THE GRAND TRUNK ERA
The New State Policy--The Canadas: First Phase--The Maritime
Provinces--Halifax to Quebec--European and North American--Howe's
Negotiations--Hincks to the Rescue--The Maritime Provinces--The
Canadas: Second Phase--Struggle for the Contract--Floating the Grand
Trunk--Construction Under Way--The Grand Trunk in Straits--Causes of
Failure--Speculation and Jobbery--Great Western and Northern--The
Canadas: Third Phase--Municipal Enterprise
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 {53} 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 {54} 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
{55} 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 {56} 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 {57}
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. {58} 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 {59} 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 {60} Metapedia valley to
the St Lawrence. The distance from Halifax to Quebec was computed at
635 miles, and the cost at L7000 sterling a mile or about L5,000,000.
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 L20,000 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 {61} 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 {62} 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 {63} 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 L7,000,000, 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 {64} 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
L7,000,000 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 {65} 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. Tache, 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 {66} 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.
[Illustration: Sir Francis Hincks. From a portrait in the Dominion
Archives]
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 {67} 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 to 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, her efforts were confined {68} 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 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
Riviere 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 {69} 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
L7,000,000 loan at bargain rates. All hesitation was removed. No
doubt was felt that the roads would pay, once they were built; the only
difficulty had been to find the money to build them. And now
L7,000,000 was {70} available--L4,000,000 of it for Canada, at probably
3 1/2 per cent. Paper computations soon proved that L4,000,000 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 {71} 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 {72} 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 {73} 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 {74} books were opened,
Galt, Holton, and Macpherson subscribed between them L596,500 and seven
of their associates took up the nominal balance of the capital of
L600,000 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 {75} 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
L3000 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 {76} 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 {77} 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
{78} 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 L9,500,000 sterling. The revenue was estimated at
nearly L1,500,000 a year, which, with working expenses at forty {79}
per cent of revenue, and debenture interest and L60,000 for lease of
the Atlantic and St Lawrence Railway deducted, would leave L550,000 or
11 1/2 per cent on the share capital.
On the advice 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 once 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 {80} in permanent fashion. In
1854 the Quebec and Richmond section was opened; in 1855, the road from
Montreal to Brockville and from Levis 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 section extended to Riviere 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 by
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 {81} 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 {82} 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 {83} 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 lower, 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
permanent connections at Chicago, 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 {84} 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
{85} branch 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 through; 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 {86} through. Existing roads were blackmailed
by pedlars of rival charters. Glaringly fraudulent prospectuses were
issued. On a smaller scale, the excitement and the rascality which had
marked the beginning of the great railway eras in 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 early 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 8
1/2 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 {87} 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 was 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, naively
recognized that railways and lotteries were close akin, was opened as
far as Allandale in 1853, and to Collingwood {88} 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 {89}
debentures were issued against the municipal obligations pooled in the
Fund, and the proceeds of their 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 {90} 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, {91} 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 {92} 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 L9000 sterling a mile for the line
from Toronto to Montreal, L8000 for the section from Quebec to Riviere
du Loup, L6500 for the Quebec and Richmond road, and L1,400,000 for the
Victoria Bridge. Gzowski and Co., consisting of Messrs Gzowski,
Holton, Macpherson, and Galt, secured the Toronto to Sarnia contract at
L8000 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.
[Illustration: Railways of British North America, 1860]
{93}