Chapter 142: Devious Tactics
At the same time as the railway project was launched, Franz did not forget the other two core industries, although government intervention was much less direct in these two industries.
In a sense, manufacturing and processing industries can be viewed as one. While the food processing industry is separate from it. Disregarding other factors, it is simply a matter of making money.
Currently, the Austrian Empire’s largest source of foreign exchange is the export of agricultural products. This includes two parts: the export of processed agricultural products and the export of natural agricultural products.
Undoubtedly, exporting processed grains yields significantly higher profits, generates a substantial number of employment opportunities, and contributes significantly to the country’s tax revenue.
From an economic development perspective, this is a catalyst for GDP growth. Franz also held high hopes that the profits garnered from agricultural product exports would help counterbalance the persistent trade deficit.
In international trade, the Austrian Empire found itself in a perpetual deficit, a primary driver behind the continuous depreciation of the Austrian guilder.
During this era, currency systems weren’t reliant on modern credit systems; instead, they were backed by tangible gold and silver. Settlements in international trade transactions universally employed gold and silver.
When it comes to a dominant international currency, the British pound could be considered to some extent, though it didn’t hold the prominent status it would later achieve in the late 19th century. Most countries and regions did not officially recognize it.
Given this context, persistent trade deficits would lead to wealth outflows, affecting domestic economic development.
After Franz took office, he prioritized stabilizing the value of the Austrian guilder to facilitate normal economic growth domestically. Swiftly addressing the trade deficit became a top government priority.
In the short term, the only way for the Austrian government to achieve trade balance was to earn added value by exporting processed agricultural products.
In August 1849, the Austrian government implemented regulations to lower the tax rates for agricultural processing companies by 2 percentage points, while also announcing that starting in 1850, tariffs on the export of raw agricultural products would be increased by 1 percentage point.
To encourage more people to invest in this industry, the Austrian government also stipulated that newly established agricultural processing companies would enjoy tax exemptions in their first year and half-tax treatment for the following three years.
Under the influence of this policy, Austria saw the addition of 221 agricultural processing companies in the months following August 1849, including Franz himself.
Austria was already a major exporter of agricultural products, and developing the agricultural processing industry was a natural advantage for the country. The policy incentives were effective in encouraging its growth.
Manufacturing, on the other hand, posed more challenges. The sector was quite diverse, and while Austria had advantages in certain areas, most industries were beginning to lag behind.
However, this lag was relative to industrialized countries like Britain. In Southeastern Europe, Austria still maintained advantages in its industrial sector.
In Franz’s view, advancing the development of manufacturing was essentially about accelerating the pace of industrialization. Mechanized production had significant advantages over manual labor.
This was not something that could be achieved in the short term. However, the government still supports heavy industries, such as the steel industry and machinery manufacturing.
This support included not only lowering tax rates but also assisting with infrastructure issues, such as industrial water supply and transportation, at the local level.
Developing manufacturing industries required endurance and the ability to withstand initial setbacks. Even though results might not be visible in one or even three to five years, persistence over a decade or two would eventually yield positive outcomes.
Innovation?
It’s a bit too early to discuss innovation at this point. Before achieving industrialization, Austria’s manufacturing industry was mostly following in the footsteps of the British. Of course, there were occasional unexpected discoveries, which were quite delightful.
……
In general, the economic reforms carried out by the Austrian government from the second half of 1848 to the end of 1849 were aimed at removing obstacles to domestic economic development.
As a unique country with a semi-planned and semi-market economy, Austria achieved remarkable economic success in 1849. The most noticeable impact for the citizens of Vienna was a 15% decrease in food prices compared to 1847.
Indeed, even though this data may seem insignificant at first glance, it’s crucial in the industrial context. A decrease in food prices implies lower costs for feeding the workforce.
The reduction in the cost of living also improved the lives of lower-class citizens. Many people accumulated small savings, some chose to save while others opted for increased consumption.
While individually these changes might appear minor, when multiplied across a large population, they contribute significantly to overall market prosperity.
Indeed, these seemingly inconspicuous consumer choices ultimately feed back into industrial production. With a market in place, there’s a natural demand for production, which in turn drives improvements in industrial capacity.
Truly, if these effects are deemed negligible, then the opening of the market in the Hungarian region after the removal of internal tariffs has had a significant impact.
Even if the economy lags behind, it still has a population of over ten million. The emancipation of serfs and land redemption programs have transformed these people into property owners.
Having assets naturally means having purchasing power. Perhaps this market hasn’t fully matured yet, but the increase in overall consumption is an undeniable fact.
Without tariffs, Austrian industrial and commercial products saw a significant increase in competitiveness in the Hungarian region. Coupled with the expansion of the market in Hungary, this naturally stimulated the development of domestic industry and commerce, resulting in an emerging prosperity.
According to statistics from the Ministry of Industry, Austria’s industrial capacity increased by 15% in 1849 compared to 1847. This data was both unexpected and within reason for Austria.
Industrial capacity doesn’t skyrocket overnight, and expanding production takes time. In this era, it’s not like the later years where you could place an order and immediately receive equipment.
The next few years would be the period of Austria’s industrial capacity boom.
In addition to the expansion of the domestic market, the establishment of the Holy Roman Economic Alliance has provided domestic industry and commerce with a broader market, naturally stimulating industrial production.
While Franz was envisioning a bright future, some bad news arrived.
“Your Majesty, news has arrived from St. Petersburg. The Russians have run out of patience.
A week ago, after Prussia declared a nationwide mobilization, Tsar Nicholas I made a decisive move. Russian Imperial troops are now gathering along the Prussian-Russian border.
Yesterday morning, the Russian Ministry of Foreign Affairs delivered a 72-hour ultimatum to the Prussian ambassador in Russia.
Unless there are unexpected developments, it is likely that the Prussian government will soon surrender to the Russians. They dare not go to war with Russia.” Metternich said with a furrowed brow.
The Prussian-Russian standoff over the Schleswig-Holstein issue was indeed aligned with Austria’s interests. It not only drained Prussia’s resources but also worsened their relations with Russia, highlighting the importance of the Austro-Russian alliance to the Russians.
However, with the Russians running out of patience, the Prussian government found it increasingly difficult to persist.
Initially, they were confident about annexing the duchies of Schleswig and Holstein, but as they witnessed the resolute stance of the Russians, their confidence began to wane.
Now, what’s keeping them from giving up is not just the annexation of Schleswig and Holstein but the fact that public sentiment in the German states won’t let them back down.
The Russians are formidable, and this is most acutely felt by their neighbors. However, the German states separated from Prussia and Austria don't feel it in the same way.
To appease domestic public opinion, the government of the Duchy of Saxe-Gotha declared boldly, “For the territorial integrity of the German Confederation, we are ready to fight to the death against the Russians!”
Even the Kingdom of Hanover made a strong statement, saying, “If the Russians dare to invade Schleswig-Holstein, we will fight to the death against them!”
Even Franz had to express, “If it’s necessary to send troops to defend Schleswig-Holstein, Austria won’t lag behind.”
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The staunch statements from these kingdoms and duchies were initially just words, but the Free Cities, governed by public opinion, had already taken practical actions.
The German National Expeditionary Corps in Hamburg, the German National Guard in Lübeck, the German National Volunteer Army in Bremen…
There’s no need to overstate it; these units with impressive names were, in reality, composed of nationalist enthusiasts numbering in the low hundreds, with political significance outweighing their practical impact.
With everyone stepping up to this extent, the Prussian government naturally felt compelled not to back down.
Frederick William IV knew he had to save face. Without a convincing reason, how could he remain relevant in the German region?
But he also understood that being too stubborn wouldn’t work either. If Prussia went to war with Russia, those who had been shouting slogans in support of war might quickly change their stance.
In the eyes of politicians, principles and integrity often counted for very little. There were countless excuses at their disposal, so finding one wasn’t a problem.
As a last resort, every country could organize a group of volunteers to act as reinforcements, using this opportunity to send off those troublesome individuals who were eager for war as cannon fodder. There were always ways to make it work.
Indeed, the Austrian government’s approach was quite telling. Anyone who wants to go to the front lines could sign up, and once the war breaks out, they would be sent there.
In the end, even the protest marches dwindled, and the Austrian government didn’t resort to repression or expulsion. Instead, they appointed a few clerks to record the names of those participating in the marches.
These names on the list were enthusiastic supporters of the German Confederation, ready to go to the front lines. If a war comes, the Confederation would need them for defense. Mere slogans wouldn’t do; they will have to prove their patriotism through action.
The armchair warriors are cowards. They’re fine with shouting slogans, but when it comes to going to the frontlines and putting in real effort, they’d rather let others handle it.
The student force, which should have been the main force, is still in school studying. Although they care about what’s happening outside, they can’t participate.
Moreover, with the government’s proactive stance, it seems that there’s no need for them to do anything, and it’s not worth violating school rules.
For the common people, supporting the recovery of the two duchies of Schleswig-Holstein is one thing, but participating in street protests is another. Can protests really lead to the recovery of their territory?
People are rational. They all have jobs, and while they support the cause, they understand that protesting in the streets may disrupt economic development.
“The Prussian government wants to compromise, and there’s nothing we can do about it. After all this time, I believe the Kingdom of Prussia is going to have a tough year ahead.
Frederick William is probably regretting his decisions. He’s invested so much and now it seems like he’s going to come up empty-handed,” Franz said with a wry smile.
He wasn’t taking pleasure in their misfortune. If the Prussians hadn’t provoked the Russians into a nationwide mobilization, Nicholas I wouldn’t have been so quick to act. This could have prolonged the Prussian-Danish War until next year.
By that time, Franz would have recouped a portion of the invested funds, and with the savings accumulated by the Royal Bank from abroad, he could fill the gap left by the misappropriated donations.
Currently, it’s evident that the Prussians can’t hold out any longer, so they deliberately provoked the Russians, leveraging the military threat posed by Russia to persuade their internal nationalists to compromise.
Otherwise, would Frederick William IV, who is well-fed and content, order a nationwide mobilization?
Prussia already has enough troops for the war with the Kingdom of Denmark. But if they were to go against the Russians, a nationwide mobilization wouldn’t be sufficient.
The nationalists within Prussia can be convinced because, after all, everyone is apprehensive about going to war with the Russians. In this nationwide mobilization, the Prussian government has even incorporated them into the military.
Advocating for war may make everyone feel resolute, but once they get into the military camps, many start to reconsider. Is it worth risking their lives for the sake of two duchies, Schleswig and Holstein?
If Prussia and Russia go to war, even with the support of all the German states, Prussia would still suffer the most significant losses. Losing such a war wouldn’t just mean failing to recover those two duchies; they might even have to cede territory.
With such low chances of military success, people’s enthusiasm naturally wanes. As long as they can persuade the domestic population, the Prussian government will have weathered this crisis.
Frederick William IV has clearly given up on public sentiment in the German states. In such an evident situation, how could they expect to easily reverse the obstacle placed by the German states’ united front?
If they’re going to be criticized, they might as well endure it, as losing a piece of land is a more significant loss.
While they have ambitions to unify the German states, they lack the corresponding power. Even if they gain the support of the people, it’s pointless if they can’t win on the battlefield.
Prussia’s government has made the right choice. When the situation is not favorable, it’s crucial to cut losses and prioritize practical interests over reputation.
Without the prestige in the German states and with deteriorating Prussia-Russia relations, it’s safe to say that Prussia’s chances of unifying Germany are quite slim.
From a strategic standpoint, Austria has achieved victory. However, Franz couldn’t exactly celebrate; after all, money is essential.
After some contemplation, Franz gritted his teeth and decided to employ the strategy of dragging things out. If the Prussian government were to make concessions and give up the two duchies of Schleswig and Holstein, he would then demand donations from the Royal Bank to be returned by the Prussian government.
Considering that the war has been dragging on, the Royal Bank has already paid over four million guilders to the Prussian government. It’s highly unlikely that Prussia would agree to return the funds.
Delaying for time under the pretext of recovering donations and creating an opportunity for repayment, while it may seem somewhat unscrupulous and certainly antagonizing the Prussian government, Franz had little choice in the matter.
Without this approach, how could he possibly repay the donations to the citizens?
If he followed through with the initial commitment to reimburse based on the remaining funds, Franz’s misappropriation would quickly be exposed.
As long as he firmly accused the Prussian government of deceiving donations and represented all the donors demanding refunds, shifting everyone’s attention, Franz could gain enough time to raise sufficient funds.
“Contact the governments of the various German states. Once the Prussian government abandons the two duchies of Schleswig and Holstein, we’ll all make a fuss together and encourage the people to demand back the money they donated to the Prussians,” Franz contemplated and suggested.
“Yes, Your Majesty,” Metternich responded.
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