Chapter 192: Chapter 79, Russian-Austrian Trade

Translator: 549690339

The height of summer in Vienna, yet still cool.

Belvedere Palace

Mr. Metternich said, “Your Majesty, the Russians have made a request to purchase our weapons production line, from handguns to artillery, it’s practically all-encompassing.”

Franz was aware that Austria had snatched the interests of the Russian Munitions Group, and he knew they would certainly take action, but he did not expect that their approach would be to purchase a weapons production line.

When he thought about it, it made sense, for the British possessed the strongest technology in machinery equipment of the time, followed closely by Austria and France, with Belgium and Prussia’s industrial systems imperfect and coming after.

The mechanical equipment produced by the Russians themselves, not to mention the high maintenance cost, had inferior performance and could barely suffice, unable to match the efficiency of peers, thus buying foreign production lines was a forced move.

Engaged in war with the Russians, the British and French would even if available, dare not use such production lines. Armament production equipment is sensitive and unlike civilian goods, even smuggling wouldn’t suffice.

It would also be feasible to purchase from Prussia, Belgium. However, by doing so, those units of the expeditionary force equipped with Austrian weapons would no longer be able to maintain their equipment.

Given the financial power of the Tsarist Government, do not expect them to discard weapons and equipment worth tens of millions of rubles; the annual maintenance of these devices is also a business worth millions of rubles.

Capitalists would not turn their backs on money, and for the sake of maximizing profits, purchasing Austrian weapons production lines is quite normal.

Franz said indifferently, “Sell it to them then. Even if it’s the same equipment, the quality of weapons produced by the Russians will drop by a grade.”

This was not contempt for the Russians, but a fact. Because of government corruption and for the sake of bigger profits, capitalists would definitely cut corners.

Franz knew that the cost of domestic weapons equipment procured by the Russians was even higher than international market prices. It was better to buy than produce, which is exactly where the saying comes from.

The domestic budget for weapons equipment imported from Austria was 20% to 50% higher than the actual import price, which specific proportion was dependent on the integrity and capability of the involved officials.

Mr. Metternich reminded, “Your Majesty, should we set some limits? If the Russians get the complete production line, it could pose a problem for us in the future.”

Even though there was no notion of technology blockades in that era, not just any military equipment could be purchased especially when it came to weapons production lines.

Franz shook his head and said, “It does not matter, nowadays technological innovation is rapid. This equipment might hold up for the next ten years, but after a decade or so, it will probably become obsolete.

Since the Russians are willing to buy, we might as well oblige them. It’s best to make them long-term clients, using the profits from the arms trade to promote the technological upgrade of our military industries.”

Russia indeed deserved wariness, but there was truly no need to take their industrial technology too seriously, with the decaying Tsarist Government in power, it was impossible for their industry to thrive.

Mr. Metternich continued, “Your Majesty, the Russians have also made a loan request.

Focusing on commercial trade, the trade volume with the Russians grew nearly by twofold in the second and third quarters of 1852.

The total trade between both parties reached 292 million shield, with our imports amounting to 88 million shield and exports reaching 204 million shield, resulting in a trade surplus of 116 million shield.

This trade surplus mainly came from the export of arms and strategic materials, with just these two categories totaling an export value of 83 million shield.

What remained was the trade of civilian goods. Due to the war, British and French commodities largely withdrew from the Russian market, creating opportunities for us.

The loans we provided to the Russians have been nearly exhausted. The strategic materials purchased earlier are likely to be depleted after this campaign.

If they can’t secure a major victory, the Tsarist Government’s military spending will probably continue to grow next year.”

Franz reflected; everyone in that era enjoyed doing business with the Russians because they paid directly with gold and silver instead of paper money. (Paper Rubles were abandoned, international trade was settled with Gold and Silver Rubles).

The trade between Russia and Austria resulted in a vast inflow of gold and silver into the Austrian National Treasury, which then turned into paper money that flowed into the market.

From a currency standpoint, the inflow of this gold and silver negated the risk Franz took by allowing the central bank to print more money; the market had absorbed it. (The paper currency wasn’t printed 1:1 with gold and silver; leverage was set based on economic conditions).

After some thought, Franz said, “Take your time negotiating with the Russians, there’s no rush. Tell them our finances aren’t flourishing either, we don’t have the capacity to provide a huge loan.

Try to lower the loan amount as much as possible, delay the loan period, have the Russians bring out more gold and silver for payment, do not push too hard on loan interests, and you can let go of additional conditions.

We can also help them issue some bonds, they must be government bonds, preferably with collaterals. War bonds are likely hard to sell, let the Russians set the interest rate for themselves, as long as they can sell.”

If before the outbreak of the Near East War, the two nations were on an equal footing, the onset of the war saw Austria’s leverage growing stronger.

The significant inflow of gold and silver due to war had caused a deformed boom in Austria’s domestic economy, but this prosperity harbored considerable risks.

If Austria were to offer too much in loans to Russia now, it would either draw funds from the domestic market or continue printing currency.

The former would impede Austria’s economic development, and the latter could lead to inflation. This was due to the scale of the economy; Austria’s economy was only so large. A certain amount of currency printing the market could digest, but once over the limit, it would be unsustainable.

The best approach was to first have the Russian gold and silver flow in, increasing the reserve funds of the treasury and expanding the market – only then could more currency be printed without the risk of inflation.

Metternich reminded, “Your Majesty, perhaps we can ask the Russians to pay with a portion of gold or silver. This could reduce our financial risk.”

Franz shook his head and said, “That won’t be necessary for the time being. Our risk is still within a controllable range. We shouldn’t be in a hurry to remind the Russians now, when their gold and silver are pouring into our country at an incredibly rapid rate.

“Our nation’s economic boom isn’t solely due to this war.

“Mr. Metternich, you may not have noticed, but in the past six months, British and French capital has been rushing into Austria, with total investments more than doubling compared to the same period last year. In fact, our market is no longer short of gold and silver.

“Based on past experiences, Russian-Ottoman wars tend to last a long time, and capitalists are counting on this war to make their fortunes, rushing to invest and build factories in Austria.

“Due to the lack of information, they are unaware of how many competitors have recently entered the market, and they haven’t considered that the Russians’ demand for materials is not unlimited.

“The market has gone mad. Carl is nearly frightened out of his wits, fearing an economic crisis will erupt. He’s already drawn up several emergency plans.

“From the perspective of the capitalist market economy, once the war ends, Austria will immediately face the challenge of economic transition.

“Early investors are still in good shape. They’ve made profits and can support their transition. The later investors are in trouble—they haven’t made any money yet but will have to face transformation. A wave of bankruptcies is inevitable.

“At this time, helping the Russians digest some bonds, cooling down the overheated market, is also a good choice.”

Knowing the risk of economic crisis, why doesn’t the Austrian Government stop it? The answer is very pragmatic: to increase fiscal revenue and accelerate domestic development.

“If this economic fever continues, in just two or three years, Austria could surpass France in total economic output. Even if the bubble bursts, the capital will leave behind a considerable foundation for Austria.

“Money comes in easily, but it is much harder to pull out. Once it’s turned into real estate like factory buildings and machinery, cashing out will not be easy.

“Those capitalists who have been trapped can either continue to contribute to Austria’s development or cut their losses and leave, just as the United States developed historically.

“As long as we gain enough from this war and expand our market capacity, we can minimize the impact of the economic crisis. When the time comes, Franz won’t mind having the government intervene in the market to enforce a soft economic landing.

“How many capitalists will be ruined by this action is of no concern to Franz—he’s no saint.

“Investment involves risk, enter the market with caution.”

While the Near Eastern war was drawing the attention of the world, Russia and Austria quietly completed a substantial transaction without causing the slightest ripple.

The munitions trade is incredibly lucrative, especially when selling weapon production lines and technology transfers, along with the added value of products, the profits are even more substantial.

This vast profit has greatly satisfied the Austrian Government.

It wasn’t just a one-time deal. If relations between the two countries remain friendly, the capitalists, with their lack of scruples, could very likely package subsequent upgrades with Austria.

The fundamental reason for “buying rather than making” is that the cost of research and manufacturing is too high. Why do so many enterprises in later eras prefer imports? Don’t they know the benefits of independent research and development?

The key issue lies in the investment in research and development. The outputs are often disproportionate to the inputs, not only requiring a lot of time and money but also being full of uncertainties.

For capitalists eager to make money, such high investment in this area certainly doesn’t maximize profits. With bad luck, they might fall just before reaping the benefits.

Weapons research and development is no exception, and it also needs a supporting industrial system. The Russians are lagging in these areas, making independent research and development by their enterprises even riskier.

If a military enterprise were to undertake research and development, the imported production lines could be up and running before they achieved any results.

What would the Tsarist Government choose? Equip their military with already developed and advanced technology or wait for the uncertain outcome of their own research and development?

Austria has lifted all restrictions on weapons exports, allowing the Russians to freely choose their production lines. Naturally, the Tsarist Government is overjoyed—such opportunities are rare.

Keep in mind that to limit the Russians, European countries predominantly export finished products, being very cautious about production line exports.

If they only buy finished products, a war blockade could have severe consequences, which is why the Tsarist Government is supporting their domestic military enterprises.

Purchasing production lines eliminates such worries. The Russian military industry heavily relies on imported equipment, and they don’t mind continuing to import as long as their munitions supply is assured.

Few can foresee the future. Theoretically, as the overall industrial technology improves, military technology will naturally follow. They reinforce each other.

Historically, major advancements in Russian military technology occurred during periods of worsening relations with the Western world. The more intense the opposition, the faster their technological progress.

In this era of war, nobody’s thinking that far ahead, and even if some perceive potential risks, they are powerless to protest.

From a developmental perspective, with ready-made Austrian equipment available to dismantle and study, their technological progress can be even faster. At worst, they could produce imitations.”