The Grand Trunk Era
It has been seen that by the close of the forties British North America was realizing both the need of railway expansion and the difficulty of financing it. Other factors combined to bring about the intervention of the state on a large scale. Both in the Canadas and in the Maritime Provinces political disputes were giving place to economic activities. The battle of responsible government had been fought and won. Men's energies were no longer absorbed by constitutional strife. Baldwin and LaFontaine were making way for Hincks and Morin; Howe had turned to constructive tasks. Responsibility was bringing new confidence and new initiative, though colonial dependence still continued to hamper enterprise. British and American contractors discovered the virgin field awaiting them, and local politicians discovered the cash value of votes and influence. The example set in the United States was powerful. Massachusetts had guaranteed bonds of local roads to the extent of eight millions, without ever having to pay a cent of the interest; and though New York's experience had been more chequered, the successes were stressed and the failures were plausibly explained away.
The eight or ten years which followed 1849 are notable not only for a sudden outburst of railway construction and speculative activity throughout the provinces, but for the beginning of that close connection between politics and railways which is distinctively Canadian. In this era parliament became the field of railway debate. Political motives came to the front: 'statesmen' began to talk of links of Empire and 'politicians' began to press the claims of their constituencies for needed railway communications. Cabinets realized the value of the charters they could grant or the country's credit they could pledge, and contractors swarmed to the feast. 'Railways are my politics,' was the frank avowal of the Conservative leader, Sir Allan MacNab.
Three names are closely linked with this new policy—those of Howe in Nova Scotia, Chandler in New Brunswick, and Hincks in Canada.
Francis Hincks, merchant, journalist, and politician, moderate reformer, and Canada's first notable finance minister, took the initiative. As inspector-general in the second Baldwin-LaFontaine Cabinet, he brought down the first instalment of his railway policy in 1849. In the previous session a committee of the House had considered the demand of the Great Western and of the St Lawrence and Atlantic for assistance, and had discussed the less advanced proposals for railways from Montreal to Toronto and from Quebec to Halifax. Allan MacNab, as chairman of the committee, had listened sympathetically to the plea of Allan MacNab, president of the Great Western, and the committee had reported in favour of guaranteeing the stock of the two companies to the extent of a million sterling. No action was taken at this session. Meanwhile Hincks, by instruction of his colleagues, had drawn up two memoranda—one suggesting that the crown lands in the province might be offered as security for the capital necessary to build the road within the province, and the other urging the Imperial government to undertake the road from Halifax to Quebec. Capitalists gave no encouragement to the first suggestion, and the British government had not replied to the second by the end of the session of 1848-49. Accordingly, in April 1849 Hincks brought down a new policy, based upon a suggestion of the directors of the St Lawrence and Atlantic. The proposal was, to guarantee the interest, not exceeding six per cent, on half the bonds of any railway over seventy-five miles long, whenever half the road had been constructed, the province to be protected by a first charge after the bondholders' lien. MacNab seconded the resolution; voices from Bytown and the Saguenay mildly questioned the policy, but the resolution passed unanimously.
Even with this aid construction did not proceed apace. It was still necessary for the companies to complete half the road before qualifying for government assistance. This the St Lawrence road effected slowly, in face of quarrels with contractors, repudiation of calls by shareholders, and hesitancy of banks to make advances. The Great Western did not get under way until 1851, when American capitalists, connected with the New York Central, took shares and a place on the directorate. In the same year the Toronto, Simcoe, and Huron, later known as the Northern, began construction.
Meanwhile suggestions from the Maritime Provinces had brought still more ambitious schemes within practical range, and these led Hincks to take the second step in his policy of aid to railways.
In the Maritime Provinces, from 1835 to 1850, many railways had been projected, but, with the exception of a small coal tramway in Nova Scotia, built in 1839 from the Albion coal-mines to tide-water, not a mile was built before 1847. There, as elsewhere, the pamphleteer and the promoter acted as pioneers, and the capitalist and the politician took up their projects later. The plans which chiefly appealed to public attention looked to the linking up of St Andrews, St John, and Halifax with Quebec and Montreal and with the railways of Maine. From the outset the projects in these provinces were much more ambitious than the local beginnings in the Canadas. They were more markedly political and military in aim, and in consequence depended in greater measure upon the aid of the British government. When at last construction was begun, the policy of provincial ownership was more widely adopted.
When in 1876 Sandford Fleming drew up a record of the great work just completed under his direction, the Intercolonial Railway, he called attention to the first proposal for such a road, found in an article contributed to the United Service Journal in 1832 by Henry Fairbairn.1 The author proposed the two chief projects which for half a century were to engross the attention of the Maritime Provinces: a road from St Andrews to Quebec, which should 'convey the whole trade of the St Lawrence, in a single day, to Atlantic waters,' and another line from Halifax through St John to the border of Maine, which should command for Halifax 'the whole stream of passengers, mails, and light articles of commerce passing into the British possessions and to the United States and every part of the continent of America.'
St Andrews was the winter port in British territory nearest to the upper provinces. If the territory in dispute on the Maine boundary fell to New Brunswick and Quebec, a road not more than 250 or 300 miles long could be built from this port to the city of Quebec. In 1835 a Railway Association was formed in St Andrews, an exploratory survey was made, and the interest of Lower Canada was enlisted. In the following year New Brunswick gave a charter to the St Andrews and Quebec Railroad, and the Imperial government agreed to bear the cost of a survey. But the survey was speedily halted because of protests from Maine; in 1842 the Ashburton Treaty assigned to the United States a great part of the territory through which the line was projected, and the promoters gave up. Then in 1845 the railway mania in England brought a revival of all colonial schemes. Sir Richard Broun took up the plan for a line from Halifax to Quebec, along with other grandiose projects connected with his endeavour to revive the lost glories of the baronetage of Nova Scotia, but did not get past the stage of forming a provisional committee. This discussion revived the flagging hopes of St Andrews, and, as will be seen in detail later, a beginning was made by a railway from St Andrews to Woodstock, the New Brunswick and Canada, for which ground was broken in November 1847.
The provincial legislature early concluded that it would be impossible to induce private capitalists to build an intercolonial road unaided. They were unanimous also, not yet having emerged from the stage of colonial dependence, in desiring to throw the burden of such aid as far as possible on the British government. In the absence of a colonial federation the United Kingdom was the main connecting-link between the colonies in British North America, and was presumably most interested in matters affecting more than a single colony. The British government, however, had by this time about decided that the old policy of treating the colonies as an estate or plantation of the mother country, protecting or developing them in return for the monopoly of their trade, did not pay. It had reluctantly conceded them political home rule; it was soon to thrust upon them freedom of trade; and it was not inclined to retain burdens when it had given up privileges. Mr Gladstone, secretary for the Colonies, agreed, however, in 1846, to have a survey made at the expense of the three colonies concerned.
This survey, the starting-point for the controversies and the proposals of a generation, was completed in 1848, under Major Robinson and Lieutenant Henderson of the Royal Engineers. 'Major Robinson's Line,' as it came to be known, ran roughly in the direction eventually followed by the Intercolonial—from Halifax to Truro, and thence north to Miramichi and the Chaleur Bay, and up the Metapedia valley to the St Lawrence. The distance from Halifax to Quebec was computed at 635 miles, and the cost at £7000 sterling a mile or about £5,000,000. Acting on the assurance of engineers that the route was feasible, each of the three colonial governments offered in 1849 to set aside for the work a belt of crown lands ten miles wide on each side of the railway, and to pledge £20,000 a year to meet interest or expenses, if the British government would undertake the project. Downing Street, however, replied politely but emphatically that no aid could be given.
After the plan of a northern route to Quebec was thus apparently given its quietus, interest shifted to the Portland connections. The building of the road from Montreal to Portland added further strength to the claims of this route. On paper, at least, it seemed possible to make the connection between Montreal and Halifax by following either the northern or the southern sides of the great square. One of the southern sides was now under way, and by building the other, from Portland to St John and Halifax, connection with the Canadas would be completed. Under the leadership once more of John A. Poor, Portland took up the latter project. The name of the proposed road, the European and North American, showed the influence of the same hope which Fairbairn had expressed—that the road from Portland to Halifax would become the channel of communication between the United States and Europe, at least for passengers, mails, and express traffic. With a line of steamers from Halifax to Galway in Ireland, it was held that the journey from New York to London could be cut to six or seven days.
In July 1850 a great convention assembled in Portland, attended by delegates from New Brunswick and Nova Scotia as well as from Maine and other New England states. Intertwined flags and fraternal unity, local development and highways to Europe, prospective profits and ways and means of construction, were the themes of the fervent orators and promoters. The convention was enthusiastically in favour of the project. The 550 miles from Portland to Halifax—222 in Maine, 204 in New Brunswick, and 124 in Nova Scotia—would cost, it was estimated, $12,000,000, half of which might be raised by private subscription and the rest by state and provincial guarantee.
The delegates from the Maritime Provinces returned home full of enthusiasm, but increasingly uncertain about the securing of the necessary capital. At this stage Joseph Howe came to the front. He had much earlier, in 1835, before entering parliament, taken the lead in advocating a local railway from Halifax to Windsor, but had not been prominent in recent discussions. He now urged strongly that the province of Nova Scotia should itself construct the section of the European and North American which lay within its borders. He proposed further to seek from the Imperial government a guarantee of the necessary loan, in order that the province might borrow on lower terms. The Colonial Office, while expressing its approval of the Portland scheme, declined to give a guarantee any more than a cash contribution. Nothing daunted, Howe sailed for England in November 1850, and by persistent interviews, eloquent public addresses and exhaustive pamphlets, caught public favour, and in spite of Cabinet changes in London secured the pledge he desired.
In the official reply of the Colonial Office Howe was informed that aid would not be given except for an object of importance to the Empire as a whole, and that accordingly aid was contingent upon securing help from New Brunswick and Canada to build the whole road from Halifax to Quebec. Major Robinson's line need not be followed if a shorter and better could be secured; any change, however, should be subject to the approval of the British government. 'The British Government would by no means object to its forming part of the plan that it should include provision for establishing a communication between the projected railway and the railways of the United States.' The colonies were to bear the whole cost of the loan, and were to impose taxes sufficient to provide interest and sinking fund, and thus ensure against any risk of loss to the United Kingdom.
Howe returned triumphant. The British government would guarantee a loan of £7,000,000, which would build the roads to Portland and to Quebec and perhaps still farther west. He hastened to New Brunswick, and won the consent of its government to the larger plan, went on to Portland and allayed its murmurs, and with E. B. Chandler of New Brunswick reached Toronto, then the seat of government of the province of Canada, in June 1851. His eloquence and the dazzling offer of cheap and seemingly unlimited capital soon won consent. The representatives of the three provinces agreed to construct the road from Halifax to Quebec on joint account, while Canada would build the extension from Quebec to Montreal, and New Brunswick the extension to the Maine border, each at its own risk, but in all cases out of the £7,000,000 guaranteed loan.
Then suddenly the bubble burst. The Colonial Office, late in 1851, declared that Howe had been mistaken in declaring that the guarantee was to extend to the European and North American project. The British government had no objection to this road being built, but would not aid it. The officials of the Colonial office declared that they never meant to promise anything else.
It is difficult to assign with certainty responsibility for this serious misunderstanding. Possibly Howe's optimism and oratorical vagueness led him to misinterpret the promises made, but his reports immediately after the interviews were explicit, and in dispatches and speeches sent to the Colonial Office and acknowledged with high compliments, his version of the agreement had been set forth clearly and for months had gone unchallenged. He cannot be freed from a share of the blame, but the negligence of Downing Street was at least equally the source of the misunderstanding.
The whole plan thus fell to the ground. The consent of the three provinces was essential, and New Brunswick would not support the Halifax and Quebec project if the Portland road, running through the most populous and influential sections of the province, was to be postponed indefinitely. Hincks determined to endeavour to save the situation. Accompanied by John Young and E. P. Taché, he visited Fredericton and Halifax early in 1852, and hammered out a compromise. New Brunswick agreed to join in the Halifax to Quebec project on condition that the road should run from Halifax to St John and thence up the valley of the St John river; Nova Scotia agreed to this change, which made St John rather than Halifax the main ocean terminus, on condition that New Brunswick should bear five-twelfths as against its own three-twelfths of the cost. It remained to secure the consent of the Imperial government to this change in route, and accordingly Hincks, Chandler, and Howe arranged to sail for England early in March. Hincks sailed on the day agreed; Chandler followed a fortnight later; Howe, repenting of his bargain, postponed sailing a fortnight, a month, six weeks, and then announced that because of election pressure he could not go at all. Hincks and Chandler found in office in London a new government which appeared biased against the valley route. Upon a peremptory request from Hincks for a definite answer within a fortnight, the British Cabinet, in spite of the previous promise to consider the route an open question, declined to aid any but a road following Major Robinson's line. The negotiations broke off, joint action between the provinces failed, and each province switched to its own separate track.
Howe steadily maintained the policy of state ownership, but had unusual difficulty in carrying Nova Scotia with him. The great English contracting firm of Peto, Brassey, Betts and Jackson, whose operations in the other provinces will be discussed at greater length, offered to find the necessary capital if given the contracts on their own terms. Many Nova Scotians were dazzled by the promises of the agents of this firm, and Howe in 1853 was forced to agree to their proposals. The contractors found themselves unable to make good their promises, in face of panics on the stock market in England, and in the following year Howe's original policy was sanctioned. He himself retired from political life for a time in order to carry through, as one of the railway commissioners, the policy he had steadfastly urged.
It was on June 13, 1854, that the first sod was turned for the construction of the Nova Scotia Railway, and a beginning made at last. The road was run from Halifax to Truro, with a branch to Windsor. Progress was slow, but by 1858 the ninety-three miles planned had been completed. Then came a halt, when reality succeeded the glowing visions of the prospectus, the service proved poor, and the returns low. Nine years later an extension from Truro to Pictou was constructed. This gave Nova Scotia at Confederation in 1867 145 miles of railroad in all, built at a cost of $44,000 a mile, and connecting Halifax with the Bay of Fundy and the Gulf of St Lawrence. The gauge adopted was five feet six, and the Nova Scotia road led the way in Canada in using coal for fuel.
New Brunswick had a more chequered experience. After the collapse of the Halifax and Quebec project, here efforts were confined to the road running north from St Andrews and to the European and North American.
The possibilities of St Andrews as an ocean terminus had been severely hampered by the thrusting in of the Maine-wedge between New Brunswick and Quebec, but still the town struggled on. In 1847 shares in the railway had been placed both in England and in the province, and the legislature guaranteed the interest on debentures and also granted a land subsidy. Still, the money came in slowly. Operations were time and time again suspended contract after contract was made, and reorganizations were effected. In 1858 the road had reached Canterbury, and four years later its temporary terminus at Richmond; in 1866 a branch to St Stephen was opened, and in 1868 an extension to Woodstock, making 126 miles all told, costing about $20,000 a mile. At Confederation only a third of the distance between St Andrews and Rivière du Loup on the St Lawrence had been completed, and the road was in a receiver's hands.
The European and North American also had its troubles. Maine proved unable to build its section. In 1852 the New Brunswick government made a contract with the English firm already referred to, under the style of Peto, Betts, Jackson and Brassey, for the construction of a line from Maine to Nova Scotia, at $32,500 a mile. The province agreed to subscribe $6000 stock and lend $9400 in bonds per mile; the contractors were to find the rest of the money in England. This they failed to do. The firm was dissolved in 1856, and the government took over the road, completing it from St John to Shediac, 108 miles, in 1860. The western half was not begun until August 1867.
To return to the upper provinces. By 1851 the St Lawrence, the Great Western, and the Northern were under way, and more ambitious schemes proposed. The Guarantee Act of 1849, which was the first phase of Hincks's policy, assuring public aid for the second half of any road at least seventy-five miles in length, was proving inadequate, and the government was considering an extension of its policy. At this juncture the golden news arrived of Howe's success in securing the £7,000,000 loan at bargain rates. All hesitation was removed. No doubt they felt that the roads would pay, once they were built; the only difficulty had been to find the money to build them. And now £7,000,000 was available—£4,000,000 of it for Canada, at probably 3½ per cent. Paper computations soon proved that £4,000,000 would suffice not only to build Canada's third of the Quebec-Halifax route, but to build a trunk line from Quebec or Montreal through to Hamilton, whence the Great Western ran to Windsor on the frontier opposite Detroit.
At once a struggle began for the control of this fund. The Montreal merchants who had bought experience in building the St Lawrence and Atlantic, John Young, Luther Holton, and D. L. Macpherson, with A. T. Galt of Sherbrooke, were first in the field, and pressed for a charter to build from Montreal to Kingston, intending later to extend this road to Toronto. Then the most noted firm of contractors in railway history, Peto, Brassey, Betts and Jackson (the forms of the firm name varied), who had built one-third of the railways of Britain, and also roads in France and Spain and Italy and Prussia and India, were attracted to this fresh field by Howe's campaign in England. They sent an agent to Toronto in 1851 to offer to construct all the roads needed, and to find all the capital required, with partial government guarantees.
Hincks, with whom the decision lay, was eminently an opportunist. In 1849 he had argued against government ownership; now he argued for it. Yet he did not close the door against retreat. The new Act, passed in April 1852, marked the second or Grand Trunk phase of his gradually shaping policy. Besides providing for the Canadian share of the Halifax to Quebec road, the Act contemplated three alternative methods of continuing this Trunk line westward. The province was to build it if the guaranteed loan could be stretched far enough; failing this, the province, together with such municipalities as wished, could undertake the extension; should both modes fail, private companies might be given the privilege, with a provincial guarantee of half the cost, covering both principal and interest. No roads except those forming part of the Trunk line and the three already under way were to be aided. The Montreal and Kingston Railway, in which Holton, Galt, and Macpherson were prime movers, was chartered, and also the Kingston and Toronto, but in both charters a suspending clause was included preventing the charters from taking effect until special proclamation was made—after the other plans had failed.
The next move was to arrange terms with the other provinces and secure the promised Imperial guarantee. How Hincks and Chandler's mission failed has already been told. Hincks then made another sharp curve and decided for company control. Before leaving Canada he had made up his mind that the construction should be entrusted to British contractors, and was authorized to negotiate with the Brassey firm. Now that the Imperial guarantee had faded away, capital was needed more than contractors. The Brasseys promised both, offering, if given the contract, to organize a company in England which would provide all the capital not guaranteed by the province.
This seductive offer was to prove the main cause of the financial embarrassment of the Grand Trunk. It involved at the outset a dubious connection between company and contractor, and also for two generations an attempt to manage a great railway at a range of three thousand miles. So fatal did it prove that in later years each party to it endeavoured to throw the responsibility for the initiative on the other, and enemies of Hincks declared that he, as well as Lord Elgin, the governor-general, had been bribed to wreck the negotiations with the British government in order to take up with Brassey. Whether or not Hincks was first to resume negotiations in London, it was the contractors who had already taken the initiative in America, sending a representative to Toronto, and taking part in the elections of 1851 in Nova Scotia against Howe. It is clear also that the British government was unwilling to consider anything but the unacceptable Major Robinson line. Hincks was justified in looking elsewhere for capital, but he was not justified in binding himself to one firm of contractors, however eminent.
Hincks returned to Canada with a tentative contract in his pocket. To Canada, too, came Henry Jackson, a partner in the Brassey firm for this enterprise, and one of the most skilful and domineering of the railway lobbyists in Canada's annals, rich in such methods. At once a battle royal began in parliament. On August 7, 1852, the Montreal and Kingston and the Kingston and Toronto charters were proclaimed in force; apparently the supposition of the government was that the English contractors would simply subscribe for the bulk of the stock in these companies. But the Canadian promoters were not willing to give up their rights so easily: a week after the books were opened, Galt, Holton and Macpherson subscribed between them £596,500 and seven of their associates took up the nominal balance of the capital of £600,000 which was authorized. Hincks met this move by bringing down a bill to incorporate a new company, the Grand Trunk Railway Company of Canada, and the rights of the rival claimants came before parliament for decision.
On behalf of the English promoters it was urged that the Canadian promoters could not raise the necessary capital, that the Galt-Holton-Macpherson subscription was a fake, that the English contractors could induce capitalists to invest freely at low rates, and that their superior methods would result in a road of more solid construction and lower working expenses than the ordinary American railway. Holton and Galt, on the other hand, contended that their subscription was in good faith, that tenders were in, and that with provincial guarantee and municipal aid, and by paying the contractors partly in stock, they could finance the road. It would be better, they urged, to have the control in the hands of men who knew the province rather than in the hands of outsiders. The Grand Trunk Company, seeking incorporation, was only a sham company, under the thumb of the contractors, formed to ratify a foregone contract with them. If the Montreal and Kingston Company was given control, it would invite the Brassey firm to tender on the same basis as other contractors; no more could honestly be asked.
Galt and Holton had the best of the argument, but Hincks had the votes, and rumours which Jackson spread of the Brassey millions and the firm's open door to all the money markets of Europe brought conviction or afforded excuse. The railway committee reported in favour of the English promoters, though the competition had compelled them to reduce their price by a thousand pounds a mile, and to accept a guarantee of £3000 per mile instead of half the cost. At the same time the Brassey firm secured a charter for the Grand Trunk of Canada East, to run from Quebec to Trois Pistoles—Canada's first section of the Halifax to Quebec route. The same aggressive firm had already secured a contract for the Quebec and Richmond, which was to join the St Lawrence and Atlantic at Richmond, and, as has been seen, for New Brunswick and Nova Scotia roads. With these contracts seemingly secure, Jackson sailed for home. But Canadian promoters were quick to learn. Galt had another card to play. As president of the St Lawrence and Atlantic he proposed to amalgamate this road with the Montreal and Kingston, and to build a bridge at Montreal, thus securing an essential part of the trunk line. Hincks became alarmed at the Montreal interests thus arrayed against him, and proposed as a compromise that the Grand Trunk should absorb the St Lawrence road and build the bridge at Montreal on the condition that the opposition to its westward plans should be abandoned. Upon this all parties agreed, and the English and Canadian promoters joined forces.
Negotiations were completed in England early in 1853. As yet the Grand Trunk Company was but a name. The real parties to the bargain were many. First came John Ross, a member of the Canadian Cabinet, but representing the future Grand Trunk, of which he was elected president. The Barings and Glyns, eminent banking houses, had a twofold part to play, as they were closely connected with the contractors and were also the London agents of the Canadian government. The contractors themselves, Peto, Brassey, Betts and Jackson, of whom Jackson, accompanied by the company's engineer, A. M. Ross, had spent a year studying the Canadian situation, put in anxious weeks hammering out the details of the agreement and the prospectus to follow it. Galt represented the St Lawrence and Atlantic and the Atlantic and St Lawrence, while Rhodes and Forsythe of Quebec had charge of the interests of the Quebec and Richmond. An agreement was reached to amalgamate all the Canadian roads and to lease the Maine road for 999 years. This left Toronto the western terminus. An attempt to absorb the Great Western and thus secure an extension to Windsor came to nothing. This failure gave Galt an opening for another brilliant stroke of railway strategy. A company had recently been chartered to build a road from Toronto to Guelph and Sarnia, and the firm of Gzowski and Co., of which Galt was a member, had secured the contract. Galt, acting with Alexander Gillespie, a prominent London financier who was the agent of the Toronto, Guelph and Sarnia Railway, now proposed to substitute this line as the westward extension. Everybody was in an amalgamating mood, and the bargain went through. All contracts previously made were taken over by the amalgamated company, and the investing public was told that all uncertainty as to the total amount was thus removed—as it emphatically was, for the time.
A glowing prospectus was drawn up. The amalgamated road would be the most comprehensive railway system in the world, comprising 1112 miles, stretching from Portland and eventually from Halifax (by both the northern and the southern route) to Lake Huron. The whole future traffic between west and east must therefore pass over the Grand Trunk, as both geographical conditions and legislative enactment prevented it from injurious competition. 'Commencing at the debouchere [sic] of the three longest lakes in the world,' the prospectus continued, 'it pours the accumulating traffic in one unbroken line throughout the entire length of Canada into the St Lawrence at Montreal and Quebec, on which it rests on the north, while on the south it reaches the magnificent harbours of Portland and St John on the ocean.' It was backed by government guarantee and Canadian investment, and its execution was in the hands of the most eminent contractors. The total capital was fixed at £9,500,000 sterling. The revenue was estimated at nearly £1,500,000 a year, which, with working expenses at forty per cent of revenue, and debenture interest and £60,000 for lease of the Atlantic and St Lawrence Railway deducted, would leave £550,000 or 11½ per cent on the share capital.
On the advance of Baring and Glyn only half the capital was issued at first. This decision proved a serious mistake. In 1853, when the company was floated, money was abundant and cheap; the shares and bonds issued were over-subscribed twenty times, and were quoted at a premium before allotment. Scarcely was the issue made when war with Russia loomed up, and money rose from three to seven or eight per cent. Never again was it possible for the Grand Trunk to secure capital in such abundance.
But this was for the future to disclose. At one construction began in Canada. A. M. Ross was appointed chief engineer, and S. P. Bidder general manager, both on the nomination of the English bankers and contractors. Plant was assembled in Canada, orders for rails and equipment were placed in England, and navvies came out by the thousand. At one time 14,000 men were directly employed upon the railways in Upper Canada alone. In July 1853 the last gaps in the St Lawrence and Atlantic had been filled up, though not in permanent fashion. In 1854 the Quebec and Richmond section was opened; in 1855, the road from Montreal to Brockville and from Lévis to St Thomas, Quebec; in 1856, the Brockville to Toronto and Toronto to Stratford sections. Not until 1858 was the western road completed as far as London. The year 1859 saw the completion of the Victoria Bridge, the extension from St Mary's to Sarnia, and a new road in Michigan, running from Port Huron to Detroit. By 1860 the eastern extension extended to Rivière du Loup, where a halt was made.
From the outset difficulties undreamed of had developed. Money was hard to get and early traffic returns were disappointing, so that the company found it almost impossible to secure the balance of the capital required. The road from Montreal to Portland was found to require heavy expenditure to bring it up to the standard. The contractors, for their part, were embarrassed by the company's shortage of funds and the great rise in the prices of land, materials, and labour. Their own activities, the Reciprocity Treaty of 1854 with the United States, the Crimean War, had combined to bring on a period of inflated prices such as Canada was not to experience again for half a century. With wheat at two dollars a bushel, and 'land selling by the inch', even liberal margins of profit on contracts vanished.2
In these straits the company turned to the government for aid. It had many supporters in the House. No one could deny the benefits which its operations had conferred upon the province. The government guarantee of interest and the government nomination of a part of the board of directors were plausibly held to involve responsibility for the solvency of the company. It was not surprising, therefore, that for a decade after 1855 scarcely a year passed without a bill to amend the terms of the Grand Trunk agreement. One year it was an additional guarantee, another a temporary loan, again a postponement, and again a still further postponement of the government's lien. It soon came to be recognized that the money which had been advanced under the guarantee provisions must be considered a gift, not a loan, though to this day the amount nominally due still figures as an asset on the Dominion government's books. Incidentally, the embarrassing government directors were dispensed with in 1857.
The Grand Trunk was complete from Lake Huron to the Atlantic in 1860. In the ten years that followed, working expenses varied from fifty-eight to eighty-five per cent of the gross receipts, instead of the forty per cent which the prospectus had foreshadowed; not a cent of dividend was paid on ordinary shares—nor has been to this day.
What were the reasons for this disappointing result? The root of the trouble was that the road was not built solely or even mainly with a view to operating efficiency and earning power. It was the politicians' road, the promoters' road, the contractors' road, at least as much as the shareholders' road. The government had encouraged the building of unprofitable sections, such as that east of Quebec, for local or patriotic reasons. Promoters had unloaded the Portland road and later the Detroit and Port Huron road at excessive prices. The contractors, east of Toronto, had had an eye mainly to construction profits in planning the route, and heavy grades, bad rails, and poor ballast increased maintenance charges beyond all expectations. The prophecy that operating expenses would not exceed forty per cent of earnings, based on English experience, failed partly because earnings were low, but more because operating expenses were higher, than anticipated. The company had more than its share of hard luck from commercial depression, and from loss on American paper money in the Civil War. Water competition proved serious in the east, while other railways waged traffic wars in Upper Canada. The trade of the far west, which had been the most attractive lure, did not come in any great amount for the first twenty years. Differences of gauge, lack of return freight, rate wars with the American roads which had been built west at the same time or later, the inferiority of Montreal to New York as of old in harbour facilities and ocean service, the failure of Portland to become a great commercial centre—all meant hope and dividends deferred. Finally, the management was working at long range: the road did not enjoy the vigilant inspection or the public support that would have attended control by Canadian interests.
The Grand Trunk did Canada good service, well worth all the public aid that was given. It would probably have given better service, and its shareholders could not have fared worse, had the plans of Galt and his associates not been interfered with, and the line been built gradually under local control.
While the building of the Grand Trunk was the main achievement of the period, it was by no means the only one. The fifties were the busiest years in the railway annals of older Canada. In 1850 there were only 66 miles of road in all the provinces. In 1860 there were 2065, of which over 1700 had been added in the Canadas alone. The Great Western and the Northern were pushed forward under the provisions of the earlier Guarantee Act; roads of more local interest were fostered by municipal rivalry. Their building brought unwonted activity in every brand of commerce. A speculative fever ran through the whole community; fortunes were made and lost in the provision trade, and land prices soared to heights undreamed of. This mood was the promoter's happy chance, and still more charters were sought. The pace quickened till exhaustion, contagious American panics, poor harvests, and the Crimean War—which first raised the price of the wheat Canada had to sell, but later raised the price of the money she had to borrow—brought collapse in 1857.
In this boom period jobbery and lobbying reigned to an extent which we rarely realize in our memory of the good old times. Railway contractors were all-powerful in the legislature, and levied toll at will. The most notable 'contractor-boss' of the day was able, dealing with the Great Western, to hold up a bill for double-tracking until assured of the contract himself; dealing with the Grand Trunk, to force from the English contractors a share in the enterprise before consenting to help their schemes though; with the Northern, to collect $100,000 as a condition of securing from the government the guarantee bonds before they had been rightly earned. Municipal officials were bribed to help bonuses through. Existing roads were blackmailed by pedlars of rival charters. Glaringly fraudulent prospectuses were issued. On a similar scale, the excitement and the rascality which had marked the beginning of the great railway eras of the United Kingdom and the United States were reproduced in Canada.
Of the other roads completed in this period, the two which had been aided by Hincks's first Guarantee Act were most important.
The Great Western had a promising outlook. It ran through a rich country and had assured prospects of through western traffic. The road was completed from Suspension Bridge to Windsor in January 1854. An extension from Hamilton to Toronto was built in 1856, and a semi-independent line from Galt to Guelph absorbed in 1860. The Great Western came nearest of any road to being a financial success; alone of the guaranteed roads it repaid the government loan, nearly in full. But after a brief burst of prosperity, from 1854 to 1856, it, too, was continually in difficulties. In 1856 it paid a dividend of 8½ per cent, but three years later it paid nothing, and in the next decade averaged less than three per cent.
The troubles of the Great Western came chiefly from competition, actual and threatened, and uncertain traffic connections. To the north, the chartering of the Toronto, Guelph and Sarnia, amalgamated later with the Grand Trunk, cut into its best territory. An endeavour was made in 1854 to divide the remaining area, but two years later the battle was renewed, the Great Western building to Sarnia and the Grand Trunk tapping London and Detroit. Between the Great Western and Lake Erie a rival road direct from Buffalo to Detroit was threatened time and again, but was not built until after Confederation. South of Lake Erie the Lake Shore and Michigan Southern were built shortly afterwards by interests connected with the New York Central, thus threatening the traffic connections of the Great Western both east and west. To avert loss of its western trade, the Great Western sunk large sums in aiding the construction of a road from Detroit to Grand Haven, with ferry connections to Milwaukee; but this experiment did not prove a success and caused serious embarrassment.
The Northern Railway, whose promoters, as we have seen, naïvely recognized that railways and lotteries were close akin, was opened as far as Allandale in 1853, and to Collingwood in 1855. It was scamped by the contractors, poorly built, and overloaded with debt. The sanguine policy of building up a through traffic from the American West, by water to Collingwood and rail to Toronto, proved a will-o'-the-wisp. In turn the company relied on independent steamers, and set up a fleet of its own, but equally in vain so far as profit went. By 1859 the road was bankrupt. A new general manager, Frederick Cumberland, brought in a change of policy. Local traffic was sedulously cultivated, and a fair degree of prosperity followed.
Most of the lesser roads constructed looked to the municipalities rather than to the provinces for aid. The Municipal Loan Fund of 1854 was the third and last phase of Hincks's railway policy. This was an ingenious attempt to give the municipalities the prestige of provincial connection without accepting any legal responsibility. Municipalities had previously been permitted to bonus or take stock in railways and toll-roads, but their securities were unknown in the world's markets. Hincks now provided that municipalities which wished money to aid railways or other local improvements might practically pool their credit and share in the credit of the province. Provincial debentures were issued against the municipal obligations pooled in the Fund, and the proceeds of the sale given to the municipalities. A sinking fund was to be maintained, and, if need be, the province could levy through the sheriff on any defaulting town.
The municipalities made full use of their privileges. It was believed that railway investments would yield high dividends, and the more optimistic expected to see all taxes made unnecessary by the profits earned. Town vied with town in extravagant enterprises.3 Not a cent brought a dividend; instead, the municipalities found themselves saddled with heavy interest payments. One after another declined to pay; Port Hope was $312,000 in arrears by 1861 and Cobourg $313,000. The provincial government had not the political courage to send in the sheriff, and accordingly it was forced at last to assume the whole burden. Prudent municipalities which had declined to borrow at eight per cent found themselves compelled to share the burdens of their reckless neighbours. Demoralization was widespread.
The railways constructed by such aid may be briefly noted. The Buffalo and Lake Huron, extending from Fort Erie to Goderich, was completed in 1858. It had its origin in the ambition of Buffalo to have more immediate connection with the rich western peninsula of Upper Canada and the Lake trade beyond than was afforded by the Great Western. The London and Port Stanley, built in 1854-56, mainly by the city of London, with smaller contributions from Middlesex and Elgin counties and the city of St Thomas, failed to realize the expectations that it would become the main artery of trade between Canada and the states across the lake, but it developed a fair excursion trade and coal traffic, and indirectly justified its construction. The Erie and Ontario portage road, rebuilt in 1854, has already been noted. Another portage road round Niagara Falls was the Welland Railway, planned by W. Hamilton Merritt, the projector of the Welland Canal. It ran from Port Colborne on Lake Erie to Port Dalhousie on Lake Ontario, twenty-five miles, and was completed in 1859, only to add one more to the list of unprofitable roads, and eventually to be absorbed by the Great Western.
Farther east the rivalry of Port Hope and Cobourg led to the construction of two roads, the Cobourg and Peterborough and the Port Hope, Lindsay and Beaverton. Both relied chiefly on timber traffic and aimed to develop the farming country in the rear. The Cobourg line, begun in 1853, suffered disaster from the start: the contractor's extras absorbed all the cash available; the three-mile bridge built on piles across Rice Lake gave way, and after $1,000,000 had been expended the road was sold for $100,000. The Port Hope line, which absorbed a branch from Millbrook to Peterborough in 1867, fared somewhat better. The Brockville and Ottawa was a lumber road, carrying supplies up and timber down. It was chartered to run from Brockville to Pembroke, with a branch from Smith's Falls on the Rideau Canal to Perth. By 1859 it had reached Almonte, and six years later struggled as far as Sand Point on the Ottawa, when it halted, till the Canadian Pacific project gave it new life. After failing to make ends meet for some years the company went through repeated reorganizations in the early sixties. The Bytown and Prescott, later the St Lawrence and Ottawa, built in 1854, was also a lumber road, promoted by interests connected with the Ogdensburg Railway, whose terminus was opposite Prescott. It suffered the same financial fate, and was sold to the English company which had supplied the rails, at a total sacrifice of municipal and other creditors' interests. Around the Long Sault rapids in the Ottawa there was built in 1854 the thirteen-mile Carillon and Grenville, a summer portage road, an early enterprise which retained its independence and its old five-foot-six-inch gauge until 1912, when it was absorbed by the Canadian Northern. In Lower Canada the only minor road built which has not been referred to was the Stanstead, Shefford and Chambly, opened in 1859 from St Johns to Granby, and forming practically an extension of the Champlain and St Lawrence from the former point.
- 1 As a matter of fact, discussion of this scheme began in St Andrews in 1827, and in 1828 John Wilson convened a meeting of the citizens to further it.
- 2 The Brassey firm were paid about £9000 sterling a mile for the line from Toronto to Montreal, £8000 for the section from Quebec to Rivière du Loup, £6500 for the Quebec and Richmond road, and £1,400,000 for the Victoria Bridge. Gzowski and Co., consisting of Messrs Gzowski, Holton, Macpherson, and Galt, secured the Toronto to Sarnia contract at £8000 a mile. In both cases these prices included equipment. The English contractors were required to take a large portion of their pay in depreciated bonds and stock, whereas the Canadian contractors were given cash; on the other hand, Brassey had a higher price and less difficult country to work in. The English firm, with all their experience, were not familiar with building roads in countries where labour was dear, and the plant they sent out was antiquated compared with the labour-saving equipment familiar to American and Canadian contractors. They claimed to have lost a million pounds on their enterprise, while Galt, Holton, Macpherson and Gzowski all made fortunes.
- 3 Port Hope borrowed for railway investment $740,000, Cobourg and Brantford $500,000 each, and Brockville $400,000—all towns of less than 5000 people. The counties of Lanark and Renfrew borrowed $800,000, and villages borrowed in proportion. In all some $6,500,000 was borrowed through the Loan Fund for railway purposes alone, the bulk of it in Upper Canada, while another three million was invested by towns that borrowed on their own responsibility. To aid the Brockville and Ottawa Railway, for example, Lanark and Renfrew advanced $800,000, Brockville $415,000, and the township of Elizabethtown $150,000, or over half the cost of the road. Huron and Bruce invested $300,000 in the Buffalo and Lake Huron, and other municipalities $578,000, and so on throughout the province.