Chapter 22

Our Discord Server: https://discord.gg/PazjBDkTmW

Chapter 22: Behind the War

On May 3rd-4th, 1839, the German allied forces clashed with the French in South Germany, fighting around Stuttgart. The French had a decisive victory, forcing the German allied forces to retreat with a loss of over nine hundred soldiers.

Moltke retreated the allied forces to Waldeck Castle, waiting for reinforcements from Prussia and the other princely states, while the French continued advancing towards Bavaria.

On the morning of May 6th, a report of victory and a list of additional troops from the German Confederation were placed on Emperor Napoleon III’s desk.

Standing before Napoleon III were the newly appointed French Minister of Finance, Fould, and the Deputy Minister of Defense, Captain Arnaud.

"We have won a victory in South Germany, but the German allied forces are increasing their troops significantly, expanding the scale of the war. We need to respond. Captain Arnaud, how many troops do you think we should send to South Germany?"

"Your Majesty, the German forces are no match for us. We only need to send an additional 5,000 troops and a few dozen members of the Royal Guards. Our focus should be on suppressing the revolutionaries in the Apennine Peninsula and defeating Austria. There is no need to worry much about South Germany."

Napoleon III felt uneasy. Prussia was sending an additional 14,000 troops, while other princes were sending 4,000 more. By next week, the total number of troops in the German allied forces would reach around 35,000, whereas France was only sending 5,000 more troops, totaling 22,000, putting them at a disadvantage.

Captain Arnaud said, "The French excel at fighting outnumbered. Even if we only send 22,000 troops to South Germany, and they are not our main forces, we can still defeat the 35,000 Germans. It is well known that our army’s diversionary tactics are most effective against the Germans."

Napoleon III hesitated but then decided, "Yes… let’s send an additional 10,000 troops."

Captain Arnaud agreed, "Of course, Your Majesty. This way, our secondary forces can swiftly defeat the Germans."

After discussing military matters, Napoleon III turned to the Minister of Finance to discuss issuing government bonds.

The war in South Germany was growing, so they needed to add ten thousand soldiers to the army. This meant spending a lot of money, which was a good reason to issue government bonds.

The Liberal Revolution in France turned into a major revolution with ambitions for power and expansion. People wanted the French Emperor to conquer other countries and establish dominance in Europe.

Napoleon III did as the people requested. He fought against the Austrians in the Apennine Peninsula and against Prussia and its allies in South Germany.

Wars cost money. Without money, wars cannot be fought. Since it was the people who wanted war, they should also bear the financial burden.

"How about seven percent?" Napoleon III asked.

"Five percent will do, the people will eagerly buy them," the Minister of Finance replied.

After a brief discussion, they decided to issue thirty million francs of government bonds at an annual interest rate of five percent.

This government bond was specifically for funding the expansion of the war in South Germany, or in other words, it was issued due to the South German War expansion.

The "West France Newspaper" featured the new government bond issuance on its front page, saying, "People of France, the country needs your help!"

Two days ago, the victorious French army won a big battle in South Germany. After the defeat, the German Confederation started sending more troops to the front lines. His Majesty Napoleon III also decided to send an additional ten thousand soldiers to support the front lines. The war was costing a lot, so to ensure the victory, the Ministry of Finance is going to issue short-term war bonds.

Buying government bonds means supporting the country and the soldiers fighting on the front lines. The total amount of this round of bonds is thirty million francs, and there is a limited quantity available. If you buy 1000 francs worth of bonds now, you can redeem them for 1100 francs in two years, with an annual interest rate of five percent.

In reality, the cost of sending ten thousand more troops to the front lines doesn’t actually require thirty million francs. Napoleon III intends to divert this war bond money to invest in industry.

In the 1840s, industrialization and capitalism were booming. A country that is developing relatively steadily without engaging in confusing behaviors can experience very rapid economic growth.

Under normal circumstances, if government bonds don’t come with conditions, the interest rate would need to be over ten percent to attract capitalists, nobles, and foreign financial giants to buy them. Without such high interest rates, people would prefer to invest in industry, save in banks, or play the stock market, as there are many ways to make big money these days.

The interest rate on the government bonds issued by Emperor Napoleon III this time is only five percent.

The capitalists exclaimed, "Hmm! Not even a dog would buy these."

But the French people were willing to buy the bonds eagerly, and the thirty million francs worth of bonds were sold out quickly.

At that time, French nationalism had reached its peak. The people were willing to support the French army in fighting wars, and buying government bonds was not a donation but rather like lending money to the country, even though the interest rate was a bit low.

The people of France thought, "I will buy government bonds, lend money to the country, the country will use the money to fight wars, and after a couple of years, they will pay me back the money with some interest. Then the war will be won, and I will not only contribute but also earn some extra money. Isn’t that wonderful?"

So, thirty million francs worth of government bonds were quickly sold out, with no capital group subscribing, all bought by the French people, a large group of individual investors.

This kind of phenomenon, this era, could only happen in France, because the people of France were indeed wealthy, both farmers and city dwellers were very prosperous, with every blade of grass being so lush. Taking advantage of the wave of nationalism fervor, Napoleon III could use low-interest government bonds to gather wealth.

The people thought that Napoleon III used the money from the government bonds to fight wars, but in reality, he turned around and used the money to develop industries. With an annual interest of five percent, it was almost like an interest-free loan. Thanks to the generous people who lent their money.

Prussian Prince Regent Redel also wanted to do the same, but the people of Prussia were extremely poor, with no resources to exploit.

When Prussia issued government bonds, only Junker landlords, nobles, capitalists, and foreign financial giants could buy them. And these groups only cared about money, without setting the government bond interest rate higher, no one would buy them.

Farmers, workers, and city dwellers were the main components of the French investors, while the Prussian investors were too few to make much difference.

In order to expand the South German war, Prussia also issued a round of government bonds totaling 4.5 million pounds, with an annual interest rate of 8.25 percent. The main subscribers were Hebrew bankers and a few individual investors.

The government bond affairs were handled by Chief Secretary Anna, with the 8% interest rate still being quite low. During the prosperous times of Prussian economy, private funding companies and industrial securities offered interest rates above 12% to attract investors.

People who only care about making money will definitely prefer to buy high-interest private bonds that offer high returns, and they will not buy Prussian government bonds with only 9% interest.

The Hebrew banker was willing to subscribe because of additional terms, as the Financial Chief Secretary Anna had discussions with several representatives from Hebrew financial groups.

"We hope to remove the discriminatory signs near our gathering place, and please allow us to not wear discriminatory armbands. We want equal rights, we are also citizens of Prussia."

Anna, "Okay, let’s talk about the interest rate."

After some discussions, the interest rate for this government bond was set at 8.25%. On the day of issue, the Prussian Ministry of Interior removed the signs and barriers near the Hebrew gathering place, and the Hebrew banker fulfilled the subscription as agreed.

Borrowing money is the same no matter who you borrow from. Of course, the lower the interest rate, the better. Only by agreeing to additional terms with the Hebrews could the government bonds with 8% interest be sold. Normal people wouldn’t want to buy government bonds with such low interest.

In the Kingdom of Prussia, there are five groups of people. The main ethnic group, the Germans, make up 88%, followed by the Polish, Czech, Danish, and Hebrews.

The first four groups can obtain normal Prussian citizenship and enjoy equal treatment as citizens, while the Hebrews cannot. They only have residency rights and face many restrictions in daily life.

For example, the Hebrews’ gathering place requires fences and barriers, with signs indicating "inferior people settlement." When Hebrews leave the area, they must wear special armbands. Hebrews have no right to appeal if they are attacked, stolen from, or even killed by others.

The Hebrews made money by selling lottery tickets and running underground gambling operations, then became rich by engaging in speculative activities.

Being wealthy but lacking social status, and easily bullied, Anna sought the Hebrew bankers for loans, agreeing to certain conditions in order to borrow money at a low interest rate.

Anna’s strategy was to cause disturbances; when borrowing money, she would remove the slogans and barriers in the Hebrews’ area, then reinstall them later, repeating this process to always secure low interest loans.

Anna who needed money, "Oh my dear compatriots, can I borrow some money from you, can the interest rate be lower?"

Anna who borrowed the money, "Disgusting inferior people, go back to your dirty gathering place, put on your inferior armbands."

Anna a while later, "Oh my dear compatriots, I’m here to borrow money again."

The Hebrew bankers, always lending money but unable to gain equal rights, dared not speak out but could only keep lending, hoping that Prussia would truly grant them equal rights one day.

Behind her back, the Hebrews scolded Anna, calling her a cruel, untrustworthy villain.

This only showed that they were still too young, not having experienced true cruelty; the Prussian Prince Regent Redel and the Financial Chief Secretary Anna were actually very kind.

The prince regent said, "Even though I have always lied to you, broken promises, delayed loan repayments, and interest payments, I never wanted your lives. You Hebrews should be thankful for my mercy and kindness. If you keep causing trouble, I’ll resort to using Mayer economics."

Emperor Napoleon III, the puppet of the French people.

Prussian Prince Regent Redel, a puppet of Hebrew capitalists.

High and Low Court Ruling

After successfully selling government bonds, both of them used similar tactics, investing a small amount of funds in the war on the South German front line, and using most of the money directly for industrial purposes.

The selling of government bonds during the war did indeed have a beneficial impact on the military generals on the battlefield.

Moltke received approximately one hundred thousand pounds in front line funds, which was completely sufficient. If the intensity of the war was not high, it could last for about eight months. This frontline funding mainly involved buying food, hiring locals to help in setting up camps and fortifications, hiring people for logistical support, paying soldiers, rewarding them during intense battles or victories, etc.

The purchasing power of the pound was very strong, one hundred thousand pounds was a huge sum of money.

After confirming that the front line funds were sufficient, Your Highness the Regent handed over the remaining four million four hundred thousand pounds from the sale of government bonds to the Prussian Ministry of Industry for use.

Royal Affairs Director Freeman said to the prince, "Your Highness, I remember that this national debt is for the war, so the funding should be handled by the Ministry of National Defense. What if the public finds out that we are diverting the national debt?"

"Industry is also a part of the war, am I diverting funds?" Leader One asked in return.

Freeman scratched his head and said, "But I still think this is fund diversion."

The prince regent gave a stern look.

Freeman, with an awkward yet polite smile, suggested, "Oh… I think we can embellish it in the financial report aimed at the public, then it will be fine."

The Royal Affairs Director is a young man (42 years old). He has not been in the center of power for long, not mature enough. He retains some integrity or straightforwardness in his heart. On the other hand, Freeman’s political talent has begun to emerge. He is flexible and understands compromise.

For prince regent Leader One, the outbreak of war and the escalation of war scale are not just about military and combat. There are more things to handle beyond that, such as economics and diplomacy.

For the German Allied Commander Moltke, war is truly just war.

Moltke said, "Don’t bother me with unnecessary chatter, I just want to crush those French!"