Chapter 24 – Raising Funds
"Sir Ernst, if you have no objections, we can proceed with signing the agreement."
Ernst gave the document one final careful read, then signed his name.
The visitor was a representative of the Prussian royal family. Recently, a heated debate had erupted in Prussia over the privatization of the Cologne–Minden Railway—a clear sign that the Kingdom of Prussia was scrambling to raise funds for war. And someone like Ernst, a "big fish," had naturally caught Prussia's attention.
After all, the Hexingen Consortium had become a star enterprise across all of Germany. It owned a sizable bank, a world-class consumer goods company, and Hexingen Tobacco. The fortune Ernst had amassed in such a short time had drawn plenty of eyes. While Ernst wasn't a self-made man with a rags-to-riches story—he was, after all, an aristocrat's son—his vast wealth was impossible to ignore, especially by the Prussian royal family, who were also his clients.
Their purpose in approaching him was obvious. Rather than sell off such a strategic asset as a major railway, the government hoped to try other means first.
The Cologne–Minden Railway was one of Prussia's earliest rail lines, designed in 1833 and completed in 1859. It became a critical hub in Prussia's rail system. The project was originally intended to carry cheap coal from the Ruhr region to Prussia's industrial heartlands. From the beginning, the Cologne–Minden Railway had been a large-scale public infrastructure project led by the government. Prussia purchased one-seventh of its founding shares and backed its bonds with 14 million thalers at an interest rate of 3.5%. In return, the state had the right to gradually buy up the company's shares and eventually nationalize it completely.
Railway nationalization was a strategic move. The Prussian government valued railways for their role in moving troops and supplies. But now, tensions with Austria were growing, and the Prussian leadership was actively preparing for war. War, of course, required money. The Cologne–Minden Railway became a focal point in the scramble for funds. Bismarck's preparations for war against Austria would require around 60 million thalers—a massive sum. That responsibility now fell to Brechslauer, the finance chief.
As early as December 1862, after much calculation and thought, Brechslauer had proposed a controversial plan to privatize the railway. The heart of his plan was this: instead of spending huge sums in 1870 to fully nationalize the railway—which would put major strain on the state budget—why not abandon nationalization now, accept a compensation payment from the railway company, and cancel the interest guarantee on the bonds? That would immediately free up 14 million thalers.
The moment this proposal was made public, many objected. Critics claimed Brechslauer's plan would sacrifice long-term government interests just to allow railway shareholders—including Brechslauer himself—to reap huge profits. By giving up all rights, the government would lose benefits worth 30 million thalers in exchange for only 10 million in compensation and 4 million in liquid assets.
Besides, the Cologne–Minden Railway was already a very profitable government investment. Privatization might provide emergency funds now, but it meant selling a valuable asset at half price and forfeiting long-term gains. No matter how you looked at it, it wasn't a good deal for the state.
Ernst, being a student of history, knew that Germany would eventually nationalize the railways after unification. So this privatization was only a temporary sacrifice. But it was naive to expect capitalists to act out of patriotism—they always pursued maximum profit.
Behind this privatization effort lurked the Rothschild family. Brechslauer was one of their agents. Though the Rothschilds were now based in Vienna and technically Austrian citizens, they were helping fund Prussia's war preparations. Shameless, perhaps—but undeniably effective. In the East, such behavior would've earned them execution. But European social systems protected them.
Ernst didn't concern himself with that. What mattered to him was the agreement now before him. This deal was the result of tough negotiations between him and the Prussian royals. Ernst, though wealthy, had many obligations—especially in developing East Africa. Everything from population resettlement, food reserves, tools, weapons, and staff salaries had to come out of his own pocket. After deducting what the Consortium needed to operate, plus the costs of running the colony and emergency reserves, he only had a few million thalers left. Still, that was a fortune in this era—remember, the government itself only expected to raise 4 million thalers from the railway deal.
The Prussian royals turned to Ernst not just for his money, but because they hoped he'd be more "loyal" than banks that only cared about profit. After all, Ernst was one of their own—a Hohenzollern. And Ernst didn't care about railway bonds. His eyes were on East Africa.
So he made his own request: that Prussia guarantee the Hexingen royal family's interests in East Africa. At the moment, unifying Germany was Prussia's top priority; colonies were secondary. If Ernst wanted Prussia's backing for his East African ambitions after unification, then Prussia would agree.
Thus, the two sides signed an agreement involving the Prussian government, the royal family, and Ernst, representing the Hexingen Consortium. The agreement stated that the Consortium would buy 40% of the government's shares in the Cologne–Minden Railway. The Consortium also agreed not to block Prussia from repurchasing those shares at above-market value in the future.
This was essentially a sleight of hand. Ernst was lending Prussia money through the railway, and once the war was over, the government could reclaim the shares and re-nationalize the railway.
Of course, Ernst wasn't doing it for free. In return, a unified German government would recognize the Hexingen royal family's ownership of its East African colonies and support the Consortium's expansion across Africa.
Though such a gentleman's agreement wasn't legally binding, it could prevent a lot of trouble. Unlike the real-life German East Africa Company, Ernst's venture now had a foundation and legal justification: this would be Hohenzollern royal territory.
As a bonus, Ernst also finally gained something he'd long wanted—an official seat at the table.
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