The Marxist Quarterly Autumn 1965

Alfred Dubuc

TO THE EXTENT  that the Constitution of 1867 was conceived and worked out in relation to a different economic and social structure from that of Canada today, and that it sought to answer problems posed by a society that is no longer ours, the economic and social development of 20th century Canada is leading Canadian political life into an impasse. The extent of the constitutional changes that have become necessary is indicated by the gulf that separates the old from the new socio-economic base. My intention here is to describe Canada's economic structure of the 1860s, the problems that preoccupied the Canadian society of the time, and the solutions sought in negotiating the Canadian constitution. The distance separating us from that epoch will be seen from that description, and the present urgency of a reform of the constitution will be evident.

Like all juridical institutions, Canada's constitution calls forth arguments of a purely political character which both obscure its essential basis and distort its purpose. Only too rarely does one stop to define in economic terms the structure of the Canadian governments and State. Actually, it is possible to give an economic definition of our constitution; briefly, it can be put as follows: The Confederation of 1867 was essentially an operation of public finance, whose purpose was to place the resources necessary for the country's economic growth at the disposal of those responsible for effecting investment. Inasmuch as, in all developing Western countries, the technology of the time favored railway construction, U was the railway companies that gained the most from the benefits of Confederation (the CPR is still living off them). At that epoch, m underdeveloped countries endowed with vast territory, railway building was actually the prime sector for stimulating the growth

To the extent that the Constitution of 1867 was conceived and worked out in relation to a different economic and social structure from that of Canada today, and that it sought to answer problems posed by a society that is no longer ours, the economic and social development of 20th century Canada is leading Canadian political life into an impasse. The extent of the constitutional changes that have become necessary is indicated by the gulf that separates the old from the new socio-economic base. My intention here is to describe Canada's economic structure of the 1860s, the problems that preoccupied the Canadian society of the time, and the solutions sought in negotiating the Canadian constitution. The distance separating us from that epoch will be seen from that description, and the present urgency of a reform of the constitution will be evident.

Like all juridical institutions, Canada's constitution calls forth arguments of a purely political character which both obscure its essential basis and distort its purpose. Only too rarely does one stop to define in economic terms the structure of the Canadian governments and State. Actually, it is possible to give an economic definition of our constitution; briefly, it can be put as follows: The Confederation of i86y was essentially an operation of public finance, whose purpose was to place the resources necessary for the country's economic growth at the disposal of those responsible for effecting investment. Inasmuch as, in all developing Western countries, the technology of the time favored railway construction, U was the railway companies that gained the most from the benefits of Confederation (the CPR is still living off them). At that epoch, in underdeveloped countries endowed with vast territory, railway building was actually the prime sector for stimulating the growth

39

 

40 THE MARXIST QUARTERLY

of all the other sectors of the economy. In Canada, to build railways was to open up whole new regions for forest industries and agriculture, thereby increasing export possibilities and, on all sides, the capacity for import of consumer goods and, above all, of capital equipment; making new territories available for farming meant the stepping-up of immigration and the process of peopling the country. Moreover, railroads were a magnetic pole that attracted investment capital to the iron and steel industry, metallurgy and mining. All these, in turn, drew into activity the remaining sectors of the Canadian economy. So it is hardly surprising to find that the Confederation project was worked out as much in the head office of the Grand Trunk as in the offices of cabinet ministers.

Political Problems

Assuredly, the political questions requiring solution were not few in number. Taking the British North American colonies as a whole, and disregarding the internal problems of each, these questions can be summarized as follows:

1. Weakness and widely-scattered character of these colonies;


2. Threats of war between Britain and the U.S.A.;


3. Continental imperialism of the Americans;


4. The stepped-up tempo of growth of the American Far West.

Britain, since granting them responsible government (1848-49), had surrendered control over the fiscal policies of her colonies in North America: as a result their military defense was henceforth to be their own responsibility, and London had given them notice that even her garrisons were to be withdrawn from their territory. The colonies were thus becoming peculiarly vulnerable.

The Civil War in the United States was drawing to a close, with the North winning out over the South: with threats of war between Britain and the U.S. becoming serious (the former having supported the case of the South), Fenian raids on Canadian territory carried the threat of a continuing aggression.

Meanwhile, U.S. territory kept expanding: the decade 1850-60 saw the Far West become an integral part of the United States; Texas had been annexed in 1845, Oregon in 1846; Minnesota was formed in 1858; and after the British refusal to acquire it,

 

ECONOMIC PROBLEMS OF CONFEDERATION 41

Alaska was purchased from Russia by the U.S.A. Everywhere the call of "Manifest Destiny" resounded across the frontier, and voices were being raised calling for annexation of the British colonies.

With the discovery of gold in California in 1848, the Americans projected their expansion beyond the Far West. Soon railroads would traverse the vast territory, and immigrants be attracted to new lands to be had cheap; in 1862 the Union Pacific received its charter, in 1864 the Northern Pacific: the latter, in particular, had let word get out about plans for railway construction on British territory. In 1862, also, the famous "Free Homestead Act" was passed, allowing immigrants to settle on Hudson's Bay Company lands. Moreover, the Americans were laying claim to fishing rights in the territorial waters of the Maritimes, and to navigation rights on the St. Lawrence.

There were good and eminently strategic grounds for urgency in the matter of the union of the British North American colonies.

Economic Problems

Yet these political problems would never have received as rapid a solution as they did, had economic interests not provoked it. The Canadian economy in 1860-67 can ke described as marking time within the framework of a vast, accelerating movement of economic growth.

World economy between 1850 and 1873 experienced rapid expansion. It was the great railway-building epoch, and England was enjoying the splendors of the Victorian age; in France, it was the time of the Second Empire; Germany was completing her unification, absorbed in her economic "take-off"; the USA, notwithstanding the Civil War, was industrializing at high speed. World trade in raw materials and foodstuffs reached unprecedented heights; the labor market was becoming internationalized as well as those in commodities and producers' goods.

In spite of the great commercial crisis of 1846-50, caused both by Britain's withdrawal of imperial preferences and by the world erisis of 1848. the Canadian economy got a fresh start in 1850. Since investments in the St. Lawrence sea-route had not brought the anticipated benefits, and as the U.S. had obtained a consider-

 

42 THE MARXIST QUARTERLY

able lead in railway building, it was railway strategy that was now to become the stimulus of economic growth in Canada. In her age-old rivalry with New York, Montreal urgently needed to secure an ice-free ocean port: so the railroad was built from Montreal to Richmond, to Portland (Maine) : from Quebec to Riviere-du Loup and Richmond; from Montreal to Sarnia (Ont.). Waste and overinvestment went into it, as is inevitable in a capitalist economy; along Lake Erie, the line of the Grand Trunk is duplicated by that of the Great Western. All this investment takes place in less than ten years; after i860 there is no further railway building; as it is, the Grand Trunk is already experiencing grave financial troubles.

Deserted by Britain, Canada beams her international relations toward the United States. The Commercial Reciprocity Treaty, signed in 1854, is to be in effect from 1855 t0 1866, the very eve of Confederation, a fact which is not just a coincidence. The Treaty is to have the effect of regionalizing economic relationships in North America. The Maritime colonies, participants in the agreement, will trade with the Atlantic seaboard States, Ontario with the American mid-West, Quebec with New England and New York. The involvement of the U.S. in the Civil War (1860-65) has a dual effect on Canadian prosperity: it increases American demand for Canadian products, and opens up to Canadians markets hitherto held by the Americans, particularly that of the West Indies. The effects of the war on the Canadian economy work in the same direction as those of commercial reciprocity: so it is almost impossible for analysis to distinguish which of the two events is responsible for a given aspect of Canadian prosperity, particularly when one considers at the same time the effects of the heavy investments in railways.

Both the agriculture and industry of Quebec share largely in this prosperity. What can be called the agricultural revolution is at its height in Quebec, Small regional markets are opened up to large-scale international trade. Specialization develops in the dairy industry, and Quebec produce is exported mainly to the United States. Montreal, her economy now linked with that of the railroads, is industrialized rapidly.

However, there are two elements of deepgoing crisis in the

 

ECONOMIC PROBLEMS OF CONFEDERATION 43

Quebec economy. In ocean shipping the iron and steel steamship takes the place of the sailing vessel; the world's great merchant shipping lines undergo a metamorphosis, with the shipyards of the industrialized countries profiting therefrom. The shipyards at Quebec, which till then had employed more than 50% of the city's labor force, begin to experience the same sort of ruinous crisis as was blighting the New Brunswick yards.

Montreal's role as port of trans-shipment between Britain and Western Canada is hard hit by the process of regionalization in the North American economy. Canada West now exports her raw materials and foodstuffs, bound for Britain, through the U.S., importing from there even British consumer goods and production equipment.

Montreal's commercial function, and some of her processing activity, like flour-milling, suffer serious losses on account of Reciprocity. Thus it is hardly surprising that it is from here that attacks are mounted against the 1854 treaty, and that a new economic policy is projected: Alexander Tilloch Gait, Conservative finance minister, linked with the biggest financial interests in Montreal and with the Grand Trunk (it is on his land in Richmond that the junction of the Quebec, Montreal and Portland lines is located!), works out the rudiments of the National Policy, by means of his discriminatory tariff policy against imports of U.S. manufactures, provokes the end of Commercial Reciprocity. He, of course, is to be one of the most active architects of Confederation.

By i860, with railway investments coming to a halt, the Grand Trunk was facing serious financial difficulties: challenged as it was by the Great Western along Lake Erie, and with New York replacing Montreal as Canada West's trade outlet to Europe, the Company found itself unable to meet its obligations. It was only saved from bankruptcy by the erasing of a debt of some $40 million to the Canadian government. According to G.T.R. president Edward Watkin, who in 1862 came to Canada to look over the situation, there was only one way out: copy the American experiment °f trans-continental railroads; get investment going again by linking up all the British North American colonies by rail from tne Atlantic to the Pacific. Thanks to government subsidies, this

 

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will save the Company. Back in England Watkin became an assiduous propagandist for union of the colonies.

Yet a great difficulty remained: the Hudson's Bay Company, with its 17th century charter of commercial monopoly, still controls the administration of the largest part of British territory in North America. Rupert's Land (the whole Hudson Bay drainage basin) and the northwest territory as far as the Pacific, are the Company's responsibility. No matter: in June 1863 Watkin and the two bankers of the Canadian government and of the Grand Trunk. Thomas Baring and George Carr Glyn, set up the "International Financial Society" which then buys the Hudson's Bay Co. shares for £1,500,000. In June 1870, shortly after Confederation, the Company turns over to the government of Canada responsibility for the administration of Rupert's Land and the North West Terri tories, at a price of £300,000 and a grant of private ownership of 6,630,000 acres of land.

This is the basis for the assertion that Confederation was worked out as much in the Grand Trunk's offices as in those of the gov crnment.

This is the basis for the assertion that Confederation was worked out as much in the Grand Trunk's offices as in those of the gov crnment.

Problems of Public Finance

Almost at the same time, in 1865-66, there came to a close both the American Civil War and the Reciprocity Treaty. The regions that had profited most—above all, the Maritimes—were the hardest hit by these developments. Their crisis was the more serious; in that it was aggravated by a profound structural crisis: forest industries, shipbuilding, worldwide Maritime transport, the whole economic base of these colonies, were collapsing in the wake of the new technology of the steam-driven iron ship. The Golden Age of the Maritimes was over. A heavy public debt had resulted from public investments undertaken by colonial governments which lacked an infrastructure of municipal administration. The Maritime colonies were looking for ways to unite: the Charlottetown conference was the first step.

On the other side of the continent, on the Pacific, the Fraser River gold rush, started in 1855, was now ?nded. Population, which at one moment had reached 25,000, was down to 10,000. The government of the new colony, detached from the Hudson's Bay

 

ECONOMIC PROBLEMS OF CONFEDERATION 45

Co. territory, had contracted heavy debts for developments that were geared to gold production. Here too, union looked like the solution to financial problems: the two colonies of Vancouver Island and British Columbia were united in 1866.

As for the Province of Canada, its public debt was of large proportions. To investment in canals there had been added the generous subsidies to the railway companies. In 1866, public investment in means of transportation accounted for 60 per cent of the public debt, and current government expenditure in this mi tor, 30 per cent of the budget.

Since government income was derived almost entirely irom indirect taxation, in the first place from customs duties (80 per cent, in the Maritimes, 66 per cent in Canada) any slowing down in economic activity was at once reflected in diminished tax receipts. Population movements provide an indication of the economic cycle in Canada. In 1866 the total population of all the British North American colonies stood at 3^500,000 (that of Canada, 2,600,000). During the decade of heavy railway investments (1851 -61) the population grew considerably, both by natural increase and a net immigration of 175,000 persons. In the decade that followed (1861-71) Canada was unable to provide work for all her population: a net emigration of 250,000 was equal to one-third of the natural increase.

These difficulties in the colonies resulted in an inability to make further borrowings: the London bond market being closed to them, they had to resort to short-term loans at as much as 8 per cent interest, from Canadian and British banks.

The solution lay in a re-enactment of the 1841 Union of the two Canadas: by combining both debts and populations, the colonies' borrowing power was enhanced and the economy got going afresh through investment in means of transport. The railroads were to Confederation what the canals had been to the Union of the Canadas.

The new union conferred numerous benefits: it enabled each of the colonies to emerge from isolation, built up a stronger power vis-a-vis the U.S.A., lightened the burden of their individual public debts and raised their collective credit rating on the world's money markets. Moreover, the union made possible an economic devel-

 

46 THE MARXIST QUARTERLY

opment policy based on the Montreal financial interests and those of the railway companies. The new policy rested on the conviction that with the colonies possessing varied and complementary re-cources, development would, by contagion as it were, affect them all severally and jointly.

As a consequence of the emergence of difficulties with the United States and the slowing down of trade, it became possible once more to draw more closely the economic ties with Britain. The "Great Depression" of 1873-79 was to compel a fuller elaboration of this policy, based this time on a protective tariff designed to stimulate industrialization. This was the famous "National Policy" of the Macdonald administration which was returned to power in the 1878 election.

The Confederation of 1867, seen in this setting, endowed the federal government with all the powers that were essential to encourage economic growth. The fixed capital of all the colonies was brought under the central power, as well as their debts: it acquired legislative power in the sectors responsible for growth— canals, railroads, telegraphs, interprovincial communications and international trade, banking, credit, currency, bankruptcy; jointly with the provinces it was to look after agriculture and immigration.

All important sources of tax revenue were surrendered to Ottawa: since not enough was left to the provinces to cover their own requirements, the federal government was to make up the difference by means of subsidies.

Clearly, the Canadian Constitution reflected a fundamental economic concern: to draw on the savings of the country as a whole so as to invest in economic growth, above all in the railway sector which was to carry the rest along with it.

Today, it is becoming increasingly evident that the economic structure of 20th century Canada is completely different from the one just described. Equally evident is the fact that the plans for balanced growth have not materialized.

The economic transformations that today make essential a fundamental re-casting of the Constitution are the following:

(a) the economic development of Canada as a whole has yet to be achieved: certain regions have been left high and dry.

(b) economic integration of the whole has not taken place:

 

ECONOMIC PROBLEMS OF CONFEDERATION 47

certain regions have experienced an autonomous development.

(c) provincial revenues have grown considerably and new fields of activity have opened up to them: they play an increasingly dynamic part in economic development.

(d) with the aggravated economic crisis of the end of the 19th and the early 20th century, Ottawa has assumed an ever-growing responsibility in relation to the short-term economic trend, which tends at times to make more difficult the elaboration of long-term economic development policy.

(e) the capitalist system has evolved in such a way that private enterprise no longer provides the main driving-force in investment. In this respect, it is no longer up to government to draw on the citizens' savings to hand them over to private enterprise; but to attract, through financing of the public debt, the vast resources accumulated by the financial institutions and utilize them for public investment. Great difficulties are being caused by the employment of too large a part of these resources and of the state budget in defense projects.

These are some of the problems to which more attention needs to be paid if there is to be a rational discussion of constitutional changes.

Departement des Sciences economiques,
Universite de Montreal

AMONG OUR CONTRIBUTORS

John R. Colombo, a Toronto writer, is the managing editor of Tamarack Review, Professor Dubuc teaches economic history at the Universite de Montreal, and Jacques-Yvan Morin if Professor of Law at the same university. M. J. Sago is secretary of the Canadian Council of National Groups.

 

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-- This OCR was prepared by Kathleen Moore in August 2014 for the legal research purposes of Habeas Corpus Canada. --