Holy Roman Empire

Chapter 272: Trapping Foreign Capital

The development of the colonies only took up a small portion of the Austrian governments attention. The focus was still on domestic affairs.

After the Near East War, the economic development of Austria should theoretically slow down. However, capitalist free-market economies are often irrational.

The economy of the entire New Holy Roman Empire is like an out-of-control carriage racing forward uncontrollably. At this point, the brakes can no longer stop it, and all you can do is watch the carriage go further and further down the road of no return.

Government intervention in the market economy? Franz does not want to shoulder the blame for triggering an economic crisis, nor can he afford to bear that burden.

The entire capitalist world is plagued by overcapacity, making an economic crisis inevitable no matter what measures are taken.

Taking measures can only prolong the time before the outbreak of the crisis, and the longer the delay in the outbreak of the crisis, the greater the destruction it brings.

This is not a problem for a single country in the New Holy Roman Empire but involves all capitalist countries. Unless everyone intervenes in the market together, it is impossible to overcome the crisis smoothly.

Vienna Palace Economic Conference

Franz took out a document and handed it to everyone, saying solemnly: This is the latest economic report, please take a good look at it.

The situation of blind investment in our country is extremely serious, and many industries are facing overcapacity, resulting in a large amount of overproduction.

In the short term, it is not possible to find a new market to absorb this excess capacity.

The newly developed Balkan Peninsula and the African colonies, while absorbing some of the excess capacity, cannot keep up with the frenzied pace of the domestic capital market.

The same situation is happening abroad, with various capitalist countries experiencing different degrees of overcapacity. At present, our situation and that of the United States are the most serious.

This is the risk we must bear with the substantial influx of foreign capital. Once an economic crisis erupts, British and French capital will undoubtedly withdraw funds. If we cannot handle it properly, the consequences will be very serious.

Finance Minister Karl said, Your Majesty, we cannot directly interfere with the free flow of capital. The best way now is to direct it to the real economy.

Once capital becomes factories, railways, infrastructure, and other real estate, it will be difficult for them to leave.

Once capital is invested in the real economy, exit would require divestment. During an economic crisis, these industries can lose value, and finding buyers becomes a challenge.

With no one willing to take over, the invested capital becomes trapped in the market, and the only way to release it is to wait for an economic recovery.

Once the economy recovers, however, many of these industries become high-value assets, and capitalists will not need to abandon these industries.

Prime Minister Felix frowned and said, The consequences of this are too great. Encouraging more foreign capital to invest in the real economy will only worsen the overcapacity situation.

Even if we retain these capital inflows, it will exacerbate the scale of the economic crisis, and ultimately we will have to bear the consequences.

Finance Minister Karl explained: There are two sides to everything. If we want to minimize the crisis, its best to encourage them to invest in urban infrastructure.

For example, we are currently supporting urban safe drinking water projects, drainage network upgrades, and urban road construction

These industries dont suffer from overcapacity, and there are over three hundred cities in the New Holy Roman Empire. Due to government funding constraints, we are currently only performing infrastructure renovations in major cities.

These regions can absorb a large amount of capital. However, once an economic crisis hits and the capitalists capital chains break, there will be a large number of unfinished projects, and the government will have to take over.

Prime Minister Felix asked worriedly, The takeover is a minor problem. The biggest problem is the construction of urban infrastructure. It has always been the government that funds these projects, and these projects basically have no way of making a profit.

To get capitalists to invest, they first have to see the profit potential. The urban safe drinking water project is fine, the water company can charge for water, but how can other infrastructure make a profit?

Finance Minister Karl said: Of course, there are no direct profit margins. Building infrastructure requires significant investment, and most projects are public welfare in nature. It is simply impossible to make money directly from the projects themselves.

Therefore, we have to take an indirect approach, such as inviting bids from the private sector. In the initial stage, the government provides only a small portion of the funds, allowing capitalists to invest in construction. And settle the project payment after the project is completed and passes the inspection.

These projects will not be completed in a short period of time, and the investment amounts are enormous. Once an economic crisis breaks out and banks tighten credit, the economic chains of most capitalists will be broken.

As long as we specify in the contract that we wont pay for unfinished projects, we can save a significant amount of money.

If the financial consortiums behind these foreign investments are willing to inject capital to complete these projects, that would be the best outcome.

With the influx of new capital, these projects can continue construction, which will inevitably boost the economies of many industries and help us overcome the economic crisis.

In any case, the money for these infrastructure projects will have to be spent sooner or later. If we can get through an economic crisis smoothly, we would consider it a win.

Franzs eyes lit up. Wasnt this a replica of Roosevelts New Deal? But on a smaller scale, and with an initial goal not to overcome an economic crisis, but trapping foreign capital.

Yes, trapping. Infrastructure projects, as soon as the money has been invested, are essentially trapped. Theres no expectation of advance payments from the Austrian government until completion.

Either the capitalists and Austria weather the storm together and overcome this economic crisis together, or they cut their losses and leave, abandoning all previous investments.

To mitigate the effects of the economic crisis, the best option now is to drag others into troubled waters. In the worst-case scenario, theyd be left with a lot of unfinished projects that the Austrian government would have to take over.

Previously, Franz could make capitalists fall into the pit of railway construction, and now he doesnt mind making them jump into the pit of infrastructure construction.

You cant even call this a pit. During normal economic development, these are solid and high-quality projects, devoid of any malicious intent.

After some thought, Franz cautioned, The plan is excellent, but we must be careful to strike the right balance. We have to make sure that only capable capitalists win the bids. If a bunch of inexperienced people with connections secure the projects, well be the ones left holding the bag.

Retaining foreign capital is a means, not an end. Our main goal is to navigate smoothly through this economic crisis.

Given the current situation, the capitalist world is facing severe overproduction and the outbreak of the economic crisis is imminent, probably within the next year or two.

If necessary, we can introduce a security deposit system. Let the capitalists who undertake these projects first pay a project deposit and refund it after the project is successfully completed.

The outbreak of an economic crisis leads not only to overproduction but also to a shortage of money in the market. The concentration of funds in the hands of a few individuals leads to a lack of liquidity.

In the era of the gold standard, massive currency issuance is not feasible. Franz is not willing to devalue the currency unless the economic crisis becomes unbearable.

Keeping capital in the country is therefore crucial. The implementation of regulatory measures in the financial sector, such as a ban on capital outflows, is the worst-case scenario.

Since changing the rules is beyond their capacity, adhering to the existing rules becomes essential. Blindly breaking the rules is likely to backfire.

As a participant in the established system of rules and a beneficiary of the existing order, Franz does not believe that breaking the rules is appropriate for Austria.

He wants to ensure that, within the framework of the rules, foreign capital remains in the country. In this situation, Franz does not want the second-generation aristocrats in Austria to cause trouble. If they have strength, thats fine, but without money, coming out to undertake projects is harmful, right?

This is not a joke, but a reality. The wealth of aristocratic families does not necessarily mean that every member of the family is wealthy; in fact, many aristocratic descendants inherit only a small portion of the family fortune.

Land, titles, and core industries are not divided; otherwise, these families would decline over several generations.

The eldest son, who inherits the family business, usually has enough assets to manage and is less likely to engage in reckless behavior. However, the younger sons with fewer assets are often active in the gray area.

Franz has met many of these risk-taking young aristocrats. During the 1848 Revolution, many noble families suffered the consequences of these younger members reckless actions, which led to the downfall of their families.

After that, the major noble families tightened their control over their descendants, and those with active minds among the younger generation faced harsh repression from their parents.

In recent years, these younger members have been more reserved, especially after experiencing the upheavals of the revolution. A third of the noble families lost their titles, and half of them experienced decline as a result of these events. As a result, there is a sense of fear and caution among the aristocracy.

Finance Minister Karl asked in confusion: Your Majesty, what is a deposit system?

This was not due to his ignorance, but rather because the concept of a deposit system did not exist at that time. The earliest deposit system would not appear for another forty years.

Such an advanced concept is understandably difficult to grasp. People have become accustomed to Franzs innovative thinking, as he often introduces new ideas.

Franz explained, Its quite simple require the winning bidder to pay a sum of money as a deposit to guarantee that the project will be completed smoothly.

This includes guarantees for wage payments, quality assurance, and the overall successful completion of the project. If the project is completed without any problems and the workers wages are paid, the government will refund the security deposit in full.

Prime Minister Felix asked: Your Majesty, isnt deducting this money from the project payment the same?

Franz shook his head and said: Its different. Deducting from the project payment does not determine the capitalists financial strength.

They could easily take the contract signed with the government and seek loans from banks, relying on bank financing to complete the project.

While this may not be an issue in normal times and would not affect the normal progress of the project, once an economic crisis occurs and banks tighten the money supply, the situation is different.

Our current goal is to retain foreign capital, not to create opportunities for a few individuals to make a fortune. Once a project is abandoned, were left to deal with the aftermath.

Taking a security deposit minimizes our risks. If the capitalists do not want to bear this loss, they will have to weather the storm with us.

This is a psychological issue. The more capital is invested, the harder it is for people to let go. The larger the trapped capital, the tighter the bond between the interests of capitalists and Austria.

To prevent the previous investments from going down the drain, capitalists have no choice but to allocate more funds to ensure the normal progress of the project.

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