Chapter 284: Economic Crisis Erupts
The four-party negotiations were still going on when a crisis crept up quietly. Overcapacity in the capitalist world had already hit the markets. To clear out inventories, British capitalists intensified their dumping of products around the world.
The Americans suffered first. Even though Franzs butterfly effect diverted some international capital to Austria, it could not solve Americas crisis.
From 1848 to 1858, Americans built 25,000 km of railroads, 8,000 km less than in the past. So the railway bubble was not as severe as before.
Unfortunately, despite the rapid development of the railway industry in the United States, the surrounding industries were not stimulated. The metallurgical industry shrank under the competition from British goods, and the cotton textile industry also developed slowly.
Rails, pig iron, locomotives, cotton cloth, hardware, machinery... were flooded with British products, crushing local industries struggling to keep up.
With the increased dumping by the British, these industries couldnt withstand the pressure. The cotton textile industry in particular was hit hard and a wave of bankruptcies began.
This soon spread to the stock market, where share prices plummeted uncontrollably, dragging more companies into the fire.
Many factories went bankrupt and, of course, banks and financial companies couldnt escape unscathed. With a plethora of bad debts, a crisis of bank runs erupted, leading to bank failures.
The economic crisis in the United States quickly spread to Britain. The contraction of markets and the impact on British industrial and commercial exports led to numerous business failures, resulting in substantial losses for British capitalists as investors.
The reaction of the capitalists was swift and sharp. In order to minimize losses and deal with the potential economic crisis back home, British capitalists began withdrawing funds from the American market.
Against this backdrop, in the fall of 1857, the American financial markets experienced a money shortage, paralyzing the entire banking system. Of the 63 banks in New York, 62 ceased payments, and the discount rate exceeded 60%.
The economic crisis erupted across the United States. Without protection, the American market was vulnerable, and this economic crisis directly triggered the American Civil War.
Northern capitalists needed cheaper labor to increase profits and sought tariff barriers to protect their interests. Conversely, Southern plantation owners needed lower tariffs to export cotton and buy cheap manufactured goods.
Spurred by the economic crisis, northern industrialists decided to take drastic action. They began advocating abolitionism and trade barriers, preparing to cut off the financial resources of Southern plantation owners at the source.
This was clearly unacceptable to Southern plantation owners. While the abolition of slavery might be tolerable, the issue of tariffs was non-negotiable.
Why should they use shoddy, inefficient, expensive industrial goods from the North?
Moreover, with increased tariffs, exports of grain, cotton, and tobacco will suffer a fatal blow. For every dollar of additional tax, they will lose a dollar of profit. Its outright robbery of their money.
The conflicting interests of the two sides were too great to be reconciled. Eventually, the disadvantaged southern plantation owners began agitating for independence.
The economic crisis in the United States has little to do with Austria. The volume of trade between the two countries is very small, and both are agricultural exporters. Competition outweighs cooperation between the two sides.
However, when the economic crisis spread to Great Britain, European countries found it difficult to deal with the situation on their own, and Austria was no exception.
Vienna Palace
Prime Minister Felix solemnly said, Your Majesty, the economic crisis that has broken out in the United States has already begun to affect Britain, and it wont be long before it reaches us.
Once the British start withdrawing funds, many domestic enterprises will face capital shortages, leading to an economic crisis.
Nonchalantly, Franz replied, This is an inevitable outcome. Fortunately, were prepared for it. We wont face a liquidity crisis domestically as long as we ensure the normal exchange operations of the banking sector. The crisis will remain controllable.
Everyone nodded in agreement. The Austrian government had made extensive preparations to deal with the economic crisis. First, they had immobilized some of the capital to prevent it from flowing out, and second, they had issued substantial bonds to accumulate funds.
Even if some British and French capital were to withdraw, the Austrian government held a substantial amount of pounds and francs, allowing for direct conversion payments without a drain on gold and silver reserves.
Finance Minister Karl suggested, Your Majesty, since the crisis is still within manageable limits, perhaps we could postpone the implementation of the system for approving massive capital flows.
After all, such a move could damage our reputation, and unless absolutely necessary, there's no need to take such a step.
In this era, capital flowed freely between nations without restriction. As the first to venture into uncharted territory, there was the possibility of becoming a hero, but more likely a martyr.
If the capitalists were displeased, it would put Austria at a great disadvantage in future international trade.
Franz thought for a moment before he said, Permission is still required. We can issue a notice that any capital flow over 100,000 guilders must be reported one to three months in advance.
We will ensure that all legitimate capital flows remain unrestricted, but funds of uncertain origin must be thoroughly explained and confirmed as legitimate before they can leave the country.
There are various excuses the government can use, such as certain criminal syndicates transferring funds or certain corrupt officials trying to move financial assets
Implementing this before the economic crisis affects Austria will prevent the perception that we are restricting economic freedom of movement.
Thoroughly verifying the legality of funds will increase the governments workload, but its acceptable to incur some additional costs to combat crime.
As for the restriction of capital flows with the possibility of advance declaration, this point barely warranted mention. At most, it was an additional safeguard for the financial markets, giving the government time to prepare.
Americas currency crisis served as a warning for the others. Foreign capital could suddenly withdraw en masse before the government even had time to react, forcing it to swallow the bitter pill.
Yes, Your Majesty!
Apart from adding an extra financial firewall, the Austrian government hasnt done anything else. Its still the era of the capitalist free-market economy, and excessive government intervention in the economy would cause resentment among many people.
Whats more, Franz didnt know how to intervene. In any case, overcapacity is an undeniable fact, and its a fundamentally unsolvable problem.
In 1857, Austrias industrial capacity was more than four times that of 1847, well above the world average. The result, of course, was overcapacity.
This is an inevitable result of industrialization; the efficiency of mechanical production far exceeds that of manual production, and the growth of the market obviously cannot keep pace with the growth of industrial capacity.
Therefore, after the first industrial revolution, the capitalist world would experience an economic crisis from time to time.
Looking for new markets at this time is actually very unrealistic. With economic crises erupting in countries around the world, there are hardly any markets left.
This is not the modern era, where theres a market wherever there are people. Right now, productive capacity is limited, and so is the creation of social wealth. The vast majority of people simply dont have the purchasing power.
Take, for example, the Russian Empire, which ranks first in Europe with a population of 70 million. On the surface, it appears to be a large market.
In reality, apart from the 10 million nobles and free citizens, the rest are serfs who have no personal freedom. What kind of purchasing power are we talking about?
This limited market has long been carved up. To further increase exports, theyll have to wait for the Russian government to complete serfdom reform!
Relying on colonial markets is also unrealistic. Except for a few colonies such as India, Cuba, the Philippines, and some in the South Pacific, most overseas colonies are undeveloped.
With a small immigrant population and locals lacking purchasing power, there are no buyers for industrial exports.
In such a situation, when overcapacity arises, an economic crisis becomes inevitable. The best option isnt to cover it up but to let the crisis unfold.
Survival of the fittest: The strong survive, the weak perish. This is also the driving force behind scientific and technological progress. Enterprises that dont want to be overtaken by their competitors must upgrade their equipment and eliminate obsolete capacity.
Even copycat companies struggled. Without fast enough response, strong reverse engineering capabilities, and low costs, they too would collapse.
By the end of 1857, the economic crisis had spread from Britain to France. By the beginning of 1858, the crisis had spread to Belgium, Austria, and Germany
Across the European continent, apart from Russia which was still undergoing reforms, no country got away. Under the impact of the economic crisis, every country suffered heavy losses.
The source of this c𝓸ntent is fr𝒆e(w)𝒆bnovel