Chapter 285: The Economy of the Captive
Chapter 275 – Lassoing the Economy
The development of the colonies only involved a small portion of the Vienna government’s energy, and the center of gravity now remained at home.
After the end of the Near East War, it was logical that the Austrian economy should have slipped, however the capitalist free economy market tends to be irrational.
The economy of the entire new Holy Roman Empire is like an out-of-control carriage, in all the way forward wildly, this time the brakes can no longer be pulled, can only look at the carriage in the road of no return to run further and further away.
Government intervention in a market economy? Franz did not want to take the blame for triggering the economic crisis, nor could he afford to do so.
The overall overcapacity of the capitalist world determines that no matter what measures are taken, the economic crisis will break out.
Measures can only prolong the crisis, and then the longer the crisis is prolonged, the more destructive it will be.
This is not a problem of one country, the New Holy Roman Empire, but involves all capitalist countries, and unless everyone intervenes in the market together, it is possible to smooth out the crisis.
At the economic conference in the Vienna Palace
Franz took out a document and handed it out to the crowd, saying solemnly, “This is the latest economic report, so everyone read it carefully.
The situation of blind investment in our country is very serious, many industries have overcapacity, and a large number of products have been backlogged.
In the short term, it is impossible for us to find a new market to digest this excess capacity.
The newly developed Balkans and the colonization of Africa have consumed some of the production capacity, though.
But the pace of new markets is nowhere near the frenzy of the domestic capital markets.
The same is true abroad, where all major capitalist countries are experiencing varying degrees of overcapacity. Currently, ours and that of the United States are the most serious.
This is a risk that must be borne with the introduction of large amounts of foreign capital. Once the economic crisis breaks out, the British and French capitals will surely pull their funds out of the market, and if we fail to dispose of them properly, the resulting consequences will be very serious.”
Minister of Finance Karl said, “Your Majesty, the free flow of capital, we can’t directly interfere, the best way now is to draw them towards the real economy.
When the capital becomes real estate like factories, railroads, and infrastructure, it will be harder for them to leave.”
When capital turns into real estate, if they want to leave, they will inevitably have to cut their meat, and in times of economic crisis these industries are worthless, even if they can’t find buyers.
No one to take over, these capital invested into the market, it is trapped, want to unwind and wait for the economy to rebound!
But once the economy picks up, many of these industries have become high-quality assets, and capitalists have no need to abandon these industries.
Prime Minister Felix frowned and said: “This is too much trouble, so that more foreign capital to invest in the real economy, the situation of overcapacity will be even more serious.
Even if we retain this capital, it will exacerbate the scale of the economic crisis, and in the end, the harm brought about will still be borne by us.”
Finance Minister Carl explained, “There are two sides to everything, if we want to minimize the crisis, then it is best to let them invest in the city’s infrastructure.
For example: right now we are promoting urban safe drinking water projects, drainage network reconstruction, and urban road construction ……
There is no overcapacity in these sectors and there are more than three hundred cities in the New Holy Roman Empire. Because of government funding, we are currently only doing infrastructure reconstruction in large cities.
All of these areas can accommodate a large amount of capital, but once the economic crisis breaks out and the capitalists’ financial chains break, there will be a large number of bad projects that still need to be taken over by the government.”
Prime Minister Felix asked with concern, “Taking over is a small problem, the biggest problem is the construction of urban infrastructure, it has always been the government that is funding the construction, and there is basically no possibility of making a profit from these projects.
If you want capitalists to invest, you must first let them see the profit point. Safe drinking water project in the city is just, the water plant can collect water charges, other infrastructure by what profit?”
Finance Minister Carr explained, “Of course there is no profit point. Infrastructure construction is too big an investment, and most of the projects are of a public benefit nature, so it’s impossible to make money on the projects themselves.
So we must be sideways and roundabout, for example: bidding to the community, the government only take out a small part of the money in the early stage, so that the capitalists advance construction, and so on the completion of the project through the acceptance of the project in the settlement of the project payment.
These projects are not a short period of time can be completed, the amount of investment and very large, once the economic crisis broke out, the bank tightened the money, most of the capitalists of the economic chain is broken.
As long as it is stated in the contract that we do not pay for the bad project, we can save a lot of money.
If these foreign capital behind the consortium, willing to inject funds to continue to complete these projects, then it would be the best.
The influx of new capital, these projects can continue to carry out construction, will inevitably drive the economy of many industries, this economic crisis will be over.
Anyway, this infrastructure construction money sooner or later will have to pay out, to be able to smooth out an economic crisis, we still earned.”
Franz’s eyes lit up, isn’t this a replica of Roosevelt’s New Economic Policy? Only not on such a large scale, and the initial basic starting point was not to get through the economic crisis, but rather to hedge foreign investment.
That’s right, it’s a lynchpin. Infrastructure projects, as soon as the money is invested, it’s hedged. Don’t expect the Vienna government to pay up front until it’s finished.
Either the capitalists and Austria to tide over the difficult times, we together to fight through this economic crisis; or cut the meat out of the market, all the previous investment is a waste of money.
To mitigate the damage caused by the economic crisis, pulling people down now is the best option. The worst case scenario is nothing more than leaving a field of rotten projects, the Vienna government is responsible for taking over.
Front Franz can let the capitalists jump the huge pit of railroad construction, now naturally do not care to let them jump the pit of infrastructure construction again.
This can not be considered a pit, in the normal development of the economy in the period, are proper quality projects, there is no pit nature.
After thinking about it, Franz warned, “The plan is very good, but must be careful to grasp that degree.
Must ensure that the winning bids are all powerful capitalists, if a group of powerless relations to get the project, the final pit is our own.
Retaining foreign capital is only a means, not an end, and our ultimate goal is to get through this economic crisis smoothly.
According to the current situation, the capitalist world has a serious overproduction, the outbreak of the economic crisis, that is, within a year or two of the problem.
If necessary, a margin system can be introduced. Let the capitalists who undertake these projects pay a security deposit for the project first, and then return it back when the project is successfully completed.”
When an economic crisis erupts, apart from overcapacity, another characteristic is that there is a lack of money in the market. Everyone’s capital is concentrated in the hands of a few people, resulting in a shortage of liquidity.
Now that this is the age of the gold standard, a massive increase in the issuance of money is impossible. Franz will not devalue the currency unless the economic crisis is too severe to bear.
Then it is very important to keep capital in the country as much as possible, and coercive means to regulate finance and prohibit capital outflows are the worst possible means.
Powerless to change the rules, then abide by the rules is very necessary, blindly breaking the rules is bound to suffer the repercussions.
As a member of the system of rules, vested interests, Franz does not think that breaking the rules of things suitable for Austria to do.
To stay within the rules of foreign investment, in this case Franz does not want to run out of the domestic aristocracy of the second generation to make trouble, if they have the strength is just, no money to run out to undertake the project is not harmful to themselves?
This is not a joke, but the truth. Noble families have money, not equal to every family member has money, many noble children can only share a small part of the property.
Land, titles, core industries, are not going to take out to share, or a few generations, these families are gone.
Often the eldest son who inherits the family business, they have enough assets to inherit and won’t go out and mess around; the second sons who don’t have much in the way of assets are often active in the gray area.
This kind of death of the youth, Franz encountered a lot. 1848 revolution, I do not know how many noble families, because of these children die, even dragged behind the family finished.
Afterwards, all the major noble families strengthened the binding force on their children, and most of the noble children with active ideas were brutally suppressed by their parents.
In recent years, they have all behaved more peacefully, after all, after personally experiencing the Revolution, one-third of the country’s nobles lost their titles, half of the families fell as a result, everyone has a sense of reverence.
Minister of Finance Karl asked suspiciously, “Your Majesty, what is the bond system?”
It’s not that he is ignorant, but this era doesn’t have the concept of margin system at all, the earliest guarantee system that will appear only after forty years.
It was only normal that such an advanced concept could not be understood. Everyone has gotten used to Franz’s active thinking, often proposing some new ideas.
Franz explained: “It is very simple is to let the winning bidder to pay a sum of money, as the project can be successfully completed the deposit.
This includes a guarantee for the payment of labor wages, a guarantee for the quality of the project, and a guarantee for the normal completion of the project. After the project is successfully completed and the workers’ wages are settled clearly, the government will then return the guarantee in full.”
Prime Minister Felix asked, “Your Majesty, isn’t it the same if this money is deducted from the project payment?”
Franz shook his head and said, “It’s not the same, deducting it from the project payment doesn’t determine the capitalist’s financial strength.
They take the contract signed with the government entirely, go out and find a bank loan, and rely on the bank’s loan to complete the project.
If in normal times this does not matter, will not affect the normal conduct of the project, but once the economic crisis, the bank contracted the silver root situation is different.
We are now aiming to retain foreign investment, not to create opportunities for some people to get rich, once the project is rotten and we have to come to the aftermath.
By charging a deposit, our risk is minimized. Capitalists who don’t want to take that loss will have to ride out the storm with us.”
It’s a matter of psychology; the more capital that’s put in, the harder it is to let go. The larger the capital in the hedge, the tighter the capitalists’ interests are tied to Austria.
In order for the investment in front of them not to go down the drain, the capitalists could only pull more capital in to fill the hole and keep the project on track.
(End of chapter)