Empire Rise: Spain

Chapter 146: The Economic Crisis Is Coming

“Your Majesty, your prediction was simply divine. The United States government has already begun to suspend railway construction. According to our investigation, many railway companies in the United States are currently facing bankruptcy crises, and the economic crisis may come at any moment.” Director Kadir of the Royal Security Intelligence Bureau excitedly reported to Carlo.

“Oh? Is that so? What about the situations in other countries? Has Spain been affected similarly?” Carlo asked several questions in succession with some anticipation upon hearing this.

After the government work report meeting, Carlo had focused all his attention on the economic crisis that was about to erupt in

The Royal Security Intelligence Bureau even mobilized fully, collecting intelligence in European countries and America to determine the timing of economic crises in various countries.

This economic crisis mainly erupted in the United States, but European countries were also affected, and the impact lasted a long time.

What Carlo was worried about was that due to the earlier outbreak and end of the Franco-Prussian War, the economic crisis of 1873 might erupt earlier or later.

Preventing this economic crisis was very necessary for Spain, and no negligence could be tolerated. This was also why Carlo directly ordered the Royal Security Intelligence Bureau to closely monitor the economic trends in various countries, as the outbreak of an economic crisis and its approximate timing could be simply judged from the stock markets and industry trends in various countries.

The capitalist economic crisis, in plain terms, was production far exceeding demand, thereby severely disrupting the market.

Judging whether an economic crisis would erupt was also simple: just look at the situations in various industries in various countries to see if they faced large-scale bankruptcy crises.

The economic development of this era was not subject to perfect regulation, and the impact of an economic crisis was extremely widespread, even causing chain reactions across industries and countries. Under the continuous attention of the Royal Security Intelligence Bureau, anomalies finally appeared in the economic situation of the United States.

Why focus on the United States? Besides it being the country most severely affected in the 1873 economic crisis, a major reason was that the United States was a beneficiary of the Second Industrial Revolution.

Carlo was keenly aware of the threat posed by the United States. Although the United States at this time was merely a major power with decent industry and economy, the potential of this country was absolutely enormous.

Since he had arrived at a time when the United States had not yet fully become powerful, Carlo naturally could not allow it to become even stronger.

Even the most powerful European powers would be checked by other European countries in the future, posing no major threat.

But Americans were different. If the United States truly became powerful, there would be no country in North America capable of threatening it.

North America and South America would become the United States’ backyard, and with the barriers of the Atlantic Ocean and Pacific Ocean, no country would be able to threaten the United States’ status.

Fortunately, there was still a long time before the United States truly rose, providing many opportunities to restrict its rise.

It had to be admitted that the fastest way to develop in this era was to build railways. Because a single railway affected various industries, the most important being heavy industry such as steel.

Steel production involved the mining and smelting of coal and iron ore, and railway construction could directly promote the development of the entire heavy industry sector, allowing the country to quickly enter the fast lane of development.

This was exactly what the United States did. From 1865 to 1873, over eight years, the United States’ pig iron production increased from 755,000 tons to 323 million tons, more than doubling—an extremely exaggerated growth.

Coal production grew from 159 million tons to 917 million tons, an increase of 3 times. From 1865 to 1872, the total mileage of new railways built in the United States reached 31,092 miles, which converted to over 50,000 kilometers.

Building a full 50,000 kilometers of railways in seven years—what an exaggerated figure!

Spain’s current railway mileage had not yet broken through 7,000 kilometers, and superpowers like Britain, Germany, and France had total railway mileages of only 20,000 to 30,000 kilometers.

The total railway mileage built by Americans in these seven years was already the sum of the total railway mileages of Germany and France, and twice that of Britain’s.

With such an exaggerated scale of railway construction, it was simply impossible for the 1873 economic crisis not to erupt. Moreover, more than half of the funds for American railway construction came from European countries, with the largest investments from Britain, France, the Netherlands, and Germany.

This was also one of the reasons why the economic crisis originating from the United States affected Europe—after all, these countries had invested real gold and silver into the United States, and the bankruptcy of American railway companies would naturally impact their capital operations.

Fortunately, Spain’s domestic capital strength was not great, so it naturally did not participate much in investments in American capital.

The collapse of the American railway industry had little impact on Spain, as Spain’s small scale of building only 300-400 kilometers of railways annually basically did not attract the attention of capital from other countries.

Spain’s current railway construction adopted two methods: one was direct government investment, and the other was issuing railway bonds to domestic capital and the public.

The drawback was that the funds available for railway construction were indeed very limited, and domestic capital and the public in Spain could not pool much money.

But the advantage was that the construction costs were within the range the country could bear, and railway construction would not trigger negative events such as economic crises.

However, such development was relatively slow for Spain, but if it could remain unscathed during the economic crisis, it could instead use this period to develop even faster.

At the same time, Spain, which had not suffered much from the economic crisis, could also attract the attention of capital from other countries, thereby providing more capital to drive domestic development.

However, development aside, in Spain’s construction efforts, whether Carlo or Prime Minister Primó, both would always pay attention to the influence of capital.

Spain naturally allowed the existence of capital domestically, but did not allow capital to possess overly powerful strength, and even less allowed capital to influence the government through its own power.

In the future, the capital with significant influence would only be the royal family’s capital and the government’s capital. These two forms of official capital united could easily control Spain’s domestic workers, turning Spain into a constitutional monarchy government supported by the industrial and agricultural classes.

According to the Royal Security Intelligence Bureau’s current investigation of the United States, the economic crisis was bound to erupt sooner or later, and it might even erupt within a year.

Starting from last year, the United States’ railway construction activities had already begun to slow down, and the stock market in the railway industry was no longer as profitable.

Since it was confirmed that the economic crisis was coming, the most important thing now was naturally to frantically expand one’s own financial reserves.

Because the currency systems of various countries currently generally adopted the gold standard, even if affected by the economic crisis, the currency depreciation would not be significant.

In some cases, currency might even appreciate, as gold’s value was relatively stable and would only appreciate, not depreciate, during such chaotic times as an economic crisis.

The reason for expanding financial reserves was only one: to prepare as much funds as possible to frantically buy the bottom after the economic crisis erupted.

The eruption of an economic crisis meant that many companies and enterprises would go bankrupt, which was also when their values were at their lowest.

Carlo could use much less funds to easily acquire these companies. Whether keeping them in place for continued development or transporting important equipment and production materials back to Spain, it would be a sure profit.

Carlo had actually considered reminding the Austro-Hungarian Imperial Government and the Italian Government in advance to prepare for the economic crisis, but after thinking for a long time, he ultimately gave up.

Advance notification might trigger unforeseen events, which was not worthwhile for Carlo. Moreover, the economic crisis was something governments of various countries bore, and it did not affect the royal family as much.

The Austro-Hungarian Imperial Family and the Italian Royal Family were clearly more influential than the Spanish Royal Family. They could cope with this economic crisis more easily, and there was no need to create extra trouble for himself.

Even if the two royal families suffered heavy losses in this economic crisis, Carlo could help them in the future through interest-free or low-interest loans, with no need to take such a big risk.

Financial reserves and gold reserves were the two most important things during an economic crisis.

The former could purchase low-priced assets from other countries, obtaining a great deal of industrial equipment and production materials.

The latter could serve as the most valuable financial reserves to prevent bank runs in domestic banks, exacerbating Spain’s domestic economic crisis.

“Continue to monitor the economic situations in various countries. Once there is any possibility of an economic crisis erupting, report it in a timely manner.

Additionally, investigate enterprises in the United States and European countries. I need a specific set of information.” Carlo instructed.

After the economic crisis fully erupted, the most important thing would be to acquire enterprises and factories in Europe and America.

But there were at least tens of thousands, or even over a hundred thousand, factories in these countries combined.

In such a situation, without proper investigation, it was very likely to purchase shell subsidiaries that caused the economic crisis, rather than truly excellent companies with equipment, a large amount of production materials, and many skilled workers.

Purchasing companies with real assets would not only yield a large amount of equipment and production materials but also allow poaching several excellent workers to Spain.

But if shell subsidiaries were purchased, aside from a few bankrupt railway projects, perhaps only the company’s debt notes could be obtained.

Hearing Carlo’s instructions, Director Kadir of the Royal Security Intelligence Bureau nodded very solemnly and said in a tone like giving a guarantee: “Understood, Your Majesty. I will investigate the factories and enterprises in Europe and America thoroughly and compile a set of information to report to you.”

Carlo was quite confident in the capabilities of the Royal Security Intelligence Bureau. Even the assassination attempt on Prime Minister Primó had been thoroughly investigated with the assistance of the Royal Security Intelligence Bureau. Whether monitoring domestically or conducting intelligence investigations abroad, the Royal Security Intelligence Bureau had considerable capabilities.

Under Carlo’s investment without regard for funds or cost, the Royal Security Intelligence Bureau had become Spain’s largest intelligence department, with equally excellent intelligence capabilities.

The number of intelligence officers currently on record already exceeded a thousand, scattered across Spain domestically and in Europe and America, bringing Spain a large amount of intelligence information and firsthand news.

This intelligence information also helped Carlo better judge the situations and events in various countries, preparing Spain’s responses.

Besides those thousand-plus intelligence officers, the external intelligence personnel cooperating with the Royal Security Intelligence Bureau numbered even several thousand.

Together, these people formed the Royal Security Intelligence Bureau’s vast intelligence network, allowing Carlo to learn the latest news from various places in the world and the latest policies of governments in various countries right in Madrid.

Having the Royal Security Intelligence Bureau investigate enterprise information in Europe and America would allow Carlo to more clearly discern whether these enterprises were suitable for acquisition.

After all, only enterprises with true value were worth acquiring. Those railway companies established merely to catch the railway construction wave, and other enterprises with no technology, founded purely to make money, were naturally not on Carlo’s acquisition list.

For Carlo, factories without much production materials and excellent skilled workers could be established in large numbers anytime he wanted.

But factories with unique production technology and excellent production workers could not be bought no matter how much money was spent in normal times.

Only during an economic crisis, only when these factories went bankrupt, could their full shares be obtained with minimal funds, and then their equipment, technology, and workers transferred to Spain as much as possible.

Of course, while paying attention to economic trends and stock market fluctuations in various countries, Spain’s two major stock exchanges domestically also had to be monitored.

Although the Madrid Stock Exchange and Barcelona Stock Exchange were not large in scale, they were still stock exchanges with various entrepreneurial activities and securities issuances.

In 1872 alone, Spain’s two major stock exchanges had over 70 entrepreneurial activities and securities issuances, with a cumulative total of 51 million pesetas.

If the securities trading activities in Spain were not paid sufficient attention, the economic crisis triggered by stock exchanges in other European countries might also affect the Madrid and Barcelona stock exchanges.

Spain’s capital system was inherently fragile, and even a relatively small economic crisis impact would be devastating to Spain’s fragile capital.

To protect domestic capital, it was necessary to impose certain restrictions on securities trading in Madrid and Barcelona, and conduct stricter screening of companies issuing securities to ensure that no companies founded merely for securities trading appeared in Spain.

This was not unfounded. Due to the marriage alliance with the Austro-Hungarian Empire, economic exchanges between Spain and the Austro-Hungarian Empire were also closer.

The entrepreneurial activities and securities issuances at the Vienna Stock Exchange were more frequent than those at Madrid’s two major stock exchanges, involving even larger total funds.

In 1872, the Vienna Stock Exchange had over 200 entrepreneurial activities and securities issuances, three times the total of Spain’s two major stock exchanges.

Although such a scale seemed impressive, it was not a good thing. Due to the lack of regulation, a large portion of them were banks and construction companies established purely for speculation.

After these banks and construction companies set up specifically for speculation flooded the Vienna Stock Exchange, they indeed created a brief boom.

But if affected by the economic crisis, these enterprises would definitely face bankruptcy immediately. The bankruptcy of a large number of enterprises would inevitably affect the overall trading volume of the Vienna Stock Exchange, causing the entire stock market to face a sea of red.

This would then trigger various chain reactions. Because the entire stock exchange market lacked regulation, the chain reactions would be extremely rapid and fatal.

By the time the Austro-Hungarian Imperial Government reacted, perhaps the economic crisis would have already destroyed the Vienna Stock Exchange and a large number of shell companies set up purely for speculation.

If there were no such shell companies set up purely for speculation, even if the economic crisis arrived, the order of the stock exchange could be maintained.

Especially for stock markets like Spain’s, due to the overall small scale, the impact of the economic crisis was destined not to be too severe.

Updated a bit late, sorry.