Chapter 153: Capital Influx (BONUS)
The Vienna Stock Exchange, established in 1771, was the largest stock trading center in Eastern Europe during that era. It attracted investors from various parts of Europe.
On the morning of June 11, 1850, at six o’clock, the Vienna Stock Exchange was already packed with people.
The reason for the early arrival of stockholders was a major event: the largest railway company in Austria, the Austrian Federal Railways, was going public on this day.
After considerable anticipation, railway stocks had become a hot commodity. Nearly everyone believed that this sunrise industry would yield substantial returns.
A middle-aged man dressed in fancy clothes stepped out of his carriage and, looking at the queue of people, muttered, “Damn, why are there so many people today? Are they all in a hurry? Gehschei??en!” (Eat shit)
His behavior quickly drew disapproving glances from the crowd. A young police officer responsible for maintaining order approached and said with annoyance, “Sir, please mind your manners. This is a high-class establishment, and using foul language is not permitted here.”
The man in fancy clothes wisely fell silent. He knew that if he continued, he might end up charged with disturbing the peace in a public place.
Normally, that wouldn’t be a big issue. At most, he would have to make a trip to the police station, mutter a few vulgar words, and pay a fine. It wouldn’t be a serious offense.
But today is different; IPOs have always been a favorite among the common people, especially when it comes to the promising railway stocks. If they miss out today, they might never get another chance at this price.
Seeing the man’s response, the young police officer left with satisfaction.
Most people standing in line here aren’t big shots. The real big shots have likely already entered the VIP trading room upstairs.
Vienna is never short of the elite. Don’t underestimate these seemingly unimpressive young police officers; they might just belong to some noble family’s distant branch.
You can actually tell this by their demeanor; nouveau riche and nobility stand out like a sore thumb, easily distinguishable at a glance.
As time passed, the doors to the trading hall opened promptly at eight o’clock. Despite everyone’s eagerness, there was no rush to enter.
Decorum was highly regarded here. Seeing the row of police officers standing in front, nobody wanted to be invited to the police station for a cup of tea. If they missed the trading time because of this, they’d have every reason to cry.
In this era, there was no internet, no electronic displays, and not even electricity available. All trading was done manually.
There were large blackboards with staff members writing data on them. Stock market participants watched the data to decide whether to go to the brokers to register their trades.
At this moment, a stock exchange manager stepped forward and shouted loudly, “The Austrian Federal Railways is listed today on the Vienna Stock Exchange. The company’s total valuation is 100 million guilders.
A total of three million shares are issued to the public, accounting for 30% of the total capital. The issue price is ten guilders per share, with a planned capital raising of 30 million guilders. Interested friends are welcome to come and buy.”
As soon as he finished speaking, other staff members in the crowd repeated the announcement to ensure that everyone had received the information.
In those days, communication relied on shouting; if your voice wasn’t loud enough, you couldn’t make a living in this field.
……
Trading had already begun. While they had announced the issue of three million shares to the public, the actual number of shares in circulation on the stock exchange was certainly less. Banks and securities companies had subscribed to a portion in advance.
This was a common method to boost stock prices. If there was an oversupply in the market, even high-quality stocks could plummet in value.
Many people were closely watching the stock price because it directly affected their investments. The share price of the Austrian Federal Railways Operating Group would determine everyone’s returns.
Even Franz paid close attention to this listing. If the railway company’s stock price soared, Austria’s upcoming major railway construction projects wouldn’t face financial issues.
Once the railways were built, the performance of the railway company would no longer concern Franz.
Unable to operate successfully? No problem, the Austrian government didn’t mind stepping in to support the venture.
In the worst-case scenario, they could introduce a regulation stating that railways unable to operate efficiently would be nationalized. Railways that didn’t generate profits would essentially be repurchased by the government at scrap iron prices.
The government and the companies had entirely different criteria for judging the value of railways.
For the government, railways didn’t need to be profitable as long as they facilitated convenient transportation, leading to the development of other industries that paid taxes.
There were also political, military, and other benefits to consider, which were included in the calculations. That’s why even in the modern era, many railway lines operated at significant losses, and yet governments continued to allocate funding to maintain their normal operations.
In the evening, Sch?nbrunn Palace.
“Your Majesty, as of the close of trading this afternoon, the Austrian Federal Railway Operating Group’s stock price has increased by fifty-six percent, with a closing price of 15.6 guilders per share,” John Stuart said excitedly.
There’s no doubt that when it comes to money making deals like the stock market, the Royal Bank of Austria, with its significant influence, wouldn’t miss out.
For example, when the Austrian Federal Railways went public, not to mention the hefty fees for issuing stocks, even though it’s a collective effort, the profits distributed are not small numbers.
Of course, the fees are just a minor income. The real bulk of the profit comes from being a banker. In this era, the stock market management system is not well-established, providing even more room for bankers to operate.
In traditional industries, the financial market share has long been divided among the established players. In normal circumstances, no one ventures into each other’s territory, as today you might encroach on my market, and tomorrow I could disrupt yours, making it difficult for anyone to earn money.
However, it’s a different story in emerging industries. This is the time for competition, and even the Royal Bank, with its substantial financial power, can’t prevent new entrants from entering the field.
Stuart is also active in the financial industry and understands the unwritten rules. In this context, it’s all about assessing the backer, capital, and capabilities.
The Royal Bank’s capital is undoubtedly unmatched, and their trading abilities surpass those of newcomers. However, their advantage is dwarfed by their competitors’ powerful backers.
Given this situation, the only option is to cooperate.
Experiencing a soaring stock price on your first trade is undoubtedly a great start, and Stuart was naturally excited.
Franz jokingly said, “Well done, it looks like your year-end bonus is secured this year.”
Once a management system is established, it cannot be haphazardly tampered with. In Franz’s view, issuing bonuses arbitrarily without adhering to regulations is not possible.
Since they have set out rules and procedures, they must abide by them. Whatever performance is achieved corresponds to the rewards that are given.
Overindulging in bonuses might make everyone happy in the short term, but over time, it becomes evident that breaking the rules is easy, while reestablishing them is difficult.
Not all projects yield quick profits. Some require significant effort and investment, and their returns might not be visible in the short term. However, someone needs to work on them, right?
When a boss disregards the rules, it causes substantial trouble for the management, which is often impossible to remedy.
……
The surge in railway stocks was related to the global economy. Since the outbreak of the British economic boom in 1847, which triggered the 1848 European Revolutions, the world economy experienced varying degrees of recession.
By 1850, the global economy had emerged from the crisis and started experiencing periodic growth. Austria’s economic growth rate even outpaced the global economic growth rate.
Austria’s ambitious railway expansion plans, supported by capital from across Europe, led to a significant influx of hot money, naturally causing a surge in stock prices.
When it came to such capital, Franz always had an open-door policy. He believed money had no sins, and it didn’t matter who the capital’s owner was.
Even when some people acquired shares of railway companies from shareholders, he chose to turn a blind eye, as long as the government received its due taxes. It was all within the bounds of the law.
During this era, the Austrian government had no intention of rejecting foreign capital. Instead, it needed a substantial infusion of capital to drive industrialization.
Relying solely on domestic capital wasn’t enough to meet the requirements. The inflow of foreign capital had the potential to accelerate this process, so Franz would never consider rejecting foreign investments.
Just think about the British investment in the construction of American railways. From 1848 to 1858, they built over 30,000 kilometers of railroads, and it ended up being a disastrous investment.
In this era, the United States had only about two-thirds of Austria’s population, and its vast land with sparse population density was quite discouraging. From an investment perspective, Austria’s railroads were clearly more economically valuable.
The inflow of capital into Austria didn’t come as a surprise, but Franz still underestimated the extent of British capital surplus.
As the first nation to industrialize, the British took advantage of this time lag and earned substantial profits from all over the world. These profits then transformed into cash flowing into Britain.
Money is always meant to be spent, and the British, with their ongoing colonial expansion and frequent uprisings in their colonies, found investing in those areas too risky.
As a result, they started looking for markets all around the world, and in this context, Austria’s grand railroad plan captured their attention.
A brief analysis would reveal that Austria had a population density ten times greater than the United States. Since the Austrian government’s reform, the domestic economy has been on the fast track to development.
Even in a place as distant as the American continent, British capitalists didn’t hesitate to invest. So when it came to Austria, located much closer in Europe, it was certainly not something to overlook.
A significant influx of hot money occurred, and these funds weren’t solely directed towards the railroad industry. Capital was also heavily invested in the government-supported agricultural processing and manufacturing sectors.
By the latter half of 1850, the Austrian economy had experienced an explosive growth, with virtually all industries experiencing rapid expansion.
During this era, governments rarely directly intervened in markets, as people hadn’t yet developed this awareness.
Franz knew that such unbridled economic growth was highly unhealthy. Without regulation, Austria would likely face an economic crisis due to overproduction within just a few years.
The question of whether to impose limitations troubled Franz at that moment. Economic crises could lead to devastating losses, but the explosive economic growth had also driven significant industrial development in Austria, bolstering the country’s power.
This was a classic case of riding a wave, involving rapid expansion of production capacity within a short period. But when this expansion reached its limit, an economic crisis was likely to follow.
After much consideration, Franz decided to wait and observe. The surge had just begun, and there was still a long way to go before overproduction became a concern.
Since another global economic crisis wasn’t expected in the near future, the government could intervene before reaching a crisis point if necessary.
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