More valid was the criticism of the remaining terms. The exemption from duties was wise, if inconsistent in a protectionist government, and the exemption from regulation of rates until ten per cent was earned had a precedent in a clause in the General Railway Act, not repealed until 1888, exempting all roads from such regulation until fifteen per cent on the capital invested had been earned. The exemption from taxation, however, was an unwarranted privilege, throwing undue burdens on homesteading settlers; and the interpretation afterwards given that the exemption on lands extended until twenty years after the patent had been issued still further increased the difficulty. Objectionable, also, was the monopoly clause, barring United States {150} connections for ten years. It was claimed that this exemption was essential if traffic was to be secured for the Lake Superior link, and essential also if capital was to be secured from England. The Englishman, one of the heads of the road declared, hated a monopoly at home as he hated the devil, but he looked with favour on monopolies abroad. The monopoly clause, as will be seen later, for a time did more to split East and West than the Lake Superior link did to bind them together in spirit.

But enough of discussion. Action came quick. Not a day was lost in organizing and beginning work.

George Stephen was chosen president, and held the post until 1888. To him more than to any other man the ultimate success of the Canadian Pacific was due. Indomitable persistence, unquenchable faith, unyielding honour stamped his character. He was one of the greatest of Empire builders. He never despaired in the tightest corner, and never rested while a single expedient remained untried. Duncan M'Intyre became one of the two vice-presidents, and took an active part in the company's affairs until he dropped out {151} in 1884. Richard B. Angus came back from St Paul to become vice-president and a member of the executive committee. His long banking experience and his shrewd, straightforward judgment proved a tower of strength in days of trial.

Donald A. Smith, while after 1883 a director and a member of the executive committee, took little part in the railway's affairs, though at Stephen's urging he more than once joined in going security when help was most needed. James J. Hill left the directorate and unloaded his stock at the close of 1882, because the company refused to accept his advice to omit the Lake Superior section, and because of the growing divergence of interests between the St Paul, Minneapolis and Manitoba and the Canadian Pacific. With him retired John S. Kennedy. The Baron de Reinach also withdrew at an early stage. The English directors, representing Morton, Rose and Co. of London, retired as soon as the road was completed, being replaced by representatives of Morton, Bliss and Co. of New York. E. B. Osler came in with the Ontario and Quebec in 1884. The board became more and more distinctively Canadian.

One of the first steps taken by the directors {152} was to open offices in Winnipeg, and put two men with United States experience in charge—A. B. Stickney, later president of the Chicago Great Western, as general superintendent, and General Rosser as chief engineer. The rate of progress was not satisfactory, and early in 1882 a fortunate change was made. William C. Van Horne, at that time general superintendent of the Chicago, Milwaukee and St Paul, and still under forty, was appointed general manager with wide powers. Some years earlier, when he was president of the Southern Minnesota, the leading members of the St Paul syndicate had had an opportunity of learning his skill. He had been in railroading since fourteen, beginning as a telegraph operator on the Illinois Central, and had risen rapidly in the service of one Middle West road after another. His tireless driving force was precisely the asset the company now most needed.

The first task was to find the money necessary to build the nineteen hundred miles remaining of the main line, to build or acquire necessary branches and extensions, and to provide equipment.

The government subsidies were the first {153} resource. The $25,000,000 cash and the 25,000,000-acre land-grant were to be paid as construction advanced. If the land-grant were put on the market at once, for sale to settlers, it would bring relatively little, in face of the competition of the free homestead land in adjoining sections. Three expedients were devised to make it available as soon as possible. An extensive campaign was begun to advertise the government free land and thus exhaust the supply along the railway line, and at the same time provide producers of freight. Bonds based on the security of the land-grant were issued to the amount of $25,000,000; $10,000,000 of this issue was sold in 1881 at 92, and varying proportions of the remainder were used as pledge for the government loans or execution of the contract. These bonds were redeemed and cancelled as the lands on which they were based were sold. Further, the Canada North-West Land Company was organized to buy five million acres for a long hold. The company included several members of the syndicate as well as some English investors to whom land appealed more than railway stocks. It found itself unable to handle this amount and the purchase was reduced to 2,200,000 acres. Sales to other companies {154} and to individuals brought the total amount received or due from land by the end of 1885 up to $11,000,000.

Next came the contributions of the members of the syndicate and other private investors. The capital stock authorized was $100,000,000. In 1881 the members of the syndicate subscribed $5,000,000 at par. In May 1882 they allotted themselves $10,000,000 at 25. In December of the same year $30,000,000 was issued at 52 1/2 to a syndicate of New York bankers organized by W. L. Scott; this stock was eventually sold largely in Holland and in England. A final ten millions were pledged in New York and Montreal for a loan of half that sum, and later sold for about the amount of the loan. All told, sixty-five millions of stock had been issued and some thirty-one million dollars had been brought into the treasury.

Then the flow ceased. The brief gleam of prosperity which had shone over North America after the gloom of the later seventies vanished. Never had railway building been carried on so vigorously in the United States as in the years 1881-83, and the reaction was correspondingly severe. The collapse of the boom which had accompanied the first {155} operations in Manitoba, the failure of harvest after harvest, the fading away of settlers and speculators alike, robbed all but a persistent few of faith in the Canadian North-West and in the railway whose fortunes rose or fell with it. The way of the Canadian Pacific was made particularly hard by the manoeuvres of rival companies. Some of the United States Pacific roads, awake to the seriousness of the competition threatened, attacked it in the New York market. The Grand Trunk, naturally alarmed by the incursion of the new road into its best paying territory in the East, used all the power of its influential directors and its army of shareholders in England to bar the London market.

The financial policy adopted by the Canadian Pacific was unique in the records of great railway enterprises on this continent. It was simply to rely entirely on stock issues, to endeavour to build the road without incurring any bonded debt. Not until the last year of construction, 1885, were bonds based upon the security of the road itself issued for sale. It was doubtless desirable, if possible, to avoid the reckless methods by which so many American roads had been hopelessly waterlogged by excessive bond issues. The memory of the {156} St Paul and Pacific's six-million share capital as against its twenty-eight-million bonded indebtedness was fresh in the minds of the members of the syndicate. By keeping fixed charges low, while earning power was still uncertain, they lessened the risk of having the road pass out of the stockholders' control into a receiver's hands. Yet as bonds could have been sold more easily than stock, it increased the difficulty of finding the necessary capital. Even so, it came within an ace of succeeding.

In pursuance of this policy the management, faced with a hesitating market, decided upon a bold step. Late in 1883, acting in accordance with the advice of New York and London financiers, they decided to endeavour to make a market for the unissued stock by giving assurance of a dividend for a term of years. They offered to deposit with the government as trustees a sum sufficient to provide for ten years a dividend of three per cent on the $65,000,000 stock already issued, to be supplemented, if possible, by a further dividend out of current revenues, and they arranged to make similar provision for the remaining $35,000,000 as it was sold. Over half the $16,000,000 necessary to purchase this {157} annuity was deposited with the government at once and security given for the early payment of the balance. Only success could have justified such a locking up of the funds urgently needed for construction, and success did not come, though for a time it seemed probable. The sudden smash of the Northern Pacific, just completed by Villard, brought the stock down lower than before the fillip had been given. With sixteen millions locked up or pledged the company was in a worse state than before.[7]

In this emergency Stephen and Smith and M'Intyre pledged their St Paul or other stock for loans in New York and Montreal, but still the gap was unfilled. They turned to the {158} government, requesting a loan of $22,500,000, to be secured by a first charge on the main line. In return, they agreed to complete the road by May 1886, five years earlier than the contract required. The request at first was scouted by Sir John Macdonald. Parliament would not consent, and if parliament consented the country would revolt. Bankruptcy stared the company in the face when John Henry Pope came to the rescue. He soon convinced Sir John that if the Canadian Pacific smashed, the Conservative party would smash the day after, and the aid was promised. The Cabinet was won over, and Sir Charles Tupper, hastily summoned by cable from London, stormed it through caucus, and the loan was made.

The funds thus secured were soon exhausted in rapid and costly construction in the mountain and Lake Superior sections. The government's blanket mortgage on the road made it impossible to borrow elsewhere. So, after the Riel episode, to be noted later, a new arrangement was made with the government by which the $35,000,000 stock unsold was cancelled and an equal amount of first mortgage bonds issued. Twenty millions of this issue and the unsold lands were substituted for the government's security, and the remainder of the bonds {159} sold at 95. This put the company once more in funds. The relief came none too soon. In one fateful day in July, when the final passing of the bill was being tensely awaited, the Canadian Pacific, which now borrows fifty millions any day before breakfast, was within three hours of bankruptcy for lack of a few hundred thousand dollars. But by March 1886 every cent of the company's obligations to the government was paid off, twenty millions in cash and the remainder in land at $1.50 an acre.

The men behind the Canadian Pacific proved themselves possessed of courage and determination such as will always win them honour. At more than one critical stage they staked their all to keep the work going. But the fact remains that the bulk of the resources utilized in the original building of the road were provided or advanced by the people of Canada. The Canadian Pacific is as truly a monument of public as of private faith.

Meanwhile, the work of construction had been going ahead. Under William Van Horne's masterful methods the leisurely pace of government construction quickened into the most rapid achievement on record. A time-schedule, {160} carefully made out in advance, was adhered to with remarkably little variation.

Work was begun at the east end of the line, from the point of junction with the Canada Central, but at first energy was devoted chiefly to the portion crossing the plains. Important changes in route were made. The main line had already been deflected to pass through Winnipeg. Now a much more southerly line across the plains was adopted, making for Calgary rather than Edmonton. The new route was shorter by a hundred miles, and more likely to prevent the construction of a rival road south of it later. For many years after the Palliser-Dawson-Hinds reports of the late fifties, it had been assumed that the tillable lands of the West lay in a 'Fertile Belt' or rainbow, following roughly the Saskatchewan valley and curving round a big wedge of the American desert projecting north. Certainly the short, withered, russet-coloured grass lands of the border country looked forbidding beside the green herbage of the North Saskatchewan. But in 1879 Professor Macoun's investigations had shown that the southern lands had been belied by rumour, and that only a very small section was hopelessly arid. With this objection removed, the only drawback to the {161} southern route was the difficulty of finding as good a route through the mountains as the northerly Yellowhead Pass route afforded, but on this the company decided to take its chances.

Work on the plains was begun in May 1881, and by the end of the year 161 miles had been completed. This progress was counted too slow, and under Van Horne's management a contract was made in 1882, with Langdon and Shepard of St Paul, to complete the line to Calgary. Later in the year a construction company was organized, the North American Railway Contracting Company, to build all the uncompleted sections of the main line for $32,000,000 cash and $45,000,000 common stock. This was really a financing rather than a construction expedient, and was abandoned within a year.

In this section the engineering difficulties were not serious, but the pace of construction which was demanded, and the fact that every stick of timber and every pound of food, as well as every rail and spike, had to be brought a great distance, required remarkable organization. Three hundred sub-contractors were employed on the portion of the line crossing the plains. Bridge-gangs and track-layers {162} followed close on the graders' heels. In 1882 over two and a half miles of track a day were laid. In the following year, for weeks in succession, the average ran three and a half miles a day, and in one record-smashing three days twenty miles were covered. By the end of this year the track was within four miles of the summit of the Rockies.

The change of route across the plains had made it essential to pierce the Rockies by a more southerly pass than the Yellowhead. The Kicking Horse or Hector Pass, short but steep, was finally chosen, but here, as at the Yellowhead, to cross the first range did not mean victory. The towering Selkirk range faced the pass, as the Cariboo Mountains flanked the Rockies farther north. Until the rails reached the hills the engineers had found no way through them, and had contemplated a long detour to the north, following the winding Columbia. Then Major Rogers, the engineer whom James J. Hill had suggested to take charge of the location of the mountain section, following up a hint of Moberly, an earlier explorer, found a route, steep but practicable, across the Selkirks, following the Beaver river valley and Bear Creek, and then through Rogers Pass into the valley of the Illecillewaet, {163} and so through Eagle Pass to the settled location at Kamloops. Both in the Kicking Horse and in the Rogers Pass gradients of 116 feet to the mile were found necessary, but these difficult stretches were concentrated within one operating section of a hundred and twenty miles, and could easily be overcome by the use of additional engines. Unique provision was made against the mountain avalanches by erecting diverting timbers near the summits and building mile upon mile of snow-sheds, over which the avalanches passed harmless. As a result of these expedients and of raising the road-bed across the prairies unusually high, the Canadian Pacific lost less time through snow blockades than the great railways of the eastern United States.

It was not until 1884 that the wilderness north of Lake Superior was attacked in strong force. Nine thousand men were employed here alone. Rock and muskeg, hill and hollow, made this section more difficult to face than even the Fraser Canyon. In one muskeg area to-day seven layers of Canadian Pacific rails are buried, one below the other. The stretch along the shore of the lake was particularly difficult. The Laurentian rocks were the oldest known to geologists, and, what was {164} more to the purpose, the toughest known to engineers. A dynamite factory was built on the spot and a road blasted through. One mile cost $700,000 to build and several cost half a million. The time required and the total expenditure would have been prohibitive had not the management decided to make extensive use of trestle-work. It would have cost over two dollars a cubic yard to cut through the hills and fill up the hollows by team-haul; it cost only one-tenth of that to build timber trestles, carrying the line high, and to fill up later by train-haul.

An unexpected test of the need of this section came before it was completed. Early in 1885 the government realized too late that serious trouble was brewing among the half-breeds and Indians of the North-West. Unless troops could be sent in before the grass grew, Riel would have thousands of Indians on the war-path, and a long and bloody contest and a serious setback to the West would be inevitable. The railway was far from complete, with a hundred and twenty miles of gaps unfilled, and the government considered it impossible to get the troops in in time. But Van Horne, who had had much experience in handling troops in the Civil War, did not have {165} that word in his vocabulary, and astonished the authorities by offering to take men from Kingston or Quebec to Qu'Appelle in ten days. Part of the gaps were bridged by temporary rails laid on ice and snow, only ninety miles being uncompleted by spring. In one stretch the men were marched across the ice to save a long detour. Through the rest they were carried, covered with furs and straw, in contractors' sleighs along the tote-roads from one camp to the next. In four days from leaving Kingston the first troops landed at Winnipeg; and though the revolt was not prevented, it was speedily crushed. There was no longer any question about the value of the north shore link, and the opposition to the Canadian Pacific fell from that hour. It was even suggested that the company should build a statue to Louis Riel. As for the government, it could well claim that its persistence in pushing through this part of the road nearly offset its red-tape carelessness in permitting the rebellion to come to a head.

Meanwhile, the government section between Port Arthur, or rather Fort William, and Winnipeg had been taken over by the company in 1883, though not entirely completed. Two years later the thousands of Chinese {166} navvies working on the difficult Kamloops-Port Moody section finished their task, and the government work was done. The only gap remaining lay in the Gold Range, and here in the Eagle Pass, at Craigellachie, on November 7, 1885, the eastward and westward track-layers met. It was only a year or so before that the Northern Pacific had celebrated the driving of the last golden spike by an excursion which cost the company a third of a million, and heralded the bankruptcy of the road. There was no banquet and no golden spike for the last rail in the Canadian Pacific. William Van Horne had announced that 'the last spike would be just as good an iron spike as any on the road,' and had it not been that Donald A. Smith happened along in time to drive the spike home, it would have been hammered in by the navvy on the job. Six months later the first passenger train went through from Montreal to Vancouver. The longest railway in the world was open from coast to coast, five years before the end of the time required by the original contract.

To realize how great a work had been accomplished requires to-day some effort of the imagination. The Canada the present {167} generation knows is a united Canada, an optimistic, self-confident Canada, with rapidly rounding-out industries and occupations which give scope for the most ambitious of her sons as well as for tens of thousands from overseas. It is a Canada whose nine provinces stretch almost unbroken from ocean to ocean. But the Canada of a generation earlier was far other. On the map it covered half a continent, but in reality it stopped at the Great Lakes. There was little national spirit, little diversity of commercial enterprise. Hundreds of thousands of our best-born had been drawn by the greater attraction of United States cities and farms, until one-fourth of the whole Canadian people were living in the Republic.

It was the opening up of the West that changed the whole face of Canadian life, that gave a basis for industrial expansion, that quickened national sentiment and created business optimism. And it was the building of the Canadian Pacific that opened up the West and bound it fast to the distant East. Certainly not least among the makers of Canada were the men who undertook that doubtful enterprise and carried it through every obstacle to success; and not least {168} among the generations whose toil and faith have made possible the nation of to-day were the four millions of the Canada of the eighties who flung a great railway across the vast unpeopled spaces of a continent to the far Pacific.



[1] Stephen, Smith, Hill, and Kennedy each took one share, and Kittson half a share; and later Angus, after leaving the service of the bank to go with the railway, took the remaining half-share.

[2] Not all were willing to attribute to courage and luck alone the full success of this stroke. Some Dutch bondholders, independently of the committee, asserted that Kennedy had not played fair, and Farley, the receiver of the road, sued Hill for a share of the profits which he alleged had been promised for his collusion. In repeated trials Farley was unable to produce evidence satisfactory to the courts, which held that in any case his claim must be rejected because 'based on inherent turpitude.'

[3] 'Most men who have really lived have had, in some shape, their great adventure. This railway is mine' (James J. Hill, in Valedictory to the Shareholders of the Great Northern, July 1, 1912).

[4] It was from their St Paul investment that the leading men in the group secured the basis and the bulk of their great fortunes; the Canadian Pacific added little to their coffers.

[5] Including the Yale-Port Moody section, not yet formally under contract.

[6] Giving evidence before the Senate Committee on Interstate Commerce in New York in 1889, President Van Horne stated that the company was obliged to abandon part of the surveys on which the government had spent millions, and make new ones; that the government sections were unwisely located, especially in British Columbia; that the cost of the remainder was increased by having to join it to the unwisely located sections, and that, allowing for the saving which could have been made in location, he could have duplicated the latter for twelve or fifteen millions.

[7] 'The payment to the government of $8,710,240, in advance, of secured dividends, has deprived the company for the moment of the means for continuous, vigorous exertion in construction, without enabling it to recoup itself by the sale of its stock, as was confidently and reasonably expected' (Letter of George Stephen to the government, January 15,1884).

Speaking in parliament in 1885, Edward Blake declared that, omitting the last ten millions issued, the company had raised on stock $24,500,000, and, counting the next two dividend payments, they would have paid or provided for dividends $24,875,000. Already $7,000,000 had been paid out in dividends, members of the syndicate receiving $3,610,000 on their $10,000,000 investment. In other words, before the road was opened for traffic, every cent paid in by the shareholders would have been paid back or set aside for dividends, leaving not a dollar for building the road.



{169}

CHAPTER IX

THE ERA OF AMALGAMATION

Subsidy and Control—Canadian Pacific Expansion—The Monopoly Clause—The Grand Trunk

With the building of the Intercolonial, the Grand Trunk, and the Canadian Pacific, the main lines of communication from ocean to ocean were completed. In the decade which followed, the marked features were: the adoption by the Dominion government of a policy of aid to purely local roads, and the expansion of the two great private companies, partly by new construction and partly by acquisition of the smaller lines.

It has been seen that the policy of Canada after 1851 and of the Dominion after Confederation was to give assistance only to lines of more than local and usually more than provincial importance. During the first ten or fifteen years after Confederation promoters looked to province and municipality for aid, and did not look in vain. Soon the provinces outran their resources, and began to {170} clamour for increased federal subsidies to meet the pressing charges. But the Dominion government concluded that, if it had to provide the money needed, it might as well give it direct, and secure whatever political credit the grants would entail. In 1882 it decided to embark on a new subsidy policy.

In that year Sir Charles Tupper, minister of Railways, introduced a resolution to grant a subsidy of $3200 per mile—sufficient to provide the hundred tons of steel rails required for each mile at the existing price of $32 a ton—to each of four carefully selected roads, one in each of the four original provinces. During the next year eleven subsidies were voted, chiefly to Quebec and New Brunswick roads; in 1885 twenty-five were voted, and fresh votes were made every year thereafter. Many of the subsidies lapsed through failure to begin construction, but usually they were revoted. The payments made averaged a million dollars a year. The practice did not make for pure politics, and it often led to the construction of lines for which there was no economic justification whatever. Trusting shareholders were induced to invest on the unfortunately wrong assumption that the government had assured itself of the need {171} and the potential profit of the line before endorsing it by a subsidy.[1] In the western provinces a parallel policy of aiding local lines was adopted in 1884, except that land instead of cash was offered, a policy maintained until 1894.

He who paid the piper then stood on his rights to call the tune. Acting upon the wide power conferred by the British North America Act, the Dominion government in 1883 sweepingly designated as 'works for the general advantage of Canada,' and therefore subject to federal control, not only the main lines of railways, but the branch lines then or thereafter connecting with or crossing these lines or any of them. The power thus claimed was not effectively exercised for some time. D'Alton M'Carthy repeatedly urged in parliament from 1880 onward the creation of a Dominion Railway Commission, but the opposition of the railways proved too strong for him. When in 1886 the United States set up its Interstate Commerce Commission, the {172} government moved and appointed a royal commission, with Sir A. T. Galt as chairman, to consider the general question. Their report noted the existence of many grievances and suggested specific remedies, but considered that until further experience of the workings of the English and American commissions was available, Canada's needs could best be met by an extension of the powers of the Railway Committee of the Cabinet.

It may be noted that in 1882 the selling of railway tickets by private persons, a practice known as 'ticket scalping,' was prohibited in Canada, though the railways were forced to buy the exclusive privilege of selling their own tickets by agreeing to redeem unused portions.

The original contract with the Canadian Pacific had provided for an eastern terminus near Lake Nipissing, in order to show preference neither to Montreal nor Toronto, either of which could make connections by independent roads. Similarly, we shall see, thirty years later, Moncton was chosen as a terminus of the National Transcontinental, to hold the balance even between Halifax and St John. It was, however, impossible for the Canadian {173} Pacific to accept as permanent an arrangement which left it halting in the wilderness, and depending upon possibly rival railways for outlet to the great cities and ports of the east. It had, in fact, been empowered in its charter to acquire the Canada Central and 'to obtain, hold, and operate a line or lines of railway from Ottawa to any point at navigable water on the Atlantic seaboard, or to any intermediate point'—terms sufficiently sweeping. Few were surprised, therefore, when the directors began a policy of eastward expansion, though many were surprised at the boldness and extent of the plans and the speed and masterful strategy of the execution.

The first and most obvious move was to buy out the Canada Central, extending from Ottawa through Carleton Place to Pembroke, and under construction westward to Callender on Lake Nipissing. This was done in 1881, and the road was completed two years later. Again, in 1881, the parent line of the Canada Central, the Brockville and Ottawa, was acquired, and three years later a controlling interest was secured in the stock of the St Lawrence and Ottawa, thus giving connection with the St Lawrence both at Brockville and {174} at Prescott. Still pressing eastward, the Canadian Pacific next sought entrance to Montreal and to Quebec. The North Shore road, built by the province of Quebec, would most easily give the connection sought. The province was induced, in 1882, to sell to the Canadian Pacific the western section, from Montreal to Ottawa. At the same time the eastern section, from St Martin to Montreal, was sold to the North Shore Syndicate. The Grand Trunk, alarmed at this advance, attempted to block further expansion by securing, jointly with the Central Vermont, control of the latter section. But the Canadian Pacific had the ear of both the Dominion and the provincial governments, and threats of aid in building a parallel line forced the Grand Trunk to relinquish control to its great rival. Not yet content, the Canadian Pacific sought winter ports at St John and Halifax. It secured control of the South-eastern Counties in Quebec, built a short line through Maine to Mattawamkeag with the aid of a large Dominion subsidy, acquired running rights or control by lease over part of the old European and North American, and thus entered St John. In 1890 its eastern development was completed for {175} a time by the lease of the New Brunswick Railway, which had recently absorbed nearly all the small lines in western New Brunswick.[2]

Meanwhile the management had been equally aggressive in obtaining feeders in central and western Ontario, the very heart of the Grand Trunk's territory. In 1881 the Ontario and Quebec was chartered, by interests friendly to the Canadian Pacific, to build a line from Ottawa to Toronto, by way of Smith's Falls. Two years later this company acquired leases for 999 years of three important lines, and transferred them, along with its own road, to the Canadian Pacific. The first of these lines was the Toronto, Grey and Bruce, the narrow-gauge railway which ran north to Georgian Bay; the second was the Credit Valley, extending from Toronto to St Thomas; the third, the Atlantic and North-West, a road with little mileage but most useful charter powers, used for the seaward extension. Later, a railway was built from St Thomas to Windsor. Thus the Canadian Pacific secured access to {176} Lake Ontario, Georgian Bay, and the Detroit river. Not yet content, it built a branch to Sault Ste Marie. Here connection was made with the 'Soo' lines, giving outlet to St Paul and Minneapolis, and with the several roads later combined to form the Duluth, South Shore and Atlantic. Both of these lines shortly afterwards came definitely under its control.

In the prairie West the Canadian Pacific had been promised in 1880 a monopoly of through traffic for twenty years. The Dominion government, it will be remembered, had agreed not to charter, nor to permit the territories to charter, any lines between the Canadian Pacific and the United States border, running south or southeast. Going beyond these terms, the Dominion endeavoured also to prevent Manitoba from authorizing the construction of any such road, and disallowed one chartering act after another.

From the outset this provision proved a source of bitter and dangerous strife. On the one side it was contended that without this clause the necessary capital could not have been secured and that faith must be kept; that the traffic of the West should go to build up the eastern provinces, which had made a {177} vast outlay on the road, rather than a foreign country; that the rates of the Canadian Pacific were as reasonable as those of American roads; and that other causes than railroad monopoly were responsible for the slow growth of the West. But the West protested that the rates were exorbitant—otherwise American competition would not have been feared—pointed to the exodus of settlers and the discontent of those who stayed, and refused to be sacrificed in the interests of foreign shareholders or even of sister provinces. Undoubtedly immigration was deterred, and relations between East and West were seriously strained. Finally, in 1888, the Dominion government was forced to yield. The company's consent was secured by a bond guarantee for some necessary extensions, and the provision was repealed. The Northern Pacific was brought in by the Manitoba government, and competitive local roads were chartered, but in this period the control of the Canadian Pacific over the western field was not seriously called in question.

The task before the management to secure traffic for the great system thus built up was a difficult one. It was a greater achievement to operate the Canadian Pacific successfully {178} than to build it. When it is realized that when the company began operation the number of white settlers between Portage la Prairie and Kamloops, within twenty miles of the line, could be counted virtually on the fingers of one hand, the difficulty of finding traffic may be appreciated. Sandford Fleming had estimated that the road could not pay until there were two million people in the West. Yet pay it did from the start. The company capitalized its scenery, and built up a paying tourist trade. When wheat was lacking, ends were made to meet by carrying trainload upon trainload of buffalo bones to eastern factories. United States traffic was carefully cultivated at both ends of the line. An active immigration campaign was carried on. Various industries along the line, from coal companies to flour mills, were helped forward for years. A loyal staff was built up, and by grace of efficiency the company pulled through until the lean days of the early nineties were over.

During this decade of extraordinary activity the Grand Trunk had been neither content nor passive. Offended by the incursions into its best paying territory, it fought its younger rival in parliament and on the stock exchange, {179} but with no lasting success in either quarter. It was more successful in its own constructive policy of expansion. In 1879 it had made a good bargain by selling to the Intercolonial the branch from Levis to Riviere du Loup, which did not earn operating expenses, and by expending the proceeds in buying an extension to Chicago, which enabled it at last to secure the through traffic from the West for which it had been in large part originally designed. Its great coup came, however, in 1882, when the onward march of the Canadian Pacific and the bitter experience of fruitless rate wars led it to purchase its old rival, the Great Western, with its Michigan extensions. The construction of the St Clair tunnel between Port Huron and Sarnia, completed in 1890, marked another forward step in its western territory. Meanwhile it had acquired, in 1884, the Midland Railway, itself a recent amalgamation of the Midland, running from Port Hope to Midland, with the Toronto and Nipissing, the Grand Junction, from Belleville to Peterborough, and the Whitby and Port Perry, effected by two enterprising financiers, George A. Cox and Robert Jaffray. Four years later it absorbed the Northern and Northwestern roads, which had acquired {180} jointly a branch from Gravenhurst to North Bay, so that here at least the older road checkmated its rival, securing the very paying link between Toronto and the western lines of the Canadian Pacific.



[1] One such company, the Caraquet, which was given $400,000 in subsidies, declared, in floating $500,000 in bonds in England, that the capacity of the road was taxed to its utmost, and that an immense traffic was in sight. At that time its entire rolling-stock consisted of two locomotives, one passenger car, two box and fifteen flat cars, and a snow-plough.

[2] The earliest intercolonial project, a railroad from St Andrews north, was brought to completion in 1889 when a short road, the Temiscouata, was built, linking the Intercolonial at Riviere du Loup with the New Brunswick Railway at Edmundston.



{181}

CHAPTER X

THE CANADIAN NORTHERN

The Opportunity—The Canadian Northern

The first quarter-century of Confederation failed to redeem the glowing promises and high hopes of the founders of the new nation. Much had been done: the half-continent from ocean to ocean had been brought into the fold of one union; national consciousness was slowly growing; great efforts had been spent in linking the scattered parts by railways and waterways. But still political unity and economic prosperity both lagged. The country was torn by racial and religious bickerings. In the East, the exodus to the United States bled the country white; in the West, drought, frost, and the low prices of grain kept settlers away. Canadian Pacific stock, selling in the middle nineties at 35, registered the market's estimate of the future of the Canadian West.

Then, slowly at first, and soon with cumulative momentum, came a transformation. {182} World-wide causes worked with local factors to change the whole face of affairs. New discoveries of gold and rising prices gave everywhere a fillip to trade. In the United States the disappearance of free land set its farmers looking elsewhere. In Canada change of methods, or the favourable turn of a climatic cycle, enabled the lands of the North-West to prove their abounding fertility. The discovery of gold in the Klondike afforded good advertising for Canada if little more of permanence. In the government and in the financial, the railway and the industrial worlds there were men who rose to the opportunity: no longer was Canada's light hid under a bushel. The most was made of the alluring gifts she had to offer to men the world over who strove to better themselves, and the flood of immigration began.

The first result of the swarming of thousands to the West was a demand for new railways, to open up plain and prairie and mineral range, and to make connection with East and West. The building of the railways in its turn gave a stimulus to every industry. As in the early fifties and early eighties, this period of rapid railway expansion—much longer, however, than previous periods—was {183} an era of optimistic planning and feverish speculation.

First to seize the golden opportunities were the group of men who built the Canadian Northern. Railway history offers no more remarkable record than the achievement of these few men, who, beginning in 1895 with a charter for a railway one hundred miles long in Manitoba, leading nowhere in particular, succeeded in building in twenty years a road from ocean to ocean, and in keeping it in their own hands through all difficulties and vicissitudes.

Yet it is not exactly correct to say that they began in 1895. A long apprenticeship had been served before that time. William Mackenzie and Donald Mann, the leaders in this group, had both been trained in railway construction. Both were Canadian-born; and had fared forth as youths to make their way in the world. William Mackenzie, born at Kirkfield, Ontario, in 1849, had been in turn school-teacher, country-store keeper, and lumberman before a contract on the Victoria Railway—part of the Midland—revealed his destiny. Donald Mann, born four years later at Acton, Ontario, near James J. Hill's old home, had been brought up for the Christian ministry, but by {184} twenty-one he was foreman in a lumber camp. At twenty-five he joined in the first rush to Winnipeg, and next year he undertook the first of many contracts on the Canadian Pacific. William Mackenzie had also carried through much work for this company. In 1886 the notable partnership of Mackenzie and Mann was formed. The firm built the Calgary and Edmonton, the Qu'Appelle, Long Lake and Saskatchewan, the Canadian Pacific short line through Maine, and many minor railways. They developed capacities which made each the complement of the other—Mackenzie a master of finance, and Mann as successful in extracting a subsidy from a politician as in driving ahead the work of construction. Later Z. A. Lash, a shrewd and experienced corporation lawyer, joined them, and the three, with able lieutenants, carried through their ambitious plans without more than momentary pause, until within sight of the goal.

It was in 1895 that William Mackenzie and Donald Mann, along with two fellow-contractors, James Ross and H. S. Holt—it is noteworthy how many Canadians eminent in finance and industry found their start in the building of the Canadian Pacific—decided to buy some of the charters of projected western {185} roads then going a-begging, and to build on their own account. They secured the charter of the Lake Manitoba Railroad and Canal Company, carrying a Dominion subsidy of 6000 acres a mile for a line from Portage la Prairie to Lake Manitoba and Lake Winnipegosis, and induced the Manitoba government to add a valuable guarantee of bonds and exemption from taxes. In 1896 running rights were secured over the track of the Manitoba and Northwestern from Portage to Gladstone, and construction was pushed a hundred miles northwest from Gladstone to Dauphin. Next year Lake Winnipegosis was reached. Then the partners looked eastward. The coming need of the West was an outlet from Winnipeg to Lake Superior, to supplement the Canadian Pacific. Accordingly in 1898, under powers given by Dominion, Ontario, and Minnesota charters, construction was begun both at Winnipeg and near Port Arthur. Three years later the line was completed. Meantime the earlier road had branched westerly at Sifton, and by 1900 had crossed the border into Saskatchewan at Erwood; while in 1899, in amalgamation with the Winnipeg Great Northern, chartered and subsidized to Hudson Bay, the name of the {186} combined roads was changed to the Canadian Northern.

Then came the coup which first made the public and rival railways realize the ambitious reach of the plans of the new railway. It will be recalled that when, in 1888, the ban upon competition southward with the Canadian Pacific had been lifted, the Northern Pacific had entered Manitoba. It had gradually built up a system of three hundred and twenty miles, but had not given the competition looked for, dividing traffic with the Canadian Pacific rather than cutting rates. Now the parent line was in the receiver's hands, and its straits gave the Manitoba government its opportunity. It leased for 999 years all the Manitoba lines of the Northern Pacific, but decided it could not profitably operate them itself without connection with the lakes. The only question was whether to re-lease them to the Canadian Pacific or to the Canadian Northern. After a lively contest the younger road secured the prize. At a stroke it thus obtained extensive terminals in Winnipeg, a line south to the American border, branches westward through fertile territory, and a link which practically closed the gap between its eastern and its western roads.

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The Canadian Northern had now become the third largest system in the Dominion, stretching from Lake Superior to Saskatchewan, with nearly thirteen hundred miles in operation in 1902. The feeders were extending through the rich farming lands of the West; the line to Port Arthur supplemented the Canadian Pacific, providing a second spout to the funnel. But this merely local success did not long content its promoters. They announced their intention to build from sea to sea. Transcontinental railways were then much in the air: the Grand Trunk, the Trans-Canada, the Great Northern all planned extensive projects. Reviving prosperity and new-found confidence were making a dollar look as small to government and public alike as a dime had seemed some years before. Aid might confidently be looked for—but by which aspirant?

In 1902 and 1903 a junction of forces between the Grand Trunk and the Canadian Northern was proposed, and would have had much in its favour. The negotiators could not come to terms, however, and each road continued on its independent plan. Nothing daunted by the Dominion government's decision to recognize and aid the Grand Trunk, {188} the Canadian Northern turned to a policy of piecemeal construction, seeking aid from the provinces as well as from the Dominion.

Making hay while the subsidy sun shone and the prosperity of the Laurier regime was at its height, the Canadian Northern pressed forward extensions, flung out branches, filled in gaps on every side. The main line was pushed westward to Edmonton in 1905. Branch lines were thrown out freely in all the prairie provinces. In Ontario the gap north of Lake Superior was bridged by a line from Port Arthur to Sudbury, not completed until 1914. Toronto and Ottawa were linked with the western lines, and several feeders were acquired which gave connection with Kingston and Brockville. In Quebec the Great Northern, running from Hawkesbury on the Ottawa to Quebec City, was absorbed in 1902, and the Quebec and Lake St John five years later. By building a tunnel three miles long under Mount Royal, an entrance was secured into the heart of Montreal. Nova Scotia did its part by lending money to another Mackenzie and Mann enterprise, the Halifax and South-western. The Inverness Railway in Cape Breton and the Nova Scotia Central with minor lines were built or acquired, giving the {189} Canadian Northern first place in mileage in the province.

The most difficult task still remained—building a third railway through the mountains to the Pacific. Surveys for a road from Yellowhead Pass to Vancouver by Sandford Fleming's old route were begun in 1908. By the aid of lavish guarantees and subsidies this last link in the transcontinental system was pushed to completion in 1915.

The financial and political aspects of this great enterprise were as striking as was the construction. Governments have many a time given lavish aid, promoters have often built roads entirely out of the proceeds of bond issues, financiers have dominated great railway systems by a majority or controlling interest in the stock. But never before did a group of men plan to unite, on such a scale, all three arrangements—to build ten thousand miles of railway without themselves investing a dollar and still retain control. The men behind the Canadian Northern not only planned such a project, but carried it through, displaying in the process, and at every stage of the undertaking, a mastery of political diplomacy, an untiring persistence, and great financial resourcefulness. They are, {190} therefore, entitled to a special place among the world's railway builders.

Their plan was simple in principle, if wondrously complicated in working out. It was to build the road by government subsidies and the proceeds of the bonds guaranteed by government, and to control the road by issuing to themselves, for their services of promotion and management, practically all the common stock. To carry out this audacious plan, political influence, public enthusiasm, and the confidence of outside investors in Canada's future were all required and were all forthcoming.

Dominion and province vied in aid. This aid took many forms. The Dominion had abandoned in 1894 its policy of giving land-grants, but the original companies which combined to form the Canadian Northern had previously been promised and later received over four million acres: up to 1914 about eighteen million dollars had been realized from the sale of parts of this land, and the grants unsold were worth at least ten millions more. In addition, Ontario gave two million acres and Quebec one-third as much. Cash subsidies were not wanting. The Liberal government of Sir Wilfrid Laurier voted something {191} less than two millions in cash to aid in building the link between Winnipeg and Lake Superior. It declined to recognize or aid the extension to the Pacific coast; but in 1912 the Conservative government of Sir Robert Borden gave over six millions for this work, and in the following year fifteen millions more for the Ontario and western Alberta sections of the main line. The provinces were less lavish, Quebec, Ontario, and Manitoba offering all told six millions.

But it was neither to land-grants nor to cash subsidies that the Canadian Northern looked for its chief aid, but to government guarantees. This device, the main form of state aid given in our first railway era, had long been discredited by the unlucky fate of the Grand Trunk and the Northern guarantees, and had been sparingly used since. To the Canadian Northern its revival was chiefly due. It was a seductive form of aid: provided that the railway thus helped had good traffic prospects, the government stood little chance of loss and the railway greatly gained by the certainty of the sale of its bonds and the higher price secured. But, like other forms of the extension of public credit, such as the issue of paper money, state guarantees are {192} difficult to keep within bounds, and compel ever-fresh extensions to save the old liability. So Dominion and province alike found. From 1903 to 1911, under Sir Wilfrid Laurier, the Dominion guaranteed bonds of the Canadian Northern system to the extent of fifty-six millions; from 1912 to 1914, under Sir Robert Borden, it endorsed the Canadian Northern's notes for forty-nine millions more. Nor were the provinces behindhand. Mainly in the seven years from 1908, the five westernmost provinces pledged their credit on behalf of the same system to the astounding amount of over one hundred and thirty millions, British Columbia leading; Nova Scotia made a loan of another five millions. Thus endorsed, usually as to both principal and interest, the bonds of the Canadian Northern were floated with little difficulty, so long as money was to be had at all by any seeker.

In the meantime, while the road was being built by state gifts and bondholders' lendings, the great bulk of the stock of the parent road and of the chief subsidiaries was conveyed to Messrs Mackenzie and Mann for their services in promoting and managing the system. This method of financing had its dangers. It meant that there was no large commitment {193} of shareholders' capital, to secure support in difficulty and compel responsibility in management. It meant that the control of the vast enterprise was in the hands of a few men, unchecked by public inquiry or the criticism of independent shareholders—whatever that might be worth. It meant that with all the cash capital taking the form of bonds, any failure to make ends meet, any lengthened depression, would bring risk of the mortgage-holders' foreclosure and receivership—not merely the shareholders' waiting for a turn of the tide—except in so far as the burden could be shifted to the governments that had endorsed the notes.

In the early years, thanks to general prosperity and to the strategic location and careful management of the system, ends always met, and a little over, and funds were always forthcoming for fresh expansion. But early in 1914 a crisis arrived in the company's affairs. The mountain section particularly, what with the higher cost of labour and the unexpected engineering difficulties, was calling for tens of millions more; the stringency in the world's money markets, following the Balkan Wars, made investors chary of even gilt-edged offerings. There were many {194} millions of subsidies and guarantees still to come from the state, but they would come only as the road was completed, and meantime construction had to be financed. The partner-owners could not provide the ready cash needed for completing the gigantic task. The bondholders had no inducement to do so unless further guaranteed by the state. The western provinces were at last becoming frightened of the load they had already assumed. There was only one resource, the Dominion government. True, it had only in 1913 made a gift of $15,000,000 on solemn assurances that not a cent more would be needed. But, it was urged, the emergency was real. The road could not be left hanging half finished, after all the millions already spent. Canada's credit must be protected, and so the government, after a lively struggle, put through a positively last guarantee of forty-five millions. In return it was given forty out of the hundred millions stock to which the capital was reduced, and took the right to appoint one government director. Whether this step meant that the government was now going to share the control and the profits of the company, or whether it meant that it was henceforth to be saddled with the {195} responsibility for any deficits, was a point much in dispute. Later, the outbreak of war in Europe delayed, but did not altogether halt, the floating of the loan and the completion of the remaining links.

Meanwhile, the many subsidiary enterprises, which the example of the Canadian Pacific has caused us to think appropriate to the transcontinental railway, had been undertaken by its youngest rival. Fast steamers between Montreal and Bristol, grain elevators, hotels, express and telegraph companies, all brought grist to the mill. Hardly to be distinguished were the allied interests of the partner-owners—iron-mines in the Lake Superior district, coal-mines in Alberta and Vancouver Island, whaling and halibut fisheries on the Pacific, and lumber-mills on the British Columbia coast—all bearing some relation to the development of the railway system.



In 1896, a railway a hundred miles long, beginning and ending nowhere, operated by thirteen men and a boy! In 1914, a great transcontinental system practically completed, over ten thousand miles in length, and covering seven of Canada's nine provinces! The impossible had been achieved.



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CHAPTER XI

THE EXPANSION OF THE GRAND TRUNK

The Darkest Days—New Men at the Helm—Expansion in the East—The Grand Trunk

In the eighties, it will be recalled, the activity of the Canadian Pacific in the eastern province had stirred the Grand Trunk to an aggressive counter-campaign. Line after line had been absorbed, extension after extension had been built. New life seemed to have been injected into the old system. Holders of even ordinary shares began to dream of dividends.

The activity was brief and prosperity briefer. Only in the golden days from 1881 to 1883, when the West was enjoying its first 'boom' and railway construction was at its height, did the policy of expansion justify itself from the shareholder's point of view. The year 1883 saw the high-water mark of prosperity for the Grand Trunk; for in that year dividends were paid not only on guaranteed but on first, second, and third preference stock. Not again until 1902 was even a {197} partial payment made on the third preference; not until 1900, save for a fraction in 1887, was anything paid on second preference; first preference dividends were fractional and occasional, and even the guaranteed stock dividends were passed time and again. The financial position of this great system in the middle nineties may be briefly summed up in the statement that securities of the par value of L16,000,000, which in 1883 had a market value of L12,000,000, were worth in 1894 only L3,500,000. The junior securities had become only gambling counters on the stock exchange.

Where did the cause lie? There was not one; there were several. The first was in capitalization. The line had been hopelessly over-capitalized to begin with, and the new acquisitions doubled fixed charges, while net receipts increased only ten per cent; feeders had proved suckers.[1] Secondly, in the general commercial situation. The whole continent was undergoing a trying test of panic and depression, of low prices and industrial stagnation. For a quarter of a century after {198} 1873 the gloom had been broken only at brief intervals—from 1880 to 1883, and from 1887 to 1889. In 1893 the price of wheat fell to the lowest point in a century. The great Mississippi valley had been flooded with settlers, railway and steamship threw their millions of bushels on the world's markets, while the gold basis of prices failed to expand in proportion. Western farms were, it was said, 'plastered with mortgages'; one-sixth of the railways in the United States went into receivers' hands in 1893 alone. Free-silver agitators denounced the 'gold bugs' of the east; Coxey armies marched to Washington. Another cause was in excessive competition. The St Lawrence was more accessible to shippers than ever, while the Canadian Pacific had cut into the best paying territory in Ontario. In the Chicago traffic absolute demoralization ruled—reckless rate wars were waged, agreement after agreement was broken, line was played against line by grain-shipper or by dressed-beef magnate. A final cause was in management. The attempt was still being made to manage a great railway from London, three thousand miles away. The Canadian officials had little independent discretion; interminable delays, lack of initiative, red {199} tape, nepotism, followed inevitably. Here and there officials strove strenuously to better conditions, but the odds were against them. Practically no Grand Trunk stock was held in Canada; it was not even quoted on Canadian exchanges; Canadians regarded the road entirely from the user's point of view.

The traveller and shipper had less to complain of than the shareholder. The service of the road had been greatly increased. The mileage was large in proportion to population. Rates were low. True, it was a rare event for a Grand Trunk train to arrive on time, but it usually arrived.

For these various ills corresponding remedies were sought in turn. Drastic capital reorganization was discussed, but nothing was done. Commercial prosperity could not be revived by the efforts of a single railway. Competition was met by agreement after agreement, 'gentleman's' and otherwise, but in vain. The most hopeful resource lay in the only remaining direction, change of management.

In 1895 Sir Henry Tyler resigned from the presidency after twenty-three years of faithful service. His place was taken by Sir Charles Rivers-Wilson, who had a record of efficient {200} service on the borders of politics and finance. The new president and a committee of directors made a thorough investigation of the Grand Trunk, and recommended some immediate improvements. Their chief contribution to its success, however, was the discovery of Charles M. Hays.



The great rival of the Grand Trunk had pressed forward to prosperity under the driving power of an American general manager. The new administration decided that it, too, would look to the United States for a chief executive of the ruthless efficiency and modern methods which the crisis demanded. They found him in the man who had pulled the Wabash out of a similar slough of despond. Mr Hays was not quite forty when, in 1895, he was appointed general manager of the Grand Trunk. He had risen rapidly since the days when, a boy of seventeen, he had entered the office of the Atlantic and Pacific. At twenty-nine he had been secretary to the general manager, and three years later manager himself, of the Wabash.

His presence was soon felt. The staff realized, some with relief, some with consternation, that the good old leisurely days, the days of vested interests, were gone. {201} Many were pensioned, some were dismissed. In some cases American officials were imported to fill the vacant posts, to the patriotic discontent of the old guard. Equipment was overhauled, larger freight cars were ordered, and new terminals acquired. The main bridges on the road—the Suspension at Niagara Falls, the International at Fort Erie, and the Victoria at Montreal—were all rebuilt on a larger scale between 1896 and 1901. The double tracking of the main line from Montreal westward was continued, and many of the sharp curves and heavy grades of the original construction were revised. Elevators at Portland, Montreal, Midland, Tiffin, Goderich, Point Edward, and Fort William were built or acquired. Trains came in on time. The whole system was 'speeded up.'

Later changes in the administration may be briefly summarized here. In 1900 Mr Hays's five-year contract as general manager expired. At the same juncture a vacancy occurred in the presidency of the Southern Pacific, which had fallen on evil days, and Hays was offered and accepted the post at four times his salary with the Grand Trunk of $25,000 a year. A year later he was back again in Canada. There was not room in the {202} Southern Pacific for both Hays and Harriman, then in financial control, and the Grand Trunk directors seized the opportunity which the breach afforded. In 1909 the wide recognition of Mr Hays's great services led to long overdue increase of the authority of the Canadian officials of the road by his appointment as president, on the retirement of Sir Charles Rivers-Wilson. Three years later, with his projects for expansion still incomplete, he met a tragic death in the sinking of the Titanic. Mr Edson J. Chamberlin, who had increased his reputation for efficiency by his management for four years of the Grand Trunk Pacific, was chosen as successor in the presidency.

Fortune favoured the new administration from the start. The tide in the continent's business affairs turned soon after the new men took the helm. The long depression ended, prices rose, farmers met mortgage payments, factory chimneys smoked once more, traffic multiplied.

The first result of the improved conditions was the easing of the tension in railway relations. There was no longer a life-and-death necessity for rate-cutting and traffic-stealing. Rate wars between the trunk lines in the United States came to an end. On the {203} Canadian side peace was longer in coming. The rush to the Klondike in 1897 started a rate war between the Canadian Pacific and the Grand Trunk, with its American connections, which lasted nearly a year. In its course rates were cut in the east as well as in the west, and the Canadian Pacific sent its west-bound freight from Toronto by Smith's Falls rather than use any longer the direct line of the Grand Trunk to North Bay. Peace was patched up, but the Canadian Pacific shortly afterwards set about building a road of its own from Toronto north to its main line, thus threatening the Grand Trunk with permanent loss of western business, and providing it with one incentive toward the great westward expansion it was soon to undertake.

Along with prudent retrenchments went increasingly aggressive expansion, both east and west. It was one of the main objects of Mr Hays's policy to secure a hold on the rich traffic possibilities of New York and the New England states. Portland, the original New England terminus of the Grand Trunk, had not become the great commercial centre it once expected to be. The first further step was taken in 1899, when the Grand Trunk secured control of the five hundred miles of {204} the Central Vermont, with which relations had been close for some years past. With running rights over a gap controlled by the Boston and Maine, this gave a line from St Johns, Quebec, to the port of New London, Connecticut; from this point connection was made by boat to New York, where valuable terminal docks were owned.

New London was not the final goal, however—Providence and Boston offered greater possibilities. But to seize them it was first necessary to break through the monopoly of New England land and water transport, which the New York and New Haven line had acquired, or to come to terms with the interests in control. At first the word was to fight. The Grand Trunk was received with open arms by the business men of Massachusetts and Connecticut, eager for competition in railways, and in spite of all the political influence of the New Haven, Hays secured a charter for his Southern New England Railroad, to run from Palmer, on the Central Vermont system, to Providence; a branch from Bellows Falls to Boston was also planned. Construction was begun on the Providence line in May 1912, but suddenly halted. The Grand Trunk management declared the {205} halt due to financial conditions, but New England suspected a compromise with the New Haven. Probably the change in policy was mainly due to the change in management, the new administration setting less store on the extension than the Hays-Fitzhugh executive had done.

All these eastern activities, however, were overshadowed by the Grand Trunk Pacific scheme. It was not the first plan the Grand Trunk had formed for westward expansion. In the embryo days of the Canadian Pacific, it may be recalled, the government had offered to the old line the opportunity of carrying through the new one. Later, a connection with the Northern Pacific through Sault Ste Marie had been discussed, but Van Horne had forestalled this move. Still later an extension of the Grand Trunk from Chicago northwesterly, possibly through control of the Wisconsin Central, had been under consideration. Nothing came of these plans until the proved fertility and rapid settlement of the Canadian North-West, the improved position of the Grand Trunk in the money markets, and the threatened loss of traffic between Toronto and North Bay, lured and urged the new administration forward.

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In 1902 Mr Hays announced that the directors were considering building a line from North Bay, through New Ontario westward, to a terminus on the Pacific at Port Simpson or Bute Inlet. It would be a line of the highest standards. Government aid, the announcement continued, would certainly be sought and expected.

Once more railways became Canadian politics. There was little doubt that the government would aid either this or some rival transcontinental scheme. Opposition to the lavish subsidy policy of the past had developed, indeed, but it was overwhelmed by the demands from every quarter for a vigorous forward policy. It was Canada's growing time, and new-born confidence spurred country and government on. But if the line was to be not merely a private enterprise, but in part a policy of state, then considerations of high politics and low politics alike came in, and compelled material changes in the Grand Trunk's scheme before it could secure government acceptance.

A road from North Bay west would satisfy the local demands of the western provinces, but would not satisfy the local demands of the East, or meet certain common national {207} aspirations. Eastern, and particularly Quebec, interests, demanded that any new trans-continental should be built far to the north, opening up the wilderness between Hudson Bay and the Laurentian highlands bordering the St Lawrence. A Quebec company, the Trans-Canada, was in fact urgently seeking support for such a line, endeavouring, since patriotism is in Canada the last refuge of the promoter, to stimulate investors by stressing the military advantages of the remote route. Again, the Maritime Provinces protested against aid to a company to carry the traffic of the West to Boston and Portland instead of to St John and Halifax.

Sir Wilfrid Laurier, the prime minister, endeavoured to combine all these ends. His plan provided for a road 3550 miles in length, beginning at Moncton—a neutral point between the politically inconvenient rivalries of St John and Halifax—crossing New Brunswick northwesterly, skirting the Maine border, and on to Quebec City, where the St Lawrence was to be crossed by a great bridge. Thence it would strike westerly far to the north of existing settlements. From Winnipeg the previously proposed route was followed. The West would have the development and {208} competition demanded, the hinterland of Quebec and Ontario would be opened, and the ports of the Maritime Provinces put on an equality with their American rivals. And since this vast project was much beyond the power of the Grand Trunk to finance, it was arranged that the road should be divided into two sections. The eastern, from Moncton to Winnipeg, was to be built and owned by the government and leased to the Grand Trunk Pacific, free for seven years and at a rental of three per cent of the cost for forty-three years following. The western, from Winnipeg to the coast, was to be built and operated by the company, aided by a government guarantee of principal and interest on the greater part of the bond issue.

The announcement of this plan in July 1903 led to a storm of controversy as fierce as that which followed the launching of the Canadian Pacific. The Opposition brought forward various policies, looking to a greater measure of government ownership; the minister of Railways, Andrew G. Blair, resigned in protest; rival railways opposed openly and sometimes by secret plot; two general elections were fought on the issue. But rarely is a government in Canada defeated on a {209} proposal, sound or unsound, to spend untold millions, if the money is to be had at all. The agreement went through, with modifications, in the following year, and the building of the great northern road began.

The railway policy of the past twenty years is still on its trial, but some tentative conclusions may be ventured.

In the first place, it seems clear that a new transcontinental was needed, not only to open the West, but to develop the hinterland of eastern Canada. The rediscovery of a vast clay belt north of the height-of-land between Hudson Bay and the Great Lakes, its known resources in timber and pulp and its probable mineral wealth, as well as the farming areas of the western plains, and the forest, mine, and fishery wealth of northern British Columbia, all gave some economic justification for the adventure. Perhaps even stronger were the political considerations. Here, again, if railways were Canada's politics, it was not only because Canadians were materialists, but because they were idealists. They were determined that, in spite of geography and diplomacy, in spite of Rocky Mountains and Lake Superior wildernesses, Laurentian plateaus and Maine intrusions, {210} Canada should be made one and independent. Often this national spirit has been manipulated to serve sordid ends in railway as in tariff matters; the flag has covered a multitude of sinners. Yet whether it was the Grand Trunk or the Intercolonial, the Canadian Pacific or the Grand Trunk Pacific, the national purpose has been strong, and must fairly be set on the assets side of the sheet. Sir Wilfrid Laurier and Sir John Macdonald both worked with high courage and enduring faith for a greater and more united Canada. Any one who looked at a map of the Dominion and realized how incredibly narrow a fringe of population was strung out on the southern border, could not but feel that some attempt to add a second storey to the structure, to give breadth as well as length, was a national necessity. Perhaps least defensible was the Quebec-Moncton section; true, it was essential, if freight was to reach the Maritime ports, that a shorter line with better grades than those of the Intercolonial should be secured if possible. Grades were bettered in the lines secured, but the saving in distance was not as great as old and incorrect surveys had led the government to anticipate.

How should the road be built, granted its {211} need? Government ownership had its advocates, but experience of political 'machines' and a recognition of the difficulties of a government line in carrying on steamship or irrigation or other subsidiary activities, or in making international extensions, told heavily against such a policy. The real choice lay between the two private companies, the Grand Trunk and the Canadian Northern, which were seeking to rival the Canadian Pacific. Undoubtedly the best solution would have been to amalgamate these companies, and thus to save the eventual outlay on a line north of Lake Superior, on closely parallel lines in the prairies, and on the enormously costly rival lines to be built through the Rockies. True, competition even in railway matters has still its merits, but one strong competitor of the Canadian Pacific would have better served the country than two in financial straits. This solution appeared for a time possible. As has been seen, negotiations were carried on in 1902 and 1903 looking to such a union, but unfortunately without result. Forced to choose, the government had no alternative but to give its aid to the older and better known system.

What standards were to be set for the {212} new road? The continent's pioneer traditions were plain: build the road in the cheapest way it could be made to hold together, with sharp curves and steep grades if need be, with scanty ballast, wooden bridges, and light rails, since traffic would be light and capital hard to get. Then, if the country developed, and perhaps after a reorganization or two, rebuild the road on a permanent basis. But 1903 was not 1873, and Mr Hays had learned on the Wabash and on the Grand Trunk how difficult it was for a second-class road to compete, and how costly was the process of rebuilding with the line in operation. He knew that with high and rising wages for trainmen, and with frequency of service a minor matter on the long stretches, it was essential to concentrate loads in as few trains as possible, and that a locomotive could haul almost twice as great a load on a four-tenths grade as on a one per cent grade. So he determined to build from the outset up to the highest standard, securing a lower ruling grade than any other transcontinental enjoyed. The policy meant high fixed charges and low operating costs.

What outlay would be involved and what state aid was needed? Given the route and the standard set, the outlay could not but be {213} vast. It proved, in fact, much greater than the estimates, as is the way with most big enterprises. The government section cost about a hundred and sixty instead of sixty millions, and the Grand Trunk Pacific section about a hundred and forty, or three hundred millions in all—twice the estimate for the Panama Canal and nearly its actual cost.[2] The standard set was high, and proved difficult to attain; labour was scarce and expensive, and prices of all materials were soaring constantly. The large expenditure lent colour to charges of corruption in the construction of the government section. Investigation after investigation was held, however, without revealing any gross betrayal of trust. One contractor had been handled too tenderly for repeated delays, possibly engineers sometimes stretched classification on a losing contract, and doubtless contractors were as usual given the privilege of contributing to party campaign funds. But, fortunately for the good name of Canada, the serious charges of corruption were not sustained.

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Of this great outlay the country bore the lion's share. The Grand Trunk Pacific was organized as a subsidiary company of the old Grand Trunk, which secured control of ownership of all but a nominal share of the $25,000,000 common stock, given it in return for guaranteeing part of the Pacific bonds. Only $20,000,000 preference capital stock was provided for, and this was not issued. The interest of the independent shareholder was thus negligible. The money required was secured by the issue of bonds and debenture loans guaranteed by the government or the Grand Trunk. Up to 1914, in connection with the western section, the government had guaranteed the company's bonds to the amount of over eighty millions, had lent twenty-five millions for ten years at four per cent, and had made or promised a cash gift of twenty-three millions. On the eastern section, the company was subsidized by the use for seven years of the road, rent free, equivalent to thirty-four millions. It was a vast outlay, though not as difficult for the country to bear as one-third the amount would have been a generation earlier. The unique and consoling feature, so far as posterity was concerned, was that the bulk {215} of the government expenditure was provided out of surplus current revenue, so that for the future the net income to be received from rental would much more than balance interest on borrowings.

Once the contract was ratified by parliament and by the Grand Trunk, and the new company had been formally organized with Mr Hays as president and Mr Frank Morse, and later Mr Chamberlin, formerly of the Canada Atlantic, as general manager, the work of surveying and determining the route began. On the government section political difficulties were met in New Brunswick, from the advocates of a route down the St John to the city at its mouth, and engineering difficulties of many forms in the long trail through the northern wilderness. The bridge which was being constructed by an independent company across the St Lawrence at Quebec collapsed in 1907, with great loss of life, and the delay in completing the second bridge made it necessary to depend upon car-ferries for some time. On the western section a good route through the prairies was decided upon, not without vigorous protest from the Canadian Pacific because of the close paralleling of its line. After repeated surveys of the {216} Peace, Pine, Wapiti, and Yellowhead Passes, the last was chosen, and a line was settled upon down the Fraser and Skeena valleys, passing through two million acres of fertile land. Remarkably low grades were secured; in fact, as favourable as on the prairie section. Kaien Island, 550 miles north of Vancouver, was chosen as the terminus, rather than Port Simpson as originally designed, and soon on its magnificent harbour and most unpromising site of rock and muskeg the new and scientifically planned city of Prince Rupert began to rise.

As the main line ran far to the north of the St Lawrence lake and river system, the original plan provided for the construction of branch lines to Fort William, to North Bay, and to Montreal. Of these only the first, aided by the Dominion and also by the Ontario government, was built. For the connection with North Bay running rights over the provincial road, the Timiskaming and Northern Ontario, sufficed. Later, in 1914, the Dominion government itself decided to build the Montreal branch. In Alberta and Saskatchewan over 1200 miles of branch lines were begun, under guarantees of bonds by the provincial governments. In British Columbia an independent {217} road, projected by the contracting firm of Foley, Welch and Stewart—the Vancouver, Pacific and Great Eastern—promised when completed to give the Grand Trunk Pacific, by a traffic agreement, entrance into Vancouver.

The first contracts on the main line were let in 1905. For ten years construction went on, at the rate of a mile a day, with occasional slackening from scarcity of labour or financial stringency, but with no complete halt. Last to be completed were the section to be built by the company in the Central plateau of British Columbia and the section built by the government west of Cochrane. Meanwhile, the prairie lines had been in operation through to Edmonton since 1910, and grain reached Fort William over the Lake Superior branch in the same year.

From the beginning it had been questioned whether the Grand Trunk Pacific would carry out its bargain to operate the government section. The management professed its intention to perform every promise, but fulfilment was delayed. In 1915 the company demurred to assuming the lease, on the double ground that the road was not definitely completed, and that, since the change of government in 1911, the standard {218} of construction agreed upon had not been maintained. Accordingly the government took power to operate the road from Winnipeg to Moncton, and to expropriate the company's branch from Superior to Fort William, pending further negotiations.

The great Canadian railway companies are much more than railways. The Grand Trunk system, in its new expansion, branched into every neighbouring field which could be made to increase the traffic. Fleets of steamers, on the Pacific coast, on the Great Lakes, and on the New England route, filled in gaps in its lines. Modern car-ferries crossed Lake Ontario and Lake Michigan, as well as the river Detroit. Elevators, it has been noted, were built at strategic points on the way from the wheat-field to the sea. Magnificent hotels were opened at Ottawa, Winnipeg, and Edmonton, with more rustic resorts in the parks along the route. Tourist traffic was stimulated by lowered fares and alluring advertising.