before completion, don’t expect the Vienna Government to pay up front.

Capitals either weather the economic crisis with Austria, overcoming it together, or they cut their losses and exit, with all prior investments going down the drain.

To mitigate the damage from the economic crisis, drawing others into the situation is now the best choice. In the worst case scenario, a bunch of abandoned projects will be left behind, with the Vienna Government taking over the responsibility.

Franz, having already let the capitalists fall into the massive pitfall of railway construction, certainly doesn’t mind letting them fall into the pit of infrastructure construction now.

It can’t really be considered a trap; during normal economic times, these are all top-notch projects, with no deceptive aspects.

After some thought, Franz warned, “The plan is very good, but we must be careful to maintain a balance.

We have to ensure that the winning bidders are capable capitalists. If a bunch of incompetent cronies get the projects, we’ll end up being the ones who suffer.

Keeping foreign capital is just a means, not the end. Our ultimate goal is to smoothly get through this economic crisis.

According to the current situation, the capitalist world is experiencing a serious overproduction, and an economic crisis is about to burst—it’s just a matter of this year or the next.

When necessary, we can introduce a deposit system. Let capitalists undertaking these projects first pay a construction deposit, which will be returned after the successful completion of the works.”

The outbreak of the economic crisis, apart from overcapacity, also features a shortage of money in the market. Everyone’s capital has been concentrated in the hands of a few, causing a shortage of liquidity.

Now we are in the gold standard era, and it’s impossible to issue a large amount of currency. Unless the economic crisis becomes unbearable, Franz will not devalue the currency.

Therefore, keeping capital within the country is very important; forced regulatory measures and prohibiting capital outflow are the worst strategies.

If one cannot change the rules, then it’s necessary to abide by them; recklessly breaking them will surely backfire.

As a member benefiting from the existing system, Franz does not think it’s suitable for Austria to break the rules.

To retain foreign capital within the bounds of the rules, in such cases, Franz does not want the noble scions in the country to cause trouble, for if they lack the capacity and still take on projects, isn’t that just harmful to both themselves and others?

It’s not a joke, but a fact. Nobility families being wealthy does not mean that every member is rich, in reality, many of the nobility offspring can only inherit a small part of the wealth.

Land, titles, and core industries are not to be divided; otherwise, these families would decline over a few generations’ time.

Often the firstborn inheriting the family estate, they have sufficient assets and won’t go about causing chaos; however, those younger siblings without much, often lurk in grey areas.

Franz has encountered many such desperate youngsters. During the great revolution of 1848, countless noble families were ruined because of these young family members taking extreme risks, implicating their entire lineage.

Afterward, the great noble families strengthened their control over their young family members; those intellectually active offspring were brutally suppressed by their parents.

In recent years, they’ve been quite well-behaved, as they experienced the revolution firsthand; a third of nobles lost their titles, and half of the families declined, instilling a sense of awe in them.

Finance Minister Karl, puzzled, asked, “Your Majesty, what is a deposit system?”

This was not due to his ignorance, but because the concept of a deposit system did not exist in this era, with the earliest security system emerging forty years later.

It was normal not to understand such an advanced concept. Everyone was used to Franz’s active mind, frequently proposing new ideas.

Franz explained, “It’s quite simple; it means having the winning bidder pay a sum of money, serving as a guarantee that the project will be completed successfully.

This includes guarantees for labor wage payments, project quality, and the normal completion of the project. Once the project is successfully completed and workers are paid, the Government will refund the full amount of the deposit.”

Prime Minister Felix asked, “Your Majesty, wouldn’t deducting the money from the project funds be the same?”

Franz shook his head and said, “It’s different. Deducting from the project funds doesn’t guarantee the financial strength of the capitalists.

They could take the contract signed with the government, obtain a loan from the bank, and rely on bank loans to complete the project.

If this occurred during normal times, it wouldn’t affect the project’s progress. But when an economic crisis hits, and banks tighten their lending, the situation changes.

Our objective now is to retain foreign capital, not to create wealth-making opportunities for certain individuals, as we would have to clean up the mess if the project became abandoned.

By collecting a deposit, our risk is minimized. If the capitalists don’t want to absorb this loss, then they’ll have to join us in weathering the crisis.”

This is a psychological issue; the more capital invested, the harder it is to let go. The larger the sum trapped, the tighter the capitalists’ interests are bound to Austria.

To ensure that their initial investment doesn’t go to waste, capitalists can only allocate more funds to fill the pit and guarantee the regular progress of the project.