Alla sätt är bra utom de dåliga (
All methods are good except for the bad ones)
“Successful diplomacy is an alignment of objectives and means.”
“He who defends everything, defends nothing
Frederick the Great
“The secret of politics? Make a good treaty with Russia.”
The first sentence is going to be trivial. King Gustav V  of Sweden needed money.
Less trivial was the reason. He needed money not because he was a spendthrift or because Swedish economy was in trouble but because it was doing quite well.
Swedish economy was still dominated by the agricultural sector and almost 90% of its population lived in the countryside. Even most of the non-agricultural activities such as iron industry and saw mill industry were performed in the rural areas. But the agriculture itself had been slowly transforming since the early 1800s. The population kept growing and the domestic market for food stuffs widened. Simultaneously some other changes were happening impacting the general economic situation. Domestic transportation costs had been dropping due to investments in canals and roads. Trade of agricultural goods was liberalized, teducing the transaction costs and further integrating the domestic market. Trading companies became more effective in attracting agricultural surpluses for more distant markets. Mortgage societies had been establishec to supply agriculture with long term capital for investment further intensifying commercialization of production.
As a side factor, growing literacy level helped in spreading information regarding the new agricultural methods.
General industrial growth of Europe resulted in a sharp increase of the Swedish exports and the price increase for three main export items:
Bar iron and industry
. Charcoal-based Swedish bar iron had been the traditional Swedish export item and still was dominating Swedish exports. However, it was meeting increasingly strong competition from British, Russian and other continental steel industries with the resulting stagnation of the exports for the last couple decades. The growing international demand gave a stimulus to the modernization of Swedish steel production but it required money.
For a time being, there was still no need in the fundamental technological changes and related expenses because the Bessemer and Martin technologies for steel production still were few years away and, while Swedish charcoal-based iron was on the expensive side, its reputation for a high quality still provided a stable, if not growing export niche.
Wood and timber industry.
The saw mill industry was a new export industry which only started growing in the late 1840s. So far the Swedish forests had been regarded mostly as a fuel resource for the iron industry and, in the case of Finland, a source for tar. Well, and of course for the domestic usage (heating and construction). But with the growing demand of Western European markets the resources of northern Sweden suddenly became valuable with a resulting explosion of the saw mills construction at the mouths of the rivers along the northern coastline. The mills needed steam engines and this meant money
. Already, quite a few of the newly constructed mills had been owned by Norwegian, German, British and Dutch merchants and if the trend continued, the Swedish merchants could be squeezed out of their own market.
At the beginning of the 1830'S the export of sawn timber amounted to 200,000 cubic meters and around 1860, it reached 1 million cubic meters.
The multiplier-accelerator effect of the sawmill industry had importance not only for the capital-goods industry, which furnished the sawmills with machinery and in its tum led to an increased demand by the engineering industry for other products, but also for the boom in the consumer-goods industry, which can to some extent be seen as a reflection of the sawmill industry development.
The demand from foreign countries for Swedish products gave the exporters and the producers possibilities for expansion and enabled them to reduce their production costs. The investment activity therefore influenced' also other industrial branches, whose production grew as the export industry expanded.
It was easier for the export industry than for the home-market industry to expand in a community such as the Swedish, with its low National income and poorly-developed communications. The expansion in the export sector could take place before the essen- tial basic investments had been developed An industrial expansion on the home market was delayed, being limited not only by low real income, but also by poor communications between the regional markets. Investments in communications were therefore necessary in the initial industrialization phase in order to improve the distribution facilities if an integrated home market was to be developed However, because the demand for industrial products came from foreign markets, the industry could begin to expand before these investments were made.
Oats and agriculture.
The traditional Swedish agriculture traditionally had problems with producing enough grain to feed the growing population and the problem was a in shortage of the high quality agricultural land need for growing wheat. The land reclamation started after 1830 when the Act concerning legal land parcelling was issued. It was intended to address demands of growing rural population and in this aspect it was successful. However, it could not fully resolve the underlying problem because these lands were even lousier and improved agricultural methods could not solve this problem completely even if as a result need for the food imports decreased sharply to a degree which prevented it to be a serious problem.
The re-parcelling necessitated considerable investments
(new buildings, roads construction, fencing) and while most of the work had been done by the farmers themselves and needed material was taken from their own forests, the new investment had an accelerating effect. Well, all these activities on their own would be pretty much money spent just to deal with the demographic issue of feeding the growing population with a surplus being of no serious value.
But, fortunately, there was Britain and Britain needed the increasing amounts of oats: industrialization greatly increased the short-distance domestic traffic and this meant that increasing numbers of horses had been needed with a resulting need to fed them. In the 1830s only London’s largest transport enterprise had more than 300,000 horses.
And the oats could grow even on the bad lands. So the Swedish agriculture started using more and more barren soils to grow more oats replacing the traditional domestic flax production (flax was also thriving on barren soil) and, as a byproduct, increasingly switching from domestic linen to the factory-produced cotton goods (the cotton industry had been growing at a fast rate, starting from zero, but could not exclude the imports). But cultivation of a new crop also required investments (money),
especially taking into an account that it was involving re-parceling of the new lands, infrastructure and other expenses which the farmers could cover only partially.
Just as a side note, the ongoing processes triggered serious changes. So far, the technology in the industry, forestry, agriculture and transportation were reasonably simple and labor intensive. The demand for unskilled labor increased strongly and this started impacting the wages. Of course, commercial houses and industrial companies had been making profits but export income was distributed to many segments of the population. Social composition of the population changed as well. During the period 1750 to 1840, the number of fanners grew by about 16 per cent, whereas the lower class population increased by approximately 240 per cent.
The growing exports provided the farmers with an additional income which increased demand for industrial goods which provided stimulus for growing consumer-goods industry and simplified an issue of getting the foreign credits.
The integration of the economy was further enforced through the State initiatives: the early 1850s the decision was made to start railway construction which meant both deeper state involvement in the development of a modern infrastructure and the new principles of finance because the State had to rely upon the capital imports.
The agriculture itself was also getting more capital demanding due to the introduction of new implements.
When the process started situation with the credits available in the rural areas was not good because all credit institutions had been available only in the towns and for the towns. Surprisingly (or not) the rural saving banks came into an existence very fast and in the growing numbers. The number of savings banks increased between 1834 and 1860 from 3I to 146 and their capital from 2.3-million kronor to 29.o-million kronor.
Another contributing cause of the investment activity was the development of mortgage societies. The first of these for the farming community was founded in 1836, and before 1850 most counties in south and central Sweden had their own. But the needed amounts of money could not be easily found domestically and by the end of 1858, these societies will have a foreign bond liability of 52-million kronor out of a total bond liability of 72-million kronor.
To make the long story short, transformation of the Swedish agriculture had been happening before the industrial transformation and allowed both to provide food supplies for the growing non-agricultural population and to start accumulating capital which could later be used for industrialization.
On a downside, agricultural self-sufficiency did not last for long because the exports had been more profitable, the oats-dominated nomenclature was not adequate and, when in few years industrialization kicked in, the balance of food consumers and producers started seriously shifting into the first category even if the second still remained much more numerous. So, in few years the grain imports started again.
Well, one way or another, the task of keeping Sweden a modern and prosperous state was costly and the domestic financial resources had been relatively limited. So far the Swedish industrial entrepreneurs were recruited from a relatively small group. It is clear that the commercial houses, i.e. the wholesalers, belonged to the most initiative-rich founders of businesses in Sweden.
The financing often took the form of short-term credits, for in- stance by promissory note guarantee, but in actual fact these were made long-term by continual renewal, which was, naturally, a pressure on the liquidity of the enterprises. Not a big surprise that so far much of a working credit was coming from the abroad and while this was fine with the Swedish merchants-industrialists, King Gustav V did not want Sweden to be excessively dependent upon the foreign and not necessarily too friendly countries.
The seemingly obvious solution would be to strengthen the Swedish National Bank (Sveriges Riksbank). It already reinstated the silver standard in 1831 and starting from 1835 began printing the modern-looking banknotes (the private banks still had a right to print their own money, which periodically resulted in problems because when en the commercial banks were shaken, the Riksbank was unable to step in and provide support).
But so far where to get the big amount of cash was anybody’s guess. Administration of the Swedish territories was consuming a big part of the revenues, the army and navy kept growing more expensive and while the peace treaty with the natives of NZ was signed in 1841, the colony was useful mostly as a place that helps slightly decrease the demographic pressure caused by population growth at home.
For quite a while there was a low intensity bargaining process between King Gustav and FWIV of Prussia. The King of Prussia was interested in acquisition of the Swedish duchy Bremen-Verden expecting that if this happens he will be able to get an access to the North Sea with a resulting easy access to the Atlantic trade. He was ready to buy the area or to propose a realistic land swap or combination of both. GV was maintaining the process but so far it was not going anywhere because interest on both sides was limited and out-shadowed by the different priorities. Now he started paying more attention.
Bremen-Verden was in the Swedish possession for a very long time but, unlike the Baltic provinces, it was not integrated into Sweden in any meaningful way. The Baltic provinces had its historic privileges but their nobility was actively engaged in the Swedish army and navy, the Baltic trade involved both sides of the Baltic, and, as far as the existing guild laws permitted, the Swedish businesses had been actively operating in the provinces. During the reign of his predecessor they, together with Finland, the former PLC territories and Curland, were fully integrated into the Swedish government system and had been represented in Riksdag.
OTOH, Bremen-Verden was fully isolated. Its ruling class firmly held to the constitution of 1648. It was under the direct rule of its duke who happened to be the Kung of Sweden and ruled through the governor he appointed. The tax-levying department, almost entirely manned with Swedes and using Swedish as administrative language, was directly subordinated to the finance ministry in Stockholm but in jurisdiction, Bremen-Verden's Estates maintained their stake and the Duchy was sending its representatives into the Imperial Diet. The taxes collected in the Duchy were almost completely spent on its administration and maintenance of the garrison troops which, while being traditionally commanded by the Swedish general, had been recruited locally and had local officers.
The triggering event was turmoil of 1848. Suddenly, a backward conservative swamp became quite active and, while the disturbances had been suppressed, it required arrival of the Swedish contingents because the Duchy’s troops proved to be unreliable. More than that, there were some loud voices demanding the German unification and expressing an idea that the Duchy should become an autonomous province within that new German state. Finally, without asking permission from Stockholm, the Duchy sent its representatives to the National Assembly in Frankfurt.
Of course, Sweden could suppress any separatist movement without a serious problem but expeditions not had been costly and there were more productive ways to spend money. The governor of the Duchy had been summoned to Stockholm and he confirmed that the Duchy’s loyalty is quite shaky, at best, and that to keep it quite and loyal will require a permanent presence of 25,000 -30,000 Swedish troops, which will require to provide the Duchy with the allowances because the Duchy’s tax revenue would not cover the growing military expense.
As a result, King Gustav was ready to get rid of the Duchy providing there is going to be a descent compensation. And, of course, to get that descent compensation he should not look excessively interested. Probably the best way would be to make it something of a family affair with the “third party” being involved to make it all look (and be) fair. A convenient family reunion had been arranged in Petergof with FWIV, who was suffering from bad health, being represented by his brother Wilhelm, Prinz von Preußen . Nicholas was quite enthusiastic about the deal happening because this would eliminate a need for him to choose sides in the case of the issue ends up in a serious conflict: with the close family connections on both sides this would be awkward at best and could damage the existing system of the alliances at worst. Plus, of course, the very fact that both sides asked him for mediation was raising his personal international prestige and underscored strength of the whole Baltic System.
With all sides being willing to figure out a suitable solution, the business part did not took too long leaving plenty of time for entertainment: with the principal framework being agreed upon, the boring details had been left to the professional diplomats who would prepare the final document and present it for the “historic event” of signing the treaty.
Actually, it was not too complicated. The King of Sweden was transferring his sovereignty rights to the Duchy of Bremen-Verden to the King of Prussia who, in his turn, cedes to the King of Prussia the territories of the former Polish Woj. Pomorskie with Bitow and Lybork and pays monetary compensation to cover the values difference. The technical details regarding the land access to the East Prussia, tariff free regime for the transit goods, etc. were included and, to make the whole thing into the show of the true unity, it was decided to start technical discussions on the ambitious plan of railroad going from St. Petersburg through the Baltic Provinces, East Prussia, Danizig and further all the way to Berlin. Taking into an account the growing Russian economic links to Prussia, this railroad could provide an additional route for the imports-exports somewhat relieving the burden upon St. Petersburg port.
 ITTL married to Grand Duchess Alexandra Nikolaevna who managed not to die in 1844. Wanted to make him Nicholas’ nephew but could not find if I married his father to Alexandra Pavlovna. Let’s hope not. OTOH, I somehow doubt that Synod would resist a dynastic marriage even if the first cousins are involved. Of course, the times being civilized, it is probably out of question that a stubborn bishop is going to end his life being immured in a cell in some remote monastery over the consciousness issue but the government had plenty of time to produce a breed of the Church hierarchs who would not be that
 Married to Nicholas’ niece.