Work as palatine
After his election, Joseph assumed a more active role. While previously he had mostly relied on the opinions and decisions of Izdenczy's ultra-conservative party, he now realised that their investigation against progressive teachers had lacked proof and was improperly conducted. He criticised this to the Viennese court, and reprimanded Németh.
In early February 1796, Joseph alerted Emperor-King Francis to the devastation that the loss of the Polish market for Hungarian wine caused after Poland's partitionig. His proposal to help out the wine trade was his first individual idea, but Vienna wanted to maintain the economic dominance of the Habsburg hereditary lands. In early September, while the sovereign continued to demand soldiers and ammunition from Hungary, the Palatine relayed the nobility's wish for another diet, which was fervently opposed. This might have convinced Joseph that Vienna was partial against Hungary.
During the first years of his palatinate, the Archduke's time was taken up by war preparations. In early 1797, after military failures, Emperor-King Francis sent his family to Buda for their safety. Around this time, a shift can be observed in the tone of the letters exchanged by the brothers: Joseph stopped merely executing Francis' will and became the more pro-active party. He remained a lifelong conservative, worrying that Enlightenment ideas could "confuse" the uneducated. He warned the Emperor-King to keep an eye on returning prisoners of war who might have picked up revolutionary ideas in France. In early 1798, he suggested a police force against the "strong advance of the revolutionary spirit" and a secret police for bigger cities. These ideas had already been brought up during the reign of Joseph II, but were then too fiercely opposed by the nobility. While a secret police was established to monitor the mood in ten cities, there is no proof of the Palatine ever collaborating with them.
A major turning point in Archduke Joseph's attitude towards his office were his travels to the Russian Empire. In 1798 and 1799, he visited Saint Petersburg twice to finalise marriage plans with Emperor Paul I's daughter. He suffered humiliations because of diplomatic mistakes by the Viennese court, which led to him to view his brother's administration with a critical eye. Prior to 1798, he served to execute imperial will in Hungary, and during his short first marriage, he worked little. After the loss of his wife, when his focus returned to public matters, he approached them with an opinion of his own.
On 9 June 1801, he wrote a referral to his brother asking him to release the remaining political prisoners of the Martinovics uprising, including author and language reformer Ferenc Kazinczy. He urged the Emperor-King to gather a diet, reform public education, establish a second university, and boost trade. He was concerned with what a "relatively sparse population" the "vast, abundant area" of Hungary supported (different estimations give between 8.1 and 9 million inhabitants for an area of 282,870 km2/109,220 sq mi in 1790) and at what a "backwards stage of culture, among what primitive economic conditions" people lived.
On 17 June 1801, Joseph submitted a report to Emperor-King Francis, explaining his view and opinions on Hungary. He characterised public opinion and morale as high, except for a few "atheistic and freethinking" young people. He criticised members of the aristocracy for not striving for knowledge and "useful occupations", as few of them ran for public office and most of those who did neglected their positions. He proposed that only those should be made chamberlain or court councillor who had proved themselves in public service, and emphasised the potential of the lower nobility, advising more appreciation towards them. He was most dissatisfied with the bureaucracy, faulting them for a lack of "zeal" and "diligence" and for not keeping classified information secret. His proposed solutions based on maintaining the country's spirits, for example by permitting diets, instead of oppression.
Archduke Charles, Joseph's brother and leader of the Imperial Army, demanded recruits and money from Hungary. This could only be granted by the diet, and the Viennese court was afraid that the nobility would bring up their many complaints if one was gathered. Joseph worked to convince his brother otherwise, presenting his arguments in his report of June 1801. He suggested that the sovereign resolve some of the grievances the Hungarian nobility ahead of the diet, such as re-attaching Dalmatia to Hungary, or allowing a free export of grain (which had been forbidden to keep the enemy French from acquiring it). The pressing situation of the Imperial Army finally led to the Viennese court accepting a diet.
Despite tragedies in his personal life (the death of his infant daughter and his wife in early 1801), as well as health concerns, the Palatine prepared thoroughly for the assembly, struggling with the Emperor-King and his ministers who were unwilling to compromise. They denied any help to the Hungarian economy or re-attaching Dalmatia and argued that educational reforms, were to be decided by the monarch alone. The Viennese legislature thought that Hungary did not contribute proportionally to the Habsburg monarchy, while many Hungarians criticised the government for suppressing industrial development.
The Diet of 1802 was opened on 13 May, with multiple members of the Habsburg dynasty present. In his opening speech, Joseph aligned himself with Hungarians, promising to protect their rights if the Emperor-King tried to infringe upon them, but emphasised the importance of "complete trust" in the sovereign.
The Emperor is my brother; but if he should violate the least of your rights, I would forget the ties of blood to remind myself that I am your palatine.
The main goal of the deputies was to pass legislation supporting agricultural and industrial development, stifled by the customs regulations of Maria Theresa. Cities, towns, and guilds compiled proof and wrote explanations of why the existing system was unjust and unsustainable, asking for an equal regulatory treatment of all parts of the Habsburg monarchy. Theyargued that the main goal of customs regulations was to prevent the founding of factories in Hungary and exclude Hungarian merchants from international trade. Another economist supporting a major reform was Gergely Berzeviczy, whose thesis rebutted accusations by the Viennese government that it was the "laziness" and "primitiveness" of Hungarians that made the country unproductive. Austrians were dismissive, and Emperor-King Francis committed to the old regulations.
Another problem raised at the diet was that of banknotes, which had been used since 1762. The acceptance of banknotes as payment was made compulsory in 1800. As a result of government debt, inflation was concerning. Given how serious the monarchy's troubles were and the parties' distrust of each other, the diet promised to be difficult. The Palatine worked hard, studied previous negotiations between the two parties. When he learned that the főispáns of each county were commanded to submit the instructions given to their respective envoys to the Austrian chancellery, he was concerned that this would cause distrust among Hungarians. He gave frequent descriptions of public sentiment to the Emperor-King, telling him that while most people deemed the royal demands "just and necessary", opinions differed on methods of execution. To elevate spirits, some members of the imperial family moved to Pozsony, and various feasts and religious ceremonies were held.
Initial negotiations were promising, but the royal propositions of 13 May did not mention any of the subjects concerning the Hungarians, simply asking for new recruits and higher taxes. On the 21st, the nobles asked for time to discuss the demands and for economic reforms to ease the introduction of higher taxes. Emperor-King Francis received their referral well, although anti-constitutional circles in Vienna objected to the assembly debating the Emperor-King's proposals. While negotiations remained peaceful, both parties were unwilling to compromise. Joseph played the role of mediator and calmed the Hungarians, who worried that the Viennese court wanted to introduce continuous recruitment to render diets unnecessary.
Tensions were increased by a royal letter on 12 July, which emphasised royal prerogatives, leading the envoys to believe that the King did not respect their rights. By 18 July, participants had become "confused" and "withdrawn". To avoid escalation, Joseph talked to Francis personally in early August, describing how determined the envoys were and that they represented general opinion. He warned the Emperor-King that if he insisted on the content of the letter of 12 July, the situation would deteriorate beyond help, and he expressed support for some economic proposals of the assembly. As a result, a new royal letter on 14 August focused more on achieving consensus and stated that any decisions would only be in effect until the next diet. The sovereign entrusted the Palatine with settling matters "favourably for the state", giving guidelines.
By this time, however, participating nobles had become distrustful of the King and insisted on the entirey of their demands, despite Joseph trying to convince them to compromise. He told the envoys that if they did not accept his mediation, he would advise the Emperor-King to refuse all requests. The diet voted for twelve thousand new recruits and promised to find a solution for continuous recruitment at the next diet. (The Diet of 1804 did not deliver on these promises.)
Joseph had grown tired of the assembly by mid-August, and he asked the Emperor-King to settle some minor issues and close the diet. Economic reforms were never seriously considered, especially because the issue was brought up on 14 July, the same day the ill-received royal letter of the 12nd was presented to the envoys. The Emperor-King's hesitance to re-attach Modruš-Rijeka County meant that the diet ended in distrust and pessimism in October. To the Palatine, Francis wrote that Hungarian nobles "only want gains for themselves, without looking to the good of the whole" empire, and that he would need "great resignation" to forget their "behaviour against [him]".
The reckless eagerness to achieve Your Majesty's intentions right now, which has not given me time to think about its possibility and feasibility, insufficient deliberation, [and] [...] the thought that I might, with my authority and the trust of the estates placed in me, see through a matter which had repeatedly failed before—which flattered my self-esteem—tempted me to make a proposal to Your Majesty without having considered the consequences. This, however, would have been far from drawing the present consequences had not the false arguments and harsh expressions [...] in said resolution excited tempers. [...] [T]he stubborn discussions with the estates prior to the assembly had upset me [...] and at the conference [...] I—to my shame—therefore paid attention to the words rather than to the substance and thus completely spoiled the matter. Your Majesty cannot believe [...] how I feel when I consider what more could have been accomplished by this parliament, and how little more will be possible to be accomplished by it.
