Empire Rise: Spain

Chapter 154: Cook Bank

As countries’ industrialization develops, the economic ties between countries around the world will also become increasingly close.

This also leads to a rather serious problem, that is, the outbreak of an economic crisis will not affect a single country alone, but will expand its influence to the whole world.

Although the economic crisis did not cause too serious a direct impact on Spain, it still affected Spain’s import and export trade.

On May 14, 1873, Prime Minister Primó specifically convened a cabinet meeting to address the possible impact of the economic crisis on Spain.

Carlo was also quite concerned about this economic crisis, listened to the meeting throughout, and put forward several of his own suggestions for preventing the impact of the economic crisis.

At the meeting, Finance Minister Ewald furrowed his brows and said with a troubled expression: “Your Majesty, Prime Minister. After the Vienna economic crisis broke out, it had a relatively serious impact on our import and export trade.

As the economic crisis gradually affects other European countries, it may cause a relatively serious blow to our import and export trade.

Since the economic crisis broke out, the scale of our daily cargo imports and exports has been continuously decreasing. If the economic crisis continues to persist, it is expected that this year’s total import and export trade volume will decline by at least 30%.”

Why does the economic crisis affect Spain’s import and export trade?

The real reason is still that the economic crisis has affected the economic environment of European countries, leading to a large number of factories and enterprises on the verge of bankruptcy or even directly bankrupt. The public has also lost their jobs as a result, and naturally will not have such strong purchasing power.

In the situation where other countries’ economies are in chaos, even if Spain’s industrial production is not greatly affected, goods will definitely not sell.

Similarly, in the situation where other countries’ economies are relatively chaotic and factories and enterprises are massively bankrupt, even if Spain wants to import large quantities, it depends on whether other countries have the ability to produce them.

The shrinkage of imports and exports in an economic crisis is inevitable, unless waiting for other countries’ economic situation to gradually improve, otherwise one can only silently endure the impact on the economy due to the massive reduction in imports and exports.

“Doesn’t that mean our economy may face negative growth this year?” Carlo asked aloud.

Since Spain’s reform, the economy has been growing positively every year. Moreover, the growth rate is extremely fast, which is also why the Spanish Government feels assured to use a large fiscal budget every year for various infrastructure construction projects.

As long as the economy maintains a good growth rate, the government’s investments will not only not lose money, but will turn into more tax revenue fed back to the government.

If negative economic growth occurs due to the economic crisis, the government’s tax revenue will also decrease. But those projects that have already started construction cannot be easily stopped, which also means that the government’s finances this year may face a large deficit.

“Yes, Your Majesty.” Ewald nodded and replied: “In the situation where import and export trade is affected, it will be difficult for our economy to continue to maintain positive growth.”

Carlo nodded expressionlessly, but felt very relaxed inside.

The negative economic growth caused by the reduction in import and export trade can be salvaged, and the salvage method is also very simple, which is to increase the intensity of infrastructure construction, thereby expanding the demand for domestic products.

At the same time, carrying out a large amount of infrastructure construction can also provide more jobs, which has a good promoting effect on Spain’s economy.

The only drawback of doing so is that the government needs to use a large amount of funds, but the current Spanish Government does not lack funds.

Although the value of that treasure is only over 900 million pesetas, the value of gold is not calculated this way. If gold is used to issue currency, it can issue currency worth several times its own value.

In other words, the Spanish Government can rely on these more than 80 tons of gold to issue currency equivalent to the value of hundreds of tons of gold.

At this time, Prime Minister Primó also stood up at a very appropriate moment and introduced to Carlo the plan that the cabinet government had already prepared: “Your Majesty, in order to cope with this economic crisis, the government plans to increase investment in public infrastructure construction again over the next two years, to create more jobs and stimulate the improvement of Spain’s economy.

In infrastructure construction, our investments are mainly focused on three aspects: improvement of road traffic, small-scale water conservancy engineering facilities in villages and towns, and slum renovation projects.

In order to protect our affected enterprises, the government will introduce short-term tax exemption policies for certain enterprises, and encourage Spaniards to purchase a large amount of Spanish mainland products, expand our domestic demand, and reduce the impact of export decline.”

The previous slum renovations were also restricted by finances, with a scale that has always been small and concentrated in Madrid.

Since the government now has no shortage of money, and there is enough time for infrastructure construction during the economic crisis, it is natural to vigorously promote the reconstruction of slums.

Transforming those dilapidated slum houses into high-rise buildings can not only effectively improve the appearance of Spanish cities, but also give these poor people a better living environment.

In fact, this economic crisis is not all bad for Spain; the benefits are also visible everywhere.

For example, during the economic crisis, the scale of industry and agriculture production in various countries is continuously declining, and the prices of various industrial manufactured goods are dropping again and again.

Spain can completely purchase a large amount of mechanical equipment at extremely low prices in European countries, and even purchase corresponding production materials and technology.

Some small and medium-scale factories were already facing bankruptcy crises, and being able to sell technology and equipment in exchange for some funds is naturally better than the entire factory and enterprise going bankrupt.

As for the harm of selling technology and equipment to factories and enterprises, it is no longer something they can consider. After all, if the enterprise goes bankrupt, they will have nothing left, so it is better to exchange equipment and production materials for some funds to ease the enterprise’s financial turnover.

After determining Spain’s domestic prevention policies for this economic crisis, the next topic of discussion quickly turned to what products should be purchased taking advantage of this good opportunity.

What the cabinet officials discussed the most was actually the production equipment and technical data of factories in various countries, including advanced steel smelting technology, military industry weapon production materials and production lines, Spain’s relatively weak chemical technology, and some mechanical equipment, etc.

These have extremely important help for Spain’s industry and are also what Spain lacked the most before.

Although there is aid from Italy and the Austro-Hungarian Empire, some relatively advanced technology and production materials are not so easy to purchase.

Either the price is too expensive, or they are directly confidential technologies of certain enterprises that are not open to the outside, and cannot be bought even if wanted.

This economic crisis at hand is a good opportunity. Production equipment and technical data that were relatively expensive in the past are now basically at bargain prices.

The money that could only buy one set of data before can now buy several sets of data, and even come with a mechanical equipment as a gift.

Those confidential technologies that small and medium-sized enterprises originally would not disclose to the outside are now products that can be taken away with a price offered. It is precisely because of this that Spain must not miss this good opportunity for a big shopping spree.

This economic crisis is bound to affect European and American countries, which also means that Spain can take funds to unscrupulously select production equipment and technical data in these countries.

According to posterity’s information, during this economic crisis, the number of enterprises that went bankrupt and closed down in countries around the world each year added up to nearly 10,000, and during the entire economic crisis period（1873-1879） a total of more than 50,000 enterprises went bankrupt.

Although many of these 50,000 enterprises are relatively ordinary factories without particularly advanced production equipment and technical data.

But there are also a small number of factories with relatively strong research and development capabilities, and the equipment and data in their hands are what Spain lacks the most at present.

However, the action of buying a lot in European and American countries still needs to go through certain camouflage. If purchasing a large number of bankrupt enterprises and factories in various countries in the name of the Spanish Government, it will inevitably attract the attention of these countries.

Even if it provokes public anger, it would be more loss than gain for Spain.

The purchasing personnel going to European countries will disguise themselves as various identities, but their goals are consistent, which is to select bankrupt enterprises worth acquiring, or purchase production equipment and technical data from enterprises on the verge of bankruptcy.

In the economic crisis, one country plays the role of the unlucky one.

Which country is it? Of course, it is the United States that relies heavily on foreign capital.

European countries suffering from the economic crisis, their first reaction is naturally to withdraw investments in the United States, or at least immediately terminate investments.

And Americans themselves need a large amount of foreign investment to maintain their crazy construction, and after foreign capital begins to withdraw, the economic environment of the United States has instantly collapsed.

What’s more, the economic environment of the United States itself has relatively big problems.

As mentioned before, the railways built by the United States in this recent period exceed the total of the United Kingdom and Germany combined.

And this also gives rise to a problem, that is, the United States has given birth to a large number of railway companies, and these railway companies are continuously seeking loans to build railways.

Among the many bankers in the United States, the Cook family is definitely one of the more famous private bankers.

Perhaps Cook himself did not know that one of his investments directly led to the beginning of the United States economic crisis, and also caused the United States’ industrial production to face a devastating blow.

For Cook himself, this investment was very routine.

His partner was the Northern Pacific Railway Company, which also has considerable reputation in the United States and has built multiple sections of railways with relatively good results.

Perhaps it is precisely because of the Northern Pacific Railway Company’s previous good reputation that when Cook agreed to help the railway company underwrite bonds, he agreed to underwrite 100 million US dollars in railway bonds without much thought.

The value of the US dollar is not low, much higher than the franc and peseta.

The value of 100 million francs in bonds is equivalent to more than 500 million pesetas, which is the Spanish Government’s annual fiscal revenue.

Such a large-scale bond sale is not so easy, not to mention that at the time of selling the bonds, it was facing the war between Prussia and the French.

In wartime, not many people are willing to use real gold and silver to buy bonds that are just a piece of paper. The result is obvious, the bond sales were not satisfactory, and the railway construction could not be maintained.

If the railway cannot continue to be built, it would be a huge blow to both the Northern Pacific Railway Company and Cook’s bank.

In order to save the railway company, Cook could only issue short-term loans to it.

Although the interest on short-term loans is high, at least it can ensure that the Northern Pacific Railway Company’s railway continues to be built. As long as the railway is completed, the railway company can at least recover some funds and continuously obtain income from the railway’s operation.

But things often do not go as expected. After the Vienna economic crisis broke out, European capital quickly withdrew its investments in the United States.

Cook’s bank was also severely affected, and the pressure on funds doubled.

By coincidence, the Northern Pacific Railway Company also encountered trouble at this time. Not only could the railway company not repay the principal and interest of the short-term loan on time, but it also needed Cook to invest more funds to continue maintaining it.

Obviously, Cook had no money at this time.

And the railway company lacking fund investment also very simply announced bankruptcy.

Accompanied by the successive bankruptcies of the Northern Pacific Railway Company and Cook’s bank, plus the panic caused by the European economic crisis to Americans, it soon caused fluctuations in the United States stock market.

The bankruptcy of Cook’s bank caused panic among Americans. People rushed to the bank, only wanting to withdraw their money from the bank’s accounts as early as possible.

But where does the bank’s accounts have so much money?

The previous era of prosperity was not only the prosperity of construction companies and railway companies, but also the prosperity of the banking industry.

These banks obtained high income through a large number of loans, and currently there are still a large number of bank loans that have not been recovered.

The banks do not have sufficient funds for exchange, and naturally face serious bankruptcy crises. This wave quickly affected a large number of banks, and at the same time many investment companies and railway companies were also affected.

From early June when Cook’s bank and the Northern Pacific Railway Company went bankrupt, to the New York Stock Exchange officially closing, it only took two and a half weeks, but these two and a half weeks were a devastating blow to the United States economy.

In these two and a half weeks, at least hundreds of banks went bankrupt one after another, including some larger chain banks.

Investment companies were even more miserable, with at least hundreds of investment companies announcing bankruptcy due to the collapse of their capital chains.

The bankruptcy of banks and investment companies quickly affected railway companies. Many railway companies that relied on loans and bonds to survive could not continue in such an economic environment, and the wave of bankruptcy rose again.

For the United States, this was just the beginning of the disaster.

Like other European countries, the United States at this time also did not have a central bank to control finance and bonds, and even issuing bonds was done by authorizing private banks to act as agents.

Because there was no central bank, the United States government could not save United States enterprises by providing currency supply and rescuing companies on the verge of bankruptcy, and could only helplessly watch the economic crisis intensify in the United States.

It is also because the bonds are handled by private banks on behalf, the massive bankruptcy of these private banks is not a good thing for Americans.

Not only did their deposits disappear with the bankruptcy of the banks, but even the bonds they originally purchased also vanished into thin air.

After all, with the banks gone, where can they redeem the bonds they purchased?

For the United States, a country that is developing barbarically, the impact caused by the economic crisis is more serious than that of European countries.

The industrial and economic growth rate of the United States during this period indeed far exceeds that of European countries, which also proves that the overall potential of the United States is higher than that of European countries.

But obviously, the development speed of the United States is relatively barbaric growth, lacking government control.

In just two and a half weeks, the United States has faced the bankruptcy of nearly a thousand enterprises, including no shortage of medium and large-scale enterprises and factories.

This also means that in a short period of time, more than 100,000 American public have suddenly become unemployed, and 100,000 families have seen their incomes plummet.