Chapter 21: Chapter 21 – The Unexpected Economic Crisis

Even though he could not convince the men present, Moritz Winkler was not worried, for he knew that a few of them were already considering his suggestion; they were just too scared to speak their minds publicly.

In fact, Moritz Winkler was not a die-hard revolutionary; he was only supporting the Revolutionary Party since it served his interests. He would not resort to rebellion if his interests could be served through peaceful means.

After all, he stood to lose more than gain if a revolution were to truly take place in Austria. If the revolution was a success, the best-case scenario would be him becoming the president of the new bourgeoisie republic which might soon after come under joint suppression by other European nations.

After all, the and the subsequent had begun because the nobles and monarchs of other European nations wanted to curb the spread of Republicanism on the continent. 

On the other hand, if the revolution ended in failure, presumably, the best outcome for him would be being exiled overseas.

In fact, most capitalists secretly supported the Revolutionary Party; however, expecting them to personally lead the revolution would be foolish since they didn’t like the scrutiny that came from being involved with a revolution.

 

***

 

The banquet was difficult to keep a secret and what happened there was quickly reported to Chancellor Metternich. Of course, the secret meeting between the high-level capitalists was not included in the report.

Unfortunately, Chancellor Metternich, as the head of the government, had to maintain a bottom line even in political struggles, so he could not arbitrarily arrest the capitalists who participated in the banquet on the charges of colluding with the Revolutionary Party. After all, he, himself, had always advocated that people should respect the rule of law and due process.

Despite knowing that capitalists were conspiring against him, he could only continue to passively defend himself. “Beset by enemies from within and without” was the most apt description of his situation: currently, the nobles and the capitalists both shared the common goal of ousting him from power.

 

***

 

By winter of 1847, the people in Vienna had realized that the prices of goods had risen, and in fact, they had risen at a rate which was visible even to the naked eye. By the end of December 1847, prices of goods in Vienna had risen by 47% as the capitalists continued to test the limits of the public’s tolerance, little by little.

As a result, the people turned their eyes to Chancellor Metternich, expecting him to come up with a solution. Unfortunately, they were met with disappointment for the government had neither the capacity nor the authority to intervene in setting prices of goods and commodities.

Despite the measures taken by Chancellor Metternich, few proved effective. For instance, the government had ordered the businesses to stop manipulating the prices, however, this order was blatantly ignored by the capitalists.

Even after several meetings between the government and the capitalists, nothing changed . Initially, the government’s plan to stabilize the price of goods by flooding the market with imported goods failed. The plan was not flawed, however, it failed due to the roadblocks set up by the capitalists and the corrupt bureaucracy.

Of course, it was not completely ineffective: at least the rate at which the prices increased fell, and the fluctuation in prices also became less extreme.

After the failure of the previous strike, many capitalists no longer trusted each other. In addition, many smaller capitalists could no longer afford to wait for the prices to rise any further, so they began slowly selling their goods while prices were high.

 

***

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Avarice is part of human nature.

The surprisingly quick rise in the price of goods was not possible without the participation of the nobles, although their motivation was limited to making money, not the overthrow of the government like many capitalists.

Initially, these nobles had perhaps just wanted to fish in troubled waters to make some money, but after seeing the prices of goods continue to rise, blinded by wealth, they became trapped in the swamp of speculation. Unfortunately, their good days would not last long as the timing of their speculation coincided with the British industrial crisis.

 

***

 

Since 1845, Europe had suffered from repeated poor harvests which caused the international food prices to soar. As the food prices rose, the purchasing power of European people fell.

In 1846, due to the poor harvest of cotton, the price of raw cotton and cotton textile products produced in the United States had almost doubled. Consequently, the high prices led to a decline in sales of cotton textile products. As Britain was the largest market for raw cotton and cotton textile products, it was hit the hardest.

With such a huge decline in the volume of merchandise sold, British businesses had no choice but to lay off workers. Britain’s unemployment continued to increase as railway freight volumes hit new lows due to the loss of business caused by a decline in sales of industrial products. As a result, many railway companies fell into a state of loss, before, finally, the British railway bubble burst in fall of 1847.

A slight change in one sector affected the overall economic situation in Europe; when the railway bubble burst, the railroads under construction were shut down, and the demand for steel fell. The cotton crisis ultimately affected the steel and coal industry as 58 out of 137 steel furnaces in Staffordshire were closed. Production of pig iron fell by a third in just over a month, while coal production fell by almost 20%.

In November 1847, 200 of the 920 cotton textile factories in Lancashire, one of Britain’s textile industry hubs, were shut down, while the rest only worked two to four days a week. More than 70 percent of workers in Staffordshire and Lancashire suffered from unemployment or semi-unemployment.

Nevertheless, the industrial crisis that broke out in Britain did not attract the attention of Austrian capitalists because neither the British economic crisis of 1825 nor the British economic crisis of 1837 had affected Austria. As a non-industrialized nation, Austria did not have the structure within which industrial crises occurred.

Many people had forgotten that Austria was no longer the major power that it had once been. As a non-industrialized nation, it may not be affected by an industrial crisis but it would surely be affected by the subsequent economic crisis.

The very first nation which was affected by Britain’s industrial crisis was France. After the British industrial crisis broke out, in order to make up their losses, British capitalists began dumping raw materials and finished products overseas, and the unprotected French became the first victim. By the end of 1847, France’s total industrial production had fallen by almost 40%.

The few semi-industrial nations in the German region also failed to escape the consequences of the British industrial crisis. As their industrial strength was weaker than France, the impact of the dumping was even graver for them.

During the winter of 1847, 5,000 out of 8,000 weaving machines in Kleefeld, Hanover were shut down; during the first few months of 1848, only 3 out of the 14 factories in Cologne were still working; meanwhile, industry in Erfurt was almost completely wiped out.

Suddenly, the Austrian capitalists and the nobles who were speculating on prices of essential goods were left in tears. In order to curb the exorbitant prices in Vienna, the government decided to lower tariffs which allowed a massive amount of cheap British products to flood the market. 

Combatting the British capitalists who had found another market to make up their losses was far beyond the capabilities of  Austrian capitalists. In the face of dumping from an industrialized nation, the Austrian capitalists choose to retreat from the market immediately.

In January 1848, the prices of all industrial and commercial products, except food, hit rock-bottom. In such a situation, the capitalists no longer had the leeway to consider maintaining their internal unity. Some capitalists, who had reacted quickly, were barely able to stop loss by emptying their inventory while prices were still a bit high. Unfortunately, many capitalists, who were slow to react, were now locked up in the market. They could only choose to hold onto their inventory, waiting for prices to rise before selling. 

Because of oversupply in the market, the prices of industrial and commercial products in Vienna had fallen below their production costs, and the capitalists and nobles who drove up prices were forced to bear this painful loss. In order to avoid further losses, capitalists began layoffs. Many capitalists had suffered such great losses that they were forced to close their factories; as a result, unemployment in Vienna rose steeply.

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