Chapter 192: Russo-Austrian Trade
Even in the summer of Vienna, it remained cool.
Sch?nbrunn Palace
Metternich said, “Your Majesty, the Russians have requested to purchase weapon production lines from us, covering everything from pistols to artillery.”
Franz knew Austria had snatched the Russian arms industry interest group’s benefits. These people would surely make a move, but he did not expect that their method would be to buy weapon production lines.
Thinking about it, it made sense. In this era, the British had the most advanced mechanical equipment technology, followed closely by Austria and France. Meanwhile, Belgium and Prussia had less developed industrial systems.
The Russians’ self-produced mechanical equipment not only had high maintenance costs but also had barely usable performance. The production efficiency couldn’t compare with their counterparts. Purchasing foreign production lines was thus necessary.
At war with Britain and France, even if they could buy production lines from them, the Russians wouldn’t dare to use them. Weapon production equipment was very sensitive, not civilian supplies that could be casually smuggled.
If they were bought from Prussia or Belgium, it could work, but this would jeopardize the maintenance of the Austrian weapons used by the expeditionary forces on the frontlines in the future.
With the financial resources of the Russian government, one should not expect them to discard weapons and equipment worth tens of millions of rubles. The annual maintenance of these devices also constitutes a business worth millions of rubles.
Capitalists are willing to cooperate for the sake of maximizing profits, so it’s quite normal for them to purchase Austrian weapon production lines.
Franz indifferently said: “Sell it to them. Even with the same equipment, the weapons produced in Russian hands would fall an entire grade in quality.”
This wasn’t him looking down on the Russians, but a fact. Due to government corruption, capitalists would undoubtedly cut corners to maximize profits.
Franz knew that Russian arms bought domestically, despite poor quality, cost more than abroad. Thus imports beat their homemade wares.
The weapons and equipment imported from Austria had a domestic budget that was 20% to 50% higher than the actual import price. The specific ratio depended on the officials’ integrity and competence involved in the process.
Metternich reminded, “Your Majesty, should we consider placing some restrictions? If the Russians get hold of the complete production line, it could be troublesome for us in the future.”
Although the concept of technological blockade didn’t exist in this era, in the military industry, not all weapons and equipment were available for purchase, especially not entire weapon production lines.
Franzshook his head: “It’s not a problem. Technology is advancing rapidly now. This equipment will be obsolete in ten years, maybe discarded in over a decade.
Since Russia is willing to buy, let them do it. Best to make them long-term customers, using the trade profits to advance our military industry’s technological upgrades.”
Russia was indeed to be feared, but its industrial technology did not warrant too much concern. Under the rule of a decaying Russian government, substantial development in their industry was impossible.
Metternich continued, “Your Majesty, the Russians have also submitted a loan application. From a commercial trade perspective, in the second and third quarters of 1852, our trade with the Russians has nearly doubled.
The total trade between the two nations reached 292 million guilders, with our imports totaling 88 million guilders, exports totaling 204 million guilders, and a trade surplus of 116 million guilders.
The majority of this trade surplus comes from the export of military equipment and strategic goods, with the export value of these two categories reaching 83 million guilders.
The remaining portion involves trade of civilian goods. Due to the war, British and French products have been largely withdrawn from the Russian market, creating an opportunity for us.
The loans we provided to the Russians have been mostly utilized. The earlier purchase of strategic goods will be nearly exhausted after this battle.
If a decisive victory is not achieved, it is likely that the military expenditure of the Russian government will continue to increase next year.”
Franz calculated. In this era, many preferred doing business with the Russians because they used gold and silver for payments instead of paper currency. (Paper rubles had been abandoned, and international trade settled with gold and silver rubles.)
A direct consequence of Russo-Austrian trade was large quantities of gold and silver flowing into the Austrian treasury, which was then printed into banknotes entering the market.
From a currency perspective, this gold and silver inflow allowed Franz to have the central bank print banknotes without risk of inflation. (Banknotes were not issued 1:1 with gold/silver, but set using financial leverage based on economic conditions).
Franz thought for a moment and said, “Take it slow with the Russians. Tell them our financial resources are not abundant, and we don’t have the capacity to provide them with a substantial loan.
Minimize loan amounts as much as possible, extend the repayment period, and encourage the Russians to use more gold and silver for payment. Don’t ask for too much in loan interest. Attached conditions can also be dropped.
We can also assist them in issuing some bonds, preferably government bonds with collateral. War bonds may not sell well so let the Russians set the interest rates themselves, as long as they can be sold.”
If before the outbreak of the Near East War both countries were in a relatively equal position, the initiative shifted increasingly towards Austria with the onset of the conflict.
Now, due to the war, a substantial influx of gold and silver has entered Austria, leading to a distorted economic prosperity domestically. However, behind this prosperity lies significant hidden dangers.
If Austria were to provide a lot of loan assistance to Russia at this point, it would either require diverting funds from the domestic market or increasing currency issuance.
The former is detrimental to Austria’s economic development, while the latter could lead to inflation. This is dictated by the economic scale. Given Austria’s economic size, a moderate increase in currency can be absorbed by the market, but exceeding that threshold would result in an inability to absorb the excess.
The best method was to first let Russian gold and silver flow in, increasing national reserves and expanding the market, before printing money to avoid inflation.
Metternich suggested: “Your Majesty, perhaps we can request Russia to pay some of their purchase amounts in gold and silver, which can reduce our risk.”
Franz shook his head: “It’s not necessary for now. Our risk is still within manageable limits. Don’t rush to remind Russia. The speed of their gold and silver flowing into our country is already very fast. The rapid development of our domestic economy is not solely dependent on this war.
Mr. Metternich, you might not have noticed, but in the past six months, British and French capital has poured into Austria like crazy, with the total investment more than doubling compared to the same period last year. In fact, Austria’s market is already not lacking in gold and silver.
Following the usual practice, the Russo-Turkish War is expected to last a long time. These capitalists are all counting on making a fortune through this war and have been investing in factories in Austria.
Due to the lack of information, they are unaware of how many competitors have recently entered the market, nor have they considered the extent of the Russian demand for goods.
The market is going crazy, and Karl was nearly scared to death, fearing an economic crisis. He has already formulated several contingency plans.
From the perspective of the laws of capitalist market economy, once the war ends, the Austrian economy will immediately face the difficult problem of transition.
Earlier capitalists will be fine, having gained profits to support their transition. The latecomers will suffer — they haven’t made money yet and will have to face bankruptcy. At this time, helping the Russians digest some bonds, cooling down the overheated market, is also a good choice.”
Since they are aware of the economic crisis, why doesn’t the Austrian government intervene? The answer is very practical: to increase fiscal revenue and accelerate domestic development.
If this economic boom continues, in just two or three years, Austria’s total economic output could surpass that of France. Even if the bubble bursts, these capitalists will still leave behind a substantial amount of wealth for Austria.
It’s easy to pour money in, but it’s difficult to pull it out. Once it becomes real estate such as factories and machinery, liquidating those assets is difficult.
These trapped capitalists either continue contributing to Austria’s development or cut their losses and leave, as happened in the historical development of the United States.
As long as they gain enough benefits in this war, expanding market capacity, they can minimize the impact of the economic crisis. When that time comes, Franz doesn’t mind government intervention in the market, forcibly bringing the economy to a soft landing.
How many capitalists will be harmed by this approach is not Franz’s concern. He was no saint.
Investing carries risks and entering the market requires caution.
……
At the time when the attention of the outside world was focused on the Near East War, Russia and Austria quietly reached a massive deal without causing any ripples.
The arms trade is highly lucrative, especially when selling weapon production lines and transferring production technology. Adding product value to the equation makes it even more profitable.
The substantial profits pleased both the upper and lower echelons of the Austrian government.
This was not a one-time deal either. If relations between the countries continued to be friendly, judging by capitalists’ morals, they might bundle follow-up upgrade business to Austria as well.
The fundamental reason for “buying is better than making” is the high cost of research and development. Why are so many enterprises in the future enthusiastic about imports? Don’t they know the benefits of independent research and development?
The crucial point is the investment in research and development. The returns and efforts are often not directly proportional, consuming a considerable amount of time and was also full of uncertainty.
For capitalists who are eager to make money, massive investments in this area may not maximize their profits. If luck is not on their side, they could collapse on the eve of harvest.
Weapon development is even more so. It requires a complementary industrial system. Russia lags behind in these aspects, making the risk of independent research and development even greater.
If a military-industrial enterprise is engaged in research and development, and before they produce results, imported production lines are already in operation, what choice would the Russian government make?
Would they equip the military with technologically mature advanced equipment or wait for products with uncertain performance developed by the enterprise?
Austria lifted all restrictions on weapons exports, allowing Russians to freely choose production lines. The Russian government is naturally very pleased with this rare opportunity.
It’s worth noting that, in order to restrict the Russians, European countries mainly export finished products in the military industry and are very cautious about exporting production lines.
If only finished products are purchased, once a war occurs and the supply is cut off, it becomes impossible to continue obtaining these weapons and equipment. Only then does the Russian government support domestic military-industrial enterprises.
There is no such concern for production lines. Nowadays, most of the equipment in Russian military-industrial enterprises is imported, and they don’t mind continuing imports as long as it ensures the supply of military hardware.
As for the future, people aren’t thinking that far ahead. In theory, as long as overall industrial technology improves, the military-industrial system will naturally follow suit. The two have a mutually beneficial relationship.
In history, the development of Russian military-industrial technology has often occurred during periods of deteriorating relations with the Western world. The more intense the confrontation, the faster their technological progress.
Now during wartime, people are not thinking too much about the future. Even if some see potential crises, they cannot oppose the prevailing mindset.
From a developmental perspective, having ready-made equipment from Austria for disassembly and learning will likely accelerate their technological progress. At the very least, they can imitate and reproduce the technology.
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