Holy Roman Empire - Chapter 432

Chapter 432: Chapter 5, It’s All the Canal’s Fault
 

War is no child’s play, and while one might overlook the search for a pretext, the mobilization of troops and the collection of strategic materials are indispensable.

Do not be fooled by Egypt’s weakness; it all depends on whom you compare it to. At least on the African continent, it still holds sway, claiming to be the strongest nation in Africa.

Their biggest competitor is Ethiopia, but the British had helped to weaken this adversary. By the time they finished with Ethiopia, it was done for.

Make no mistake, the great powers still care about their prestige. Unless it was a small fry like Afghanistan, for the sake of pride, the British would have to cripple Ethiopia.

A hegemon needs to maintain itself by force. It’s acceptable to lose to a European power of equal standing, but not to African natives.

The Paris Government was quite pragmatic and, to avoid ridicule, made careful preparations. Napoleon III decided to pursue both political and military paths, first defeating the Egyptian Government, then co-opting pro-French figures.

This was a common tactic used by European nations in their overseas colonial expansion, including Austria in the Central American region. The situation on the African continent was an exception due to its uniqueness.

In London, news of the Suez Canal opening sent shockwaves through the financial markets. Many pessimistic observers believed that the Age of Exploration was coming to an end.

This prediction was based on sound reasoning, for the opening of the Suez Canal shortened Austria’s voyage to the Indian Ocean by over 12,000 kilometers, and the routes for France and Spain to the Indian Ocean by over 10,000 kilometers.

The British were the least affected by this shortcut and thus were at an absolute disadvantage. On the capital markets, there was a pessimistic view of domestic British enterprises; stocks of companies engaged in exports to regions such as the Indian Ocean, Southeast Asia, and Southeast Asia plummeted off the cliff.

This fall soon affected the entire London market. Naturally, related industries upstream and downstream could not remain unscathed; they plummeted in unison, and a stock market crash ensued.

In the capitalist world, economic woes in one area can shake the entire economy. With the outbreak of the stock market crash, other sectors could not hope to remain unaffected, and the finance industry felt the impact first.

From early 1868, long queues formed on the streets of London. The stock market crash led to the bankruptcy of speculative financial institutions and banks, triggering a panic among the people and a subsequent run on the banks.

This was just the beginning; an issue in one link of the economic chain would inevitably affect other links.

Without a doubt, the outbreak of the bank run caused banks to stop external lending in self-preservation, and the financial crisis spread to enterprises.

The opening of the Suez Canal was merely the fuse that detonated the economic crisis; Britain’s economy had been troubled for some time, with overcapacity problems emerging several years earlier.

The rise of France and Austria played a role in this, as the world market is only so large. With more competitors vying for market share, British industrial and commercial product market share continued to decline internationally.

With a smaller market and unchanged production capacity, overcapacity was bound to occur. It was only because of the American Civil War followed by the Prusso-Russian War that the crisis was delayed.

Now that the wars had ended and the manufactured goods had no outlet, an economic crisis was brewing. At this moment, the opening of the Suez Canal triggered the crisis ahead of schedule.

In the original timeline, the economic crisis erupted in Britain beginning in 1864. Now delayed by three to four years, overcapacity had become even more severe.

This was the result of inconvenient communication and sluggish market news, leading capitalists to fail to adjust production in time to the market’s pace, causing severe overcapacity.

With no new tricks up their sleeves, those affected by the economic crisis naturally had to figure out how to survive the winter. Weaker enterprises went bankrupt directly, while those with substantial strength began to lay off employees and cut production capacity.

In the summer of 1868, a great depression descended upon London. British railway construction was reduced by 78%, and more than a dozen railway companies declared bankruptcy, with construction on more than twenty railways announcing an indefinite halt.

The shipbuilding industry had reached its production peak in 1867, then began to contract. By the end of 1868, the industry had shrunk by 34%.

The textile industry was the hardest hit during this crisis. Affected by Austria’s cotton spinning industry, it lost markets in Central and Eastern Europe, while the Western European market was hit by the French.

This pillar industry for the British suffered a severe blow in this economic crisis, with five behemoth companies each employing over a hundred thousand workers going bankrupt.

Bankrupt individuals were everywhere, once illustrious tycoons had now become street refugees.

At the same time, affected by the economic crisis, exports declined drastically. The severe outflow of gold, tight funds, and the bankruptcy of banks and businesses welcomed the British to the eleventh crisis in their economic history—the Canal Crisis.

Following the outbreak of the economic crisis, the British Government failed to take timely countermeasures, allowing the crisis to rage and become uncontrollable.

Countless unemployed masses took to the streets of London to march and protest; capitalists were also in deep distress. The opposition criticized the government’s inaction in newspapers, and the economic crisis led to a political crisis.

The John Russell Cabinet encountered the biggest crisis of confidence since taking office. However, it was really not their fault; according to British law, the government had no right to interfere with the free economy.

The blustering critics did not care for such details, blaming everything on the government. Fortunately, Prime Minister John Russell did not intervene in the market; otherwise, he would have had to shoulder the blame for “interfering with the free economy and causing the economic crisis.”

There was nothing to be said; when politicians encountered insoluble problems, their most common tactic was to resign.

…

In Vienna, the sudden economic crisis caught Franz’s attention. Unless it’s a planned economy, there’s no way to avoid overproduction.

If Britain was having issues, Austria could not expect to remain unaffected. Being impacted was just a matter of time.

Franz asked with concern, “Another economic crisis has arrived; what measures does the Cabinet have?”

Prime Minister Felix replied, “Your Majesty, based on the situation coming from the United Kingdom, the impact of this economic crisis will be very severe.

To extricate ourselves from the crisis, the Cabinet has decided to let state-owned enterprises start to destock by dumping their inventory goods at low prices to the whole world.

We need to compete against the British, the French for time. The market is only so big; if we react slowly, we’ll be stuck with the goods.”

During an economic crisis, it’s not the time to be concerned about profit margins. Selling off all the products to get a large amount of cash in hand and ensuring that businesses survive is what’s most important.

Directing state enterprises to destock merely requires an administrative order. Certainly, everyone will carry it out diligently, and few bureaucrats would be foolish enough to oppose the government.

Private enterprises are different, however. Such direct government intervention in the market can’t be ordered. In a capitalist economy, the government cannot interfere with the normal operations of businesses.

As the makers of the law, the government naturally cannot break the law. Moreover, with so many industries suffering from overcapacity, the government surely can’t issue direct administrative orders to force them to reduce production, can it?

In any case, the market abides by the survival of the fittest; a batch is always going to die out. Better a short pain than a long one; it’s up to their own abilities whether they survive or die.

Choosing to save state-owned enterprises first is not a mistake; one’s own children are always favored. If the products of state enterprises that are hard to sell are exported, domestic overcapacity pressure can also be reduced.

Franz continued, “Is the emergency plan ready?”

Private enterprises are not without rescue; it mainly depends on the specifics of the economic crisis, and measures will be taken according to the actual situation.

The government is not a nanny; it can’t guarantee that enterprises will not go bankrupt. Whether they can survive depends on the capitalists’ own judgement.

If they dig their own grave, then they truly will die. The smart ones, seeing the big moves of the state enterprises, have already started to follow suit early on.

Those who can’t respond in time, well, they deserve their bad luck. Haven’t you seen the royal industry running for its life?

The Royal Bank can be seen as the weathervane of the Austrian economy; as soon as the bank tightens the money supply, it’s a sure sign there’s an economic problem.

Publicly announcing an economic crisis is even more impossible; doing that, even without an economic crisis, they would artificially create one.

Once the market panics, the resulting losses are more terrifying than an economic crisis. According to Franz’s experience, an economic crisis is a race; whoever runs fastest is the winner, and whoever ends up with the hot potato deserves their bad luck.

Prime Minister Felix explained, “Your Majesty, this economic crisis is different from the past; it is purely a matter of overproduction. Not just us, most European countries are experiencing overcapacity.

The American Civil War, the Prusso-Russian War, they have made this crisis even worse. Before the wars broke out, signs of overcapacity were already appearing in all countries.

If the crisis had erupted then, the market would quickly self-adjust. Now, it’s different; preliminary estimates suggest that domestic production capacity might exceed market demands by 30%, and some industries might exceed half of the market’s demand, with the possibility of even more.

Besides letting the market weed out the weak, we simply have no other choice. There is no market in the world large enough to absorb such a surplus of production.”

This is the aftermath of profiteering from the war. During the war, the majority of materials were monopolized by Austria, leading to overcapacity in many Austrian industries.

After the war ended, the market underwent some self-adjustment. However, economic transition cannot be completed in just a few months.

Now that the economic crisis has arrived, many businesses that reacted a step too slowly naturally can’t escape it.

Of course, the impact on large enterprises might not be too fatal since they have accumulated capital strength from war profits in the previous two years.

As long as there was no blind expansion, they still have some money in their pockets now, ammunition to get through the crisis.

Severe overcapacity also means that relying on exports won’t free us from the crisis. Once an economic crisis erupts, the international market will quickly shrink, leaving Austria with only its domestic and colonial markets.

Other overseas markets are simply not worth mentioning, not because of their size, but because of their purchasing power.

Regardless, Austria is still the world’s largest economy of this era. There are two countries with a population exceeding Austria’s, yet their markets are far from comparable.

Of course, if we include the colonies, that ranking falls back one place. The British are still the rulers of this era; no one can compare with them.

Franz nodded. It wasn’t that there were no methods; it’s just that they didn’t fit the times. The outbreak of the economic crisis led to a crisis in traditional industries.

In a way, it has also accelerated the outbreak of the second industrial revolution. With traditional industries not generating enough profit, capitalists have no choice but to turn their attention to emerging industries.

It can be imagined that before long, Austria’s emerging industries will flourish in all directions. Against this backdrop, Franz naturally wouldn’t intervene.

Capitalists who fell in the economic crisis could only blame their bad luck. If their own investment instincts were inadequate, who else could they blame?

Consider it a sacrifice for the new era, heating up and shining for the second industrial revolution.