Holy Roman Empire

Chapter 432: It's All The Canal's Fault

War is not a game, and while finding excuses for war can be disregarded, mobilizing troops and gathering strategic resources are indispensable.

Don’t underestimate Egypt as weak; it depends on whom they are compared to. At least, on the African continent, they are still a major power, known as the strongest nation in Africa.

Their main competitor is Ethiopia, but the British have helped to weaken this opponent. Once they finish with Ethiopia, Egypt will soon follow.

Make no mistake, the great powers care about their image. Unless it’s an indomitable opponent like Afghanistan, the British will, for the sake of their reputation, try to crush Ethiopia.

A hegemon needs to maintain its power through military might. Losing to an equivalent European great power is acceptable, but losing to African natives is not.

The French government remains pragmatic. To avoid embarrassment, they have made meticulous preparations. Napoleon III decided to pursue a dual approach of political and military action: first defeat the Egyptian government, then win over pro-French factions.

This is also a common tactic used by European countries in overseas colonial expansion. Austria employed it in Central America as well, although the situation in Africa is a unique exception.

In London, the news of the Suez Canal’s opening caused a great stir in the financial markets. Many pessimistically believed that the Age of Exploration was coming to an end.

This concern is well-founded. With the opening of the Suez Canal, Austria’s route to the Indian Ocean is shortened by more than twelve thousand kilometers, and France and Spain’s routes to the Indian Ocean are also shortened by more than ten thousand kilometers.

The British routes are shortened the least, putting them at an absolute disadvantage in this regard. The capital market is bearish on British domestic companies engaged in exporting to the Indian Ocean, Southeast Asia, and the South Pacific, causing their stock prices to plummet dramatically.

This crash affected the entire London market. Naturally, the related upstream and downstream industries couldn’t remain unaffected and followed suit with a sharp decline, triggering a stock market crash.

In the capitalist world, the economy is interconnected, and when a stock market crash occurs, other industries can’t remain untouched. The financial sector is the first to be affected.

Starting in early 1868, long lines formed on the streets of London. The stock market crash led to the bankruptcy of speculative financial institutions and banks, causing public panic and bank runs.

This was just the beginning. When one link in the cyclical economic chain has problems, it inevitably affects other links.

Undoubtedly, the bank runs led to a crisis, and banks, to protect themselves, stopped lending, which caused the financial crisis to impact businesses.

The opening of the Suez Canal was merely the trigger for the economic crisis; the British economy had already been showing signs of trouble. A few years prior, Britain had been experiencing overproduction.

This is also related to the rise of France and Austria. The global market is only so large, and with more competitors vying for market share, British industrial and commercial products saw a continuous decline in their international market share.

With a smaller market and no reduction in production capacity, overproduction was inevitable. However, first the American Civil War, then the Russo-Prussian War, delayed the crisis from erupting.

Now, with the wars over, the goods produced had no market, and an economic crisis was brewing. At this moment, the opening of the Suez Canal just happened to trigger the crisis early.

In the original timeline, the economic crisis began in Britain in 1864. Now, the timing has been delayed by three to four years, naturally making the overproduction problem even more severe.

This situation was caused by poor communication and inadequate flow of market information, leading capitalists to fail in adjusting production to match market demands, resulting in severe overproduction.

With no new strategies in place, businesses had to find ways to weather the economic crisis. Companies without sufficient strength went bankrupt, while those with substantial resources started laying off workers and reducing production capacity.

In the summer of 1868, the Great Depression hit London. The scale of British railway construction was reduced by 78%, with more than a dozen railway companies, large and small, declaring bankruptcy, and over twenty railways under construction being indefinitely suspended.

The shipbuilding industry reached its production peak in 1867, then began to contract. By the end of 1868, the industry had shrunk by 34%.

The textile industry was the hardest hit by this crisis. Impacted by Austrian cotton textile industry competition, they lost the Central and Eastern European markets, and the Western European market was also being challenged by the French.

This pillar industry of Britain suffered severe damage in this economic crisis. Five giant companies, each employing over a hundred thousand workers, went bankrupt.

Bankruptcy was rampant, and once-prominent millionaires became vagrants on the streets within half a year.

Simultaneously, the economic crisis caused a sharp decline in exports. Severe outflow of gold, tight capital, and widespread bankruptcy of banks and businesses led Britain into its eleventh economic crisis in history—the Canal Crisis.

After the economic crisis erupted, the British government did not take timely measures to address it, allowing the crisis to spiral out of control.

Countless unemployed people took to the streets of London to protest, and capitalists were in distress. The opposition party attacked the government for its inaction in the newspapers, making the economic crisis trigger a political crisis.

John Russell’s cabinet faced its biggest confidence crisis since taking office. However, it truly wasn’t their fault. According to British law, the government had no authority to interfere in the free economy.

The opposition didn’t care about that; it was all the government’s fault anyway. Fortunately, Prime Minister John Russell did not interfere with the market, otherwise, he would have been blamed for “interfering with the free economy and causing the economic crisis.”

There’s nothing else to say; when politicians encounter unsolvable problems, their most common tactic is resignation.

…

In Vienna, the sudden economic crisis caught Franz’s attention. Unless it’s a planned economy, overproduction is simply unavoidable.

Since Britain was experiencing problems, Austria couldn’t expect to remain unaffected; it was only a matter of time before it spread.

Franz asked with concern, “The economic crisis has arrived again. What measures does the cabinet have?”

Prime Minister Felix replied, “Your Majesty, based on the situation coming from Britain, this economic crisis will have a significant impact.

To overcome the crisis, the cabinet has decided to have state-owned enterprises start clearing out their inventories, selling off stockpiled goods at low prices worldwide.

We need to race against the British and the French. The market is only so large, and if we react too slowly, we’ll be left holding the bag.”

During an economic crisis, it’s no longer about profits. The most important thing is to sell the products and get a lot of cash in hand to ensure the survival of the enterprises.

For state-owned enterprises, clearing out inventory only requires an administrative order. Everyone will certainly carry it out seriously; few bureaucrats would be foolish enough to oppose the government.

Private enterprises are different. Such direct government intervention in the market can’t be mandated. In a capitalist economy, the government cannot interfere with the normal operations of businesses.

As lawmakers, the government naturally can’t break the law. Moreover, with so many enterprises facing overproduction, could they really issue administrative orders demanding production cuts?

In any case, survival of the fittest in the market means some businesses are bound to fail. It’s better to get the pain over with quickly—who survives and who doesn’t will depend on their own capabilities.

The cabinet’s decision to prioritize rescuing state-owned enterprises makes sense; after all, the favored “sons” should receive preferential treatment. Exporting the unsold products of state-owned enterprises will also alleviate the pressure of overproduction domestically.

Franz continued to ask, “Is the emergency plan ready?”

It’s not that private enterprises won’t be rescued; it depends on the specific situation of the economic crisis, and measures will be taken based on the actual circumstances.

The government isn’t a babysitter and can’t guarantee that businesses won’t go bankrupt. Whether they survive depends on the capitalists’ own judgment.

If they bring about their own downfall, then they will indeed fail. Smart ones who see the significant actions of the state-owned enterprises will start to follow suit early on.

Those who can’t react in time will just have to face their bad luck. Haven’t they noticed that even royal enterprises are scrambling?

The Royal Bank can be considered a barometer of the Austrian economy. As soon as the bank tightens its purse strings, it’s a sure sign that there are economic problems.

Publicly acknowledging the economic crisis is even more out of the question. Doing so would create an economic crisis even if there wasn’t one.

Once panic sets into the market, the losses it brings can be more devastating than the economic crisis itself. According to Franz’s experience, an economic crisis is a race—whoever runs fastest wins, and whoever gets stuck holding the bag deserves their misfortune.

Prime Minister Felix explained, “Your Majesty, this economic crisis is different from the previous ones; it’s purely a matter of overproduction. Not just us, but most European countries are experiencing overproduction.

The American Civil War and the Russo-Prussian War have made this crisis even more severe. Even before the wars, signs of overproduction were already appearing in various countries.

If the crisis had erupted then, the market would have quickly self-regulated. Now, it’s different. Preliminary estimates suggest that domestic production capacity exceeds market demand by 30%, and in some industries, it may exceed market demand by half or even more.

Besides letting the market eliminate the weaker players through survival of the fittest, we have no other options. There simply isn’t a market big enough in the world to absorb such excess capacity.”

This is the aftermath of profiting from war. During the war, most of the supplies for the Russians were monopolized by Austria, leading to overproduction in many Austrian industries.

After the war, the market underwent some self-adjustment. However, economic restructuring cannot be completed in just a few months.

Now that the economic crisis has arrived, many businesses that were slow to react naturally cannot escape its consequences.

Of course, the impact on large enterprises might not be as fatal. After all, they profited from the war in the past two years and accumulated capital strength.

As long as they didn’t expand blindly, they would still have some money in their pockets and the resources to weather this crisis.

Severe overproduction also means that relying on exports alone won’t solve the crisis. When an economic crisis breaks out, the international market quickly shrinks, leaving Austria with only the domestic and colonial markets.

Other overseas markets are hardly worth mentioning; it’s not a matter of market size, but rather of purchasing power.

In any case, Austria is the world’s largest economy of this era. There are two countries with larger populations, but their markets cannot compare.

Of course, if colonies are included, Austria drops a rank. The British remain the kings of this era; no one can compare to them.

Franz nodded. There are solutions, but they don’t fit this period. The economic crisis has triggered a crisis in traditional industries.

In a sense, it also accelerates the onset of the Second Industrial Revolution. With insufficient profits in traditional industries, capitalists are forced to look at emerging industries.

It’s imaginable that before long, Austria’s emerging industries will flourish. In this context, Franz naturally wouldn’t intervene.

Capitalists falling in the economic crisis can only be considered unfortunate. If their investment foresight is lacking, who else can they blame?

Consider them the sacrifices of a new era, contributing to the Second Industrial Revolution.

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