Canadian Pacific: A Brief History 9780773593343

Table of contents :
Cover
Title
Copyright
Foreword
Acknowledgments
Contents
Introduction
PART I—THE RAILWAY
1. The Building Blocks
2. The First Steps
3. The Attempt at Public Construction
4. Dickering for a Contract 1879-80
5. The Contract and the Men Who Made It
6. The Primary Construction Period
7. The Dismal Years 1886-96
8. The Crow's Nest
9. The Golden Years 1897-1913
10. The Ending of the Boom, the War and Its Aftermath
11. The Inter-War Period
12. The Second World War
13. The Recent Past 1945-66
PART II—OTHER ACTIVITIES
14. The Lands
15. Cominco
16. Other Investments
A Summing Up
List of Railways Mentioned in the Text
Notes
Index

Citation preview

eanadian pacific

a brief history

j. forme medongall

Montreal McGill University Press 1968

John Lorne McDougall was Professor in the School of Business at Queen's University from 1932 to 1966. His early training as an economist was obtained at the University of Toronto, the London School of Economics and at Harvard University. His subsequent experience made him thoroughly familiar with both the academic and the business worlds. After teaching in the Department of Economics of the University of Texas at Austin, he moved to the Department of Political Economy at the University of Toronto. He then joined Canadian General Securities Ltd.. Toronto, where he was Statistician for four years and saw at close range the daily functioning of a highly complex business operation. Much of Professor McDougall's published work has appeared in the Proceedings of Royal Commissions, Parliamentary Committees and of Committees of the House of Representatives in Washington. He is thp author of Railway Wage Rates, Employment and Pay, and of numerous articles in trade papers and learned journals.

McGill University Press 1968 Printed in Canada by Richardson, Bond & Wright Limited Library of Congress Catalog Card No. 68-23392 French edition by Les Presses de l'Universite de Montreal

foreword

C

anadian Pacific cannot help but think of itself as a young company. Its primary construction phase is just recently over; and so rapid are the changes imposed by membership in a dynamic society that its present employees think of themselves as working in a business in which nothing is set. But with the centenary of Confederation we were compelled to realize that the decision to form the Company was taken 87 years ago—which is the equivalent to the active life-times of at least five successive senior executives. There were a number of oral traditions floating about which grew vague as the years passed. There were others which took on a life of their own because they made a good story. It seemed time to take a look at the Company's history and see what was fact and what was unconscious embroidery worked by the passage of time and fallible human memory. We asked Lorne McDougall to make this review for us. We both recognized that a complete history could not occupy less than three long volumes, so he was asked to produce something which was of more moderate compass, readable and interesting rather than exhaustive. We would limit ourselves to assigning a man to dig out materials from the Company files and from the Canadian Archives at his direction, but what he wrote was his responsibility. This book is the result We think it good to have a work of this kind embody one unified point of view — sharp, clear, looking at what the Company did from day to day in the light of the conditions of that day and of its own vii

Canadian Pacific

strengths and weaknesses at the time. The alternative seemed to be to have something which represented the work of many hands, all striving to extract what was controversial, so that it ended up a bland flavourless mass of facts; every fact verified, and most of them of no importance. We hope that readers will enjoy this book and finish it with a clearer view of what Canada is all about and of how large a part Canadian Pacific played in its early development. But it should be clearly understood that while Canadian Pacific initiated it and caused its publication, it has no other responsibility for its contents. N.R. Crump

viii

acknowledgments

have to acknowledge my gratitude to the officers of the Company for their willingness to give me complete freedom in the writing of this book. Having decided that I should be asked to do it, they governed themselves by the farmers rule, "Why keep a dog and bark yourself?" It has made the work far more interesting than it might otherwise have been; and since I have had total freedom in writing I must bear equally undivided responsibility for what is said. My obligations for help go first to the staff of the Douglas Library, Queen's University, who have been most interested, to Mr. J. Desmond Kenny of the Accounting Department, Canadian Pacific Railway, whose interest and assistance have been invaluable, and to Lorraine Blanchard, who has turned so much untidy manuscript into clear and beautiful typescript. I wish next to thank the libraries of the University of Toronto and of McGill University; Miss Marjorie Rice, Librarian of the Department of Mines and Technical Surveys, Ottawa; Miss Frances Buxton, Senior Librarian, The California Room of Oakland Public Library; and Mr. W.E. Ireland, Provincial Librarian and Archivist of British Columbia. If I failed to draw as much from them as I should, it was because of my lack of persistence in finding the right questions to ask and not in any unwillingness on their part to find answers. J.L. McD.

ix

contents

Foreword Acknowledgments Introduction

vii ix 1

PART I—THE RAILWAY The Building Blocks The First Steps The Attempt at Public Construction Dickering for a Contract 1879-80 The Contract and the Men Who Made It The Primary Construction Period The Dismal Years 1886-96 The Crow's Nest Line The Golden Years 1897-1913 The Ending of the Boom, the War and Its Aftermath 11. The Inter-War Period 12. The Second World War 13. The Recent Past 1945-66

93 101 109 ' 113

PART II—OTHER ACTIVITIES 14. The Lands 15. Cominco 16. Other Investments A Summing Up List of Railways Mentioned in the Text Notes Index

125 143 157 165 167 181 193

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

11 19 25 31 39 49 65 73 83

xi

introduction

his book is a biography of the Canadian Pacific Railway, an institution which grew up in a peculiarly intimate interaction with the Canadian nation. Why and how did it come into existence? Why was the connection with the national government so close in the early years? How did that connection affect the Company's development? Did it impose any handicaps, then or later? Did the Company take full advantage of the fact that it was an institution and not an individual by retaining flexibility in its thinking and in its response to external conditions, or did it gradually harden as time went on? A considerable number of corporate biographies are available. What sets this book off from the common run of such studies is the degree to which it is, of necessity, a study of Canada as a nation as well as one of Canadian Pacific, the commercial enterprise which had and has to pay its way or perish. After British Columbia entered Confederation in 1871 a railway was a political necessity to connect it with the rest of the country. Given the degree of economic development then existing in the area west of North Bay, there was not the faintest hope that such a line could be built by private money. To many, it seemed questionable whether such a line, no matter how or by whom it was built, could pay its out-of-pocket expenses in its early years of operation. Canadian Pacific came into existence at the time and in the shape it did because it was an answer to a basic national problem and because the government was, for that reason, ready to provide the subsidies for it. It was essential to the life of Canada as a nation, but in economic terms it was a desperately premature enterprise. 1

Canadian Pacific

The record of the early period, beginning with Confederation in 1867 and running to about 1903, has, then, one central theme: the determination of Canada to form one nation spreading from sea to sea. The creation of the North West Mounted Police to take effective possession of and assert Canadian sovereignty over the Prairie West was the first positive step toward converting that dream into a reality. The building of the Canadian Pacific main line to the Pacific Coast was the second. These two actions made Canada a nation in fact as well as in theory. The Mounted Police held the fort until the coming of the railway permitted an effective occupation of the land. The decision of the government of Sir John A. Macdonald to grant a charter to the Company and to subsidize heavily enough to get the railway built was not a new idea conceived in 1880; it was, instead, the final realization of the hopes which produced Confederation in 1867 and toward which the nation had been working as rapidly as events would permit. In this early period, the Company's history is, in its larger aspects, a chronicle of the dynamic tension between the political forces of a small and very scattered population and the stark necessities of a company which had to cover its costs from the very beginning, and to develop an earning power as soon as possible. Canadian Pacific was a new property which cried out to have money spent on it. The gross revenues per mile were painfully low, so that after the basic costs were met there was all too little left over. Yet mere existence would have meant a defeat of the nation's hopes; the railway had to grow if it was to serve the needs of a growing country. Yet growth in mileage and improvement of existing lines both meant raising new capital year after year; how could that be done unless there was a record of growing earning power to support the obligations created? This whole problem of growth and its financing was greatly complicated by two major facts. The first was that the West could not be occupied by people who merely applied techniques of farming learned on the humid lands of the East. There was a long difficult period of adjustment before they learned how to reduce the risk of crop failure. The second was that these lessons had to be learned against a background of worldwide depression and semi-depression so that the margin for error was painfully narrow. After 1896, the clouds lifted. The farmers of the West had adjusted their cultural practices to the land, and they began to get the benefits of early-maturing wheats. The world-wide depression end2

Introduction

ed, and by the end of the century full prosperity reigned. but a great many attitudes toward the Company were built up in those early years of strain and difficulty which took on a life of their own and created unnecessary difficulties in later years. After 1901. Canadian Pacific was no longer the only railway within Canada connecting the Prairie West with the outside world. At the very end of the year Canadian Northern track got through to Port Arthur and operations from Winnipeg to the Lakes began in 1902. The full implications of a second line to the Lakes broke only slowly upon the country and, indeed, upon C.P.R. itself. This was the end of an era. Previously, any railway built in the West was a local line which gathered up traffic and delivered it to Canadian Pacific. The sole exception was the Northern Pacific and Manitoba which delivered its traffic to its parent, the Northern Pacific, for carriage to Duluth or St. Paul Minneapolis and which cut squarely across the national purpdse in so doing. Now with Canadian Northern out to the Lakes, Canadian Pacific no longer stood alone as a major servant of the national interest. It was merely the senior company providing that connection, and from now on new gathering lines in the West were competitors and not feeders. As for Canadian Northern, it was now a competitor for traffic to " and from the Lakes; by 1916 it was to be a transcontinental with its own lines unbroken from Quebec City to Vancouver. As these new lines developed Canadian Pacific found that it was easier to lose the benefits of its early position as the sole transcontinental in Canada than it was to shed the obligations which it had assumed when it held that position. Even at the present time, a full sixty-five years after its special position began to disintegrate, there are substantial interests in this country which still feel that Canadian Pacific should not be permitted to regard itself as a commercial company, but should willingly shoulder major responsibilities for national development and should have such responsibilities imposed upon it if it shows any hesitancy. The opening of the Canadian Northern route to the Lakes was a beginning only. The full scale of the change began to be visible in 1903 when the federal government entered into a rather complicated agreement with the Grand Trunk Railway for the building of a transcontinental railway. The government was to build from 3

Canadian Pacific

Moncton, N. B.. through Edmundston, Quebec City and Cochrane to Winnipeg. This line, the National Transcontinental, was to be leased on completion to the Grand Trunk Pacific Railway Company, a wholly owned subsidiary of Grand Trunk. Grand Trunk Pacific was to build from Winnipeg westerly through Edmonton to Prince Rupert. In this new period the major theme of Canadian Pacific's development was learning how to live in a mixed economy. With each passing year the pressure to do so grew heavier, for government was moving from a supporting to a dominant role. Canadian Northern had come into being with bond guarantees from the Province of Manitoba. Thereafter it drew upon the federal government and upon the provinces with a magnificent impartiality. Its extension to Vancouver rested on a guarantee from the Province of British Columbia, that from Port Arthur easterly upon a guarantee from the federal government. Both Grand Trunk Pacific and Canadian Northern were, at each successive step, governmental creations. Neither could have reached the size it did on its own credit. Government guarantees were, in each case, the basis of the most costly and least productive growth. In particular. the fact that Canada ended up with two new transcontinentals rather than one new competitor for C.P.R., which was strong enough to stand on its own feet, was wholly the result of government policy. After 1914, both of these new systems broke down. This was the moment of truth for the policy of bond guarantees. It had been adopted because it was supposed to be costless. Suddenly the concealed dangers all matured at once. The federal government now had only two options. The first was to allow bankruptcy to take its normal course. Under that procedure the railway properties would be run by receivers who were officers of the court charged with two duties, the preservation of the assets and the maintenance of service. Then, when the war was over and something resembling normal conditions had returned, the various classes of security holders could work out some kind of a compromise between themselves and with the guarantors and reclaim the physical properties from the courts. It would be a painful proceeding. Each of the governments concerned would be compelled to honour its guarantees of interest, and this would no doubt put heavy immediate pressure on some of the provinces. They would, however, expect to recover most of their advances when reorganization finally took place. Some of the guar4

Introduction

anteed securities might secure a position in the reorganized company only if they paid a substantial cash assessment. It would have been uncomfortable for all concerned, but when it was over the losses would all have been distributed. Nothing would be hidden. The alternative option was to take over both properties, guarantee all past debts, and put up any additional new capital needed to keep them going. There was no real hesitation. Bankruptcy would concentrate all the discomforts in the next five years. Government ownership would leave all the sleeping dogs undisturbed. The latter plan was adopted. Canadian National Railways was created by the government to operate the two systems which had broken down and the Intercolonial which always had been government owned. To round out the structure the government took over the Grand Trunk Railway as well with its lines from Portland, Maine, and Quebec City to Montreal, Toronto, Sarnia, and Chicago. The Grand Trunk had guaranteed the bonds of its subsidiary, the Grand Trunk Pacific, and that guarantee pulled it down. A minor theme in this second period of Canadian Pacific's history is the transition from management by great entrepreneurs to management by professionals. George Stephen, for example, was the first President of C. P. R. partly because of his basic ability, but also because he was a very large shareholder. In his own eyes the latter factor was the more important. With time, management has come into the hands of a corps of professionals. Their stockholdings are not important. Their competence is measured partly by their skilful use of the property and partly by their skill in keeping an adequate flow of replacements into their own group so that the Company is well served even though illness and death should strike suddenly at the upper ranks. The more Canadian Pacific's record is examined, the more clearly does it show up as a human institution, managed by fallible individuals. As in all institutions, those who act are compelled to make decisions on the basis of imperfect knowledge and still more imperfect forecasts of the future. A study of the other activities in which Canadian Pacific is engaged reveals, as almost nothing else could, the tremendous reversals worked by time to upset the wisest planning. Cominco, for example, began as a very small investment made to build traffic for a minor branch of the railway. It was at first tucked away in the portfo5

Canadian Pacific

lio of a subsidiary, probably because mining investments were looked on as being inherently speculative and it was not regarded as wise to admit to making them. Respectable people with a reputation for conservatism did not do that kind of thing. Yet Cominco is now a very great company, with international interests, and C.P.R's share of its dividends has been a life saver. The development of the irrigated area east of Calgary took many times as much capital, and far more of the time and attention of the top executives of the Company, but it caused great losses. In the end the Company paid a substantial cash bonus for the privilege of turning over its irrigation works and its unsold lands to irrigation districts organized by the settlers in those areas. Yet at the time, the investment in the irrigation works seemed more desirable on every ground, more likely to result in profit than did the investment in Cominco, and far more likely to add to the traffic of the railway. All of the Company's activities are interesting; some of them are downright fascinating; but if possible, we will look at the forest as well as the trees. What were the central organizing principles which have held this Company together over the last eighty years? What were the qualities which, through the dismal years from 1886 to 1896, not only kept it alive when so many other railways took refuge in the bankruptcy courts, but let it grow and build a foundation for still further growth when external conditions became more propitious? And in the golden years from 1897 to 1913 why was C.P.R. able to withstand an almost overwhelming prosperity so that, with earnings rising, seemingly without limit, it resisted the temptation to let its fixed charges rise? In the same period, most other railways were pushing their luck and borrowing heavily. Canadian Pacific was proceeding carefully. Ultimately, that caution proved to be the wisest course that could have been chosen. Why, again, was C.P.R. able to meet the almost shattering strains of the depression of 1929-39? This truly remarkable resilience and recuperative power flow from a willingness to act in terms of the time-perspective of the Company itself, not of the individuals who serve it at any given time, and from that sense of loyalty and esprit de corps which pervades the whole organization. Difficult as it may be to speak meaningfully of so intangible a quality, it is too important an aspect of the Company to be passed over in silence. Here, then, is C.P.R.—warts and all. The treatment is brief in order 6

Introduction

not to tire the reader, but nothing has been consciously omitted in order to improve the picture. This is a company which can stand scrutiny.

7

part I the railway

CHAPTER 1

the building Mocks

4

II economic societies are founded on the division of labour. People (and areas) specialize in the production of the things they can do best, and then exchange their products. It is an immensely complicated process which rarely works at its ideal best; but, even after allowing fully for its malfunctions, it is so much more productive of goods and services than an attempted self-sufficiency that the exchange society always triumphs. A railway is a relatively sophisticated way of moving people and goods, which appears late in the development of an exchange society. No weak or immature society can support one, and many borderline states are just barely able to do so, but in the nineteenth century the mature ones were organized around their railways and were raised to a new level of material well-being by the reduction in the cost of moving goods. Markets were extended. The scale of production increased, and further specialization was made possible. It was a massive, progressive change which finally generated the belief that never-ending progress, in peace, toward a higher and higher level of material well-being was the normal lot of civilized mankind.' Those who stood upon the fringes thought of railways as the most necessary single forward step that could be taken. Railways were the key to full membership in the society of the economically privileged.' Canada in 1867 stood upon that fringe. There were railway lines in Nova Scotia, stretching from Halifax to Truro and Pictou. In the 11

Canadian Pacific

St. Lawrence Valley, the Great Western ran from Windsor through London and Hamilton to Niagara Falls, and the Grand Trunk from Sarnia through Stratford, Toronto and Montreal to tidewater at Portland, Maine, with a stub stretching off to Rivere du Loup east of Quebec City. The Northern Railway stretched from Toronto up to Collingwood, and the Ottawa and Prescott Railway connected those two places; but that was it. There was nothing to connect the various major geographic regions. The pattern which Canada hoped to follow was clear enough, but there was one major qualification which governed its development in the first thirty years. That was that it had a highly dynamic nextdoor neighbour which, starting earlier, had already reached a higher level of economic development and which exercised a powerful pull on Canadian development. If the process were left to work itself out "naturally," slowly, by trial and error, could the country hold together? Was there not a strong probability that it would be pulled apart by centrifugal forces before it came fully into being? Lacking direct access to Lake Superior, the trade of Manitoba would be forced southward to St. Paul. Lacking rail connection eastward, British Columbia would drift toward the Pacific Coast states. And the pull of the New England States upon the Maritime Provinces would be overwhelming unless offset by a railway connection with the St. Lawrence basin. In a nutshell, that is the origin of the Canadian Pacific Railway. Politically, it was essential. Without it, Canada was a highly vulnerable idea; once the railway was built it was on the way to becoming a fact. But in economic terms Canadian Pacific was a hopelessly premature enterprise. Even if heavily subsidized, its prospects were extremely doubtful. There, in broad outline, is Canadian Pacific's origin. Now to start back at the beginning and see how the process worked itself out. The confederation of the British North American provinces of Nova Scotia, New Brunswick, and Canada was consummated on July 1, 1867. The other British provinces joined soon after: Manitoba in July 1870, British Columbia in July 1871, and Prince Edward Island in July 1873. At the time imperial feeling in Great Britain was at its lowest ebb. Had any of the provinces wanted independence they could have had it with breathtaking speed. Confederation had its origin in the determination of the colonies themselves not to be absorbed into the United States, and not in any action 12

The Building Blocks

taken by Britain to hold them. Since one cannot understand the genesis of the railway without an understanding of the political background, a short digression into the political relations of the 1840-70 period is necessary. The pride which is now shown in the "three thousand miles of undefended frontier" is a creation of the twentieth century. Things were very different in the middle of the last century. The belief that it was the manifest destiny of the United States to rule North America reached its peak in the 1840's. It was a time when the eagle screamed its loudest. It was fortunate for Canada that Mexico bore the brunt in this period, although the cession of British rights in the Oregon territory was probably made in order to remove a very real danger to the provinces.3 With the Civil War all the provinces, and especially the Province of Canada, moved into an uncomfortable prominence for two reasons: the growing political influence of Irish immigrants to the United States, organized in the Fenian Societies, and the friction between Britain and the United States. In April 1869 Senator Sumner, as Chairman of the Senate Committee on Foreign Relations, set up a claim against Britain for half the cost of the Civil War as the basis for demanding the cession of the British provinces as compensation. Fish, the Secretary of State, was more moderate. He urged on the British Ambassador the desirability of the withdrawal of Britain from Canada. When told that the provinces could go when they wished but it must be their decision, he suggested that the question should be submitted to the Canadian voters. President Grant expected that they would become part of the United States during his administration. In Fish's eyes, he was rushing his fences. "I hope that it may be so. That such is their eventual destiny I do not doubt, but whether as soon as the President expects may be a question."' This interest in Canada was not solely self-regarding. It was. in part, an urge to help Canadians over the stile which Americans had surmounted in 1775-83, in order that they might bask thereafter in the full light of liberty. Even Sumner, in laying his claim to Canada as compensation, thought of the transfer as something only to be completed by "peaceful annexation, by voluntary act of England, and with the cordial assent of the colonists."' In the event, this semi-benevolent interest in their well-being proved to be the challenge and Confederation was the colonists' response. They sprang from different traditions; if they could not 13

Canadian Pacific

resist American pressures singly they would try to find the strength to do so in union. The Northern Pacific Railroad fitted into the general plan. It was to be carried close enough to the 49th parallel that the country could be tapped by branches, making a through Canadian line not only unnecessary but impossible. For Jay Cooke, the banker for the Northern Pacific, a Canadian line was a most undesirable competitor for settlers and for British capital and should be pinched out if possible.6 When Sir John A. Macdonald declared, "A British subject I was born, a British subject I will die," he was not indulging in purple prose for oratory's sake. He was responding to severe external pressure. The existence of Canada as a nation stretching from sea to sea was at stake, and the building of a railway to the Pacific was a major part of his creative response to the situation. As the following letter shows, this idea was fully formed in his mind at least as early as the beginning of 1870: My Dear Brydges, Many thanks for your letter of the 25th giving me an account of your conversation with Governor Smith. It is quite evident to me, not only from this conversation, but from advices from Washington. that the United States Government are resolved to do all they can, short of war, to get possession of the western territory and we must take immediate and vigorous steps to counteract them. One of the first things to be done is to show unmistakably our resolve to build the Pacific Railway. As I have already talked over this subject fully with you, I need not go into it again. It must be taken up by a body of capitalists, and not constructed by the Government directly. Canada can promise most liberal grants of land in alternate blocks, and may perhaps (but of this I cannot speak with any confidence) induce Parliament to add a small pecuniary subsidy. No time should be lost in this, and I should think that we had made a great stride if we got you to take it up vigorously.' The building of a railway was, of course, more than a political response. True, it would permit the movement of troops in winter, but railways at that time were, by general consensus, the great engine of general economic development. The agreement to build the Intercolonial Railway to connect Montreal and Halifax had been basic to the entry of New Brunswick and Nova Scotia into Confederation. When British Columbia came in, it was on the promise to start construction of a railway 14

The Building Blocks

connecting the rest of the country with that province within two years and to complete it within ten years. Railways even figured in the case of Prince Edward Island. That province cannily kept out of Confederation until it had built an excessive mileage on purely pork-barrel principles. It then consented to join on the condition that the Dominion take over the operation of the lines, which inevitably ran at a loss, and also assume the debt arising from construction. In the opinion of the time railroads were going to build the nation. But one should not forget that railway questions were not always approached from the standpoint of high national policy alone. The obligation to build to the Pacific Coast was by far the greatest assumed by the new nation. This was so on two grounds. The first and less important was the simple fact of distance. The railway systems of Nova Scotia and New Brunswick were under construction before Confederation. The Grand Trunk was as far east as Riviere de Loup. All that was needed was to join the two, a matter of 500 miles. It was not negligible, but it was a far simpler matter than building over 2,500 miles from Callander (now Bonfield) to the Pacific. In the East, the territory was known. It had been surveyed and there were no major obstacles, whereas there really was no solid knowledge about how to get across Northern Ontario or through the Rocky Mountains by rail. During the early fur trade, the routes had been canoe routes with portages cut down to a minimum. The Georgian Bay and Lake Superior had formed a magnificent route to the West, but it was so good that it left the country to the north a relative blank. There were canoe routes to James Bay, but there was only the sketchiest knowledge of how, if at all, one proceeded overland from East to West. What kind of country was it? Did one stay close to Lake Superior or did one go well inland and pass north of Lake Nipigon in order to get easier country? No one knew. The fact of the matter was that after the amalgamation of the Northwest Company, based in Montreal, with the Hudson's Bay Company, Montreal shrank into a position of relative unimportance in relation to the whole fur trade. Not only did goods move into the Prairie West from Hudson's Bay because that route was cheaper, but the Company's post on Lake Temiskaming on the upper Ottawa was supplied from Moose Factory even though it lay in Montreal's own backyard. In the 1840's Mattawa, which is now on the C.P.R. main line to the West, was placed under the supervision of Temis15

Canadian Pacific

kaming House. Both were provisioned from the east, but their furs went out by way of James Bay.8 To open a railway from Montreal to the West in the 1870's was to attempt to re-establish a connection that had been broken for over fifty years. The route from the Prairies to the Pacific Coast was better known; but it was a limited knowledge.The Yellowhead Pass and those north of it were well enough known, but again it was as parts of routes which were basically canoe routes. The more southerly passes were known only as passes through the main chain of the Rockies whereas the problem was to know how to get through to the coast. The physical obstacles were important enough in all conscience, but the great barrier to railway construction was the emptiness of the land. In the case of the IntercoIonia!, the position was relieved by the existence of substantial populations at each end of the line. True, the Maritime Provinces stood at the beginning of a long, difficult transition, whose ultimate dimensions were not yet visible. They had held a position of great advantage. They stood on the edge of the great circle route from Northern Europe to North and South America. They had cheap timber and a big shipbuilding industry. On that base they had built a big carrying trade. And then, quite suddenly, the rise of iron and then of steel ships broke their position beyond hope of recovery. The application of steam power merely added a final bolt to the door. When they were forced to turn inland the Maritimes found the tables suddenly turned on them. Their position which had been so great an advantage in a maritime world became a disadvantage in a continental economy. But after all the disadvantages had been enumerated, one great advantage still remained; there was an active energetic population waiting to be served. But westward lay nearly total emptiness. Ottawa and Pembroke were lumbering and saw-milling towns. Beyond them, the Selkirk settlement around Winnipeg was the first respectable grouping of population. From the district of Nipissing, which began just west of Pembroke, to the Pacific Coast there was in 1870 a white population—the only one which could be counted on to produce freight traffic—of about 30,000 people. It was a perilously small support for 2,500 miles of railway. How could a railway be built to serve so small a population? Even if it were built, could it pay operating expenses until the population increased greatly? 16

TABLE 1 Population at 1871-1901 of the Territories through which the Pacific Railway was to run

Ontario (Nipissing and Algoma)

Manitoba

The Territories which became Alberta and Saskatchewan

British Columbia

Total

88.4 164.3 373.0 693.2

(000 omitted) Total Population at

1871 1881 1891 1901

Indian and half-breed population at 1901 Indian Half-breed Total

8.9 27.1 55.5 100.4

25.2 62.3 152.5 255.2

18.0 25.5 66.8 158.9

36.2 49.5 98.2 178.7

8.6 8.6 17.2

5.9 10.4 16.3

14.7 11.6 26.3

25.5 3.5 28.9

72% 17

26% 6

103% 17

59% 16

1901 Indian and half-breed population as a percentage of the total reported at 1881 1901

Source: Census of Canada 1901, Tables I and Xl.

Canadian Pacific

Yet if it was dangerous to go ahead was it not even more dangerous to hold back? The great compulsion of the American presence stood in the background; reinforcing it was the basic hunger for entrance into the developed world by means of railroad construction. This was the heart of the Canadian problem. It was a political problem to which the only effective response was economic. The succeeding chapters will tell how Canada rose to the challenge, built the railway, and became a nation in fact as well as in name.

18

,

CHAPTER 2

the first steps

W

en British Columbia entered Confederation in 1871, it was promised a railway in unequivocal terms: The Government of the Dominion undertakes to secure the commencement simultaneously, within two years from the date of union, of the construction of a railway from the Pacific toward the Rocky Mountains and from such point as may be selected east of the Rocky Mountains toward the Pacific, to connect the seaboard of British Columbia with the railway system of Canada; and further, to secure the completion of such railway within ten years from the date of union.'

It was one of those promises which are fatally easy to make because nobody really understands what is involved and which inevitably rise to plague their makers. Indeed, in their eagerness to get British Columbia into Confederation, the Cabinet had astounded the delegates by offering more than the latter had dared to ask. When the caucus gave signs of resisting such generous promises, Cartier, the leader of the Quebec wing of the party, got Mr. J. W. Trutch to come before it and to say that the new province was not likely to insist on specific performance if it meant Canada's ruination. Trutch reported to his premier in Victoria that, if he had not given such assurances, the measure would have been defeated.' It was not that the province scored over the Dominion by reason of superior knowledge. Nobody knew enough to give such a promise any solid content. Before such a promise could be meaningful, it 19

Canadian Pacific

would have to be based on careful surveys of alternative routes. In fact, there had not even been the roughest reconnaissance of any route as a possible course for a line of railway. The negotiators found a nice form of words to go along with the decision of the province to enter Confederation, and all went through in a rosy glow of good intentions. These explanations are no doubt interesting: but even if they are accepted as accurately representing the intentions of the delegates, the fact still remains that the words set down were not in the least fuzzy at the edges. There was no loophole through which one could crawl later if the obligation should prove unduly burdensome. It is a rule of law that. when there is conflict between peoples' recollection of the agreement made and the words in which it is embodied, the words shall govern. Inevitably, the provincial government pressed for specific Performance. With an active population of some 11,000, the expenditure of the money required to build a railway east through the mountains would have an almost explosive effect. So long as it lasted, high prosperity would rule. In any case, in a federal state each unit of government pushes for all it can get, and the devil take the general public interest. The wording of this clause gave British Columbia an opening which could not be passed up. Three groups came forward proposing to build the railroad. The first was organized by Mr. Alfred Waddington of British Columbia, the second by Sir Hugh Allan of the Allan Steamship Line based in Montreal, the third by Senator D. L. Macpherson of Toronto, who had been a member of the biggest railway construction firm in Canada up to that time. The most important thing about this list is that the Grand Trunk Railway, the largest in Canada and the one with the best entrée to the English capital market, was not there. It did not think that an allCanadian railway was a viable proposition, and it was ready to fight to protect its own territory from Sarnia easterly from invasion. It waged that war not only on the spot but also in London, where money would have to be raised. The Grand Trunk's economic interest cut squarely across the national interest of Canada. It had been designed to carry U.S. western traffic to Portland, Maine. Chicago was its logical western terminus, and it wanted no part of the Canadian ambition. Not until after 1900 did it move from that position. There were, of course, three basic problems. The first was to decide where and how to build. On a transcontinental line, this would 20

The First Steps

require the expenditure of several millions of dollars merely to develop the basic information on which intelligent decisions could be made. Given money, and time, engineers could be hired to do this job. The second was to raise the money. This was far more serious. Private funds put into such a venture were bound to be at serious risk until the whole project was completed and population had flowed in to develop the country and create traffic for the line. Even if the cash subsidy given were generous and the subsidy lands sold well, this was still so big a venture that no small group could finance it. There had to be a public flotation of securities. If bonds had to be issued they would still further increase the risk to the holders of the common stock. The third problem was the quasi-political one of keeping effective control in Canada while drawing on American money and experience. Canada at that time just did not have the body of railwaybuilding experience or the organization that was available in the United States. What was more important, it was doubtful whether Canada could raise even the initial capital which was necessary to set so large a project in motion. To be able to draw upon the experience and the resources of American capitalists would be a very great help. When earning power had been developed it would be possible to raise further money in London; but a substantial and dependable equity interest, fully established in the property, was a first necessity. With the problem of raising money so important and so doubtful, the determination to hold control in Canada made it almost infinitely difficult to solve the other two—and they were already hard enough. The first to drop out was Waddington. He was an energetic and farseeing man who had made his mark in British Columbia,' and had also been a vigorous proponent of the Pacific Railway. He came to Ottawa in the midsummer of 1871 and there fell in with the representatives of the Northern Pacific. He may have been a little premature. The Grand Trunk was still in the background trying to switch the route away from the northern side of Lake Superior. It was, by so much, the obvious best candidate that no other group could be seriously considered until it had fully withdrawn. But in any case he was discouraged. The political danger of working with a group which was also in the Northern Pacific was too great. They might try to use their position to delay the Canadian venture rather than to help it on; 21

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and the risk of political attack for dealing with Northern Pacific interests was too great for comfort. Waddington dropped out at this point. Money alone could give staying power in a game where the stakes were as high as they necessarily were here, and his was limited. Sir Hugh Allan did have money. He was a ship owner actively working to develop the St. Lawrence route and interested in developing rail traffic which would be tributary to his ships. Indeed this was one of the bases of the Grand Trunk's opposition to him. It did not relish a ship owner who came ashore and tried to control inland traffic. Sir Francis Hincks, acting without authority from Macdonald, suggested to him that he should talk to the American group now that Waddington had withdrawn. They got together and by October they were ready to submit proposals to the government. Macdonald would go no further than to receive a memorandum. In December an agreement was drawn up in New York and in February 1872 Allan submitted the group's proposal to the government. Senator D. L Macpherson turned down an invitation to join the Allan syndicate and proceeded to organize a rival one, based in Toronto, which was clearly a solely Canadian organization. Both groups were incorporated, the first as the Canada Pacific Railway Company,4 the second as the Interoceanic Railway Company.' The government made strenuous efforts to get them to amalgamate. Since the two companies represented the two provinces of Quebec and Ontario it was politically dangerous to take either one to the exclusion of the other. Obviously only one could finally be subsidized, but it would simplify matters for the government if they would agree to join forces. Macpherson made a great to-do about Allan's initial deal with the Americans. Allan tried to draw back from this connection with the Northern Pacific, explaining to his American associates that national sentiments would not permit a connection between the Northern Pacific and the Canadian line, but that was by no means the only basis of disagreement. The two groups argued about the number of directors to be allotted to each in the amalgamated company. Allen wanted to retain the presidency. Macpherson insisted that this office be filled by vote of the new board of directors. Amalgamation was quite impossible because the will to cooperate was not there. The solution was to draw up a new charter in February 1873. Its 22

The First Steps

preamble mentioned the failure to amalgamate the two former companies and held it inadvisable to enter into an agreement with either one. The new company included men from both of the old groups, but Sir Hugh Allan was its President. It was named the Canadian Pacific Railway Company.6 It was to have a capital of $10 million and was to build from Lake Nipissing to the Pacific Coast, with branches to Lake Superior and to Pembina. It was offered a subsidy of $30 million and 50 million acres of land in alternate solid blocks on either side of the main line and was also offered additional land subsidies for the branches. In the light of later discussion it is worth noting that, in the eyes of some members of parliament, there was something niggardly to the point of being self-defeating in limiting the grant to alternate blocks along the railway. Why not give a solid strip twenty miles wide, if that would make it any easier to get the project going? With a homestead policy in force, the government had clearly given priority to rapid settlement and had given up any hope of large profits from land sales. How better could settlement be hastened than by getting a railway interested in pushing the process along in order to develop freight traffic? Since there was to be no American interest in the new company, it was compelled to go directly to London for capital instead of starting first by the sale of stock in New York and then carrying the bonds to London. Second, the common stock issue was so small that, even if issued at par, it could cover only a small part of the total capital needed. Sir Hugh Allan wanted to issue $135 million of bonds at about 80 per cent of par, which would obviously lead toward a construction-company type of financing in which the insiders would make money no matter what happened later to the bondholders. The English bankers with whom he was in contact, Glyn's, Baring Brothers and Rothschilds, were not interested.' They were willing to float bonds, probably near par, but only if the bonds carried a participation in the land grant and if the government was willing to guarantee 3 per cent interest on them. Since Sir Hugh had no power to negotiate on this basis, the discussions came to nothing. Even if that hurdle had been cleared they would still have failed for either or both of two different reasons. 23

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The first was that the "Pacific Scandal" broke while Allan was in negotiation.' It is very hard to think of a worse preparation for a big appeal to the capital markets than a major political scandal. This factor alone would probably have killed the venture. The second reason was that the Grand Trunk was using all the power it possessed to block Allan. Since it was the biggest English investment in Canada, it was a natural source of information about this country and could do a great deal toward shutting the securities of other railway companies out of the British market. It was also using its full political and economic power in Canada.' In any case, when Allan failed to raise the money in MarchApril 1873, his project was dead beyond recovery. The "Pacific Scandal" finally pulled Sir John A. down. He went to the country, was defeated at the polls, and resigned in early November 1873. Jay Cooke and Company, bankers to the Northern Pacific and members of the group which tried to get the Canadian Pacific Charter in association with Allan, failed in September. This marked the beginning of the deepest and longest depression between the 1850's and the 1930's. Recovery began in 1878 but was relatively weak until the following year. Being swept out of office before the depression had begun to affect the ordinary man, and being in opposition until the depression was ready to lift 10 was probably one of the greatest pieces of good fortune Sir John A. ever enjoyed. He was saved from being associated in the public mind with the miseries of depression. Alexander Mackenzie, the liberal leader, had won the election. He was now Prime Minister and now had the doubtful privilege of making the decisions.

24

CHAPTER 3

the attempt at public eonstruetion

S

ir Hugh Allan's failure to raise money in the spring of 1873, and the beginning of the great depression in the fall of that year put an end to any hope that a private company could be persuaded to build the Pacific railway. Yet the project just could not be allowed to drop. The basic reason for its construction was still there. Manitoba and the Territories must be made secure lest they be "rushed" as the Oregon territories had been:and their cession then demanded because they had been settled by an American population. And even if the political situation had been quiescent, the agreement with British Columbia was there in black and white and the provincial cabinet was pressing for specific performance. Who can blame them? If the federal government could only be made to live up to its contract, the local depression would disappear under a flood of spending on railway construction. Alexander Mackenzie, Prime Minister of Canada from November 1873 to October 1878, was the man caught in the middle. His administration was, practically all of it, in depression. Public revenues were falling and soon went into deficit. Yet the pressure to spend was continuous. It was a fate which this honest, upright, publicspirited man hardly deserved. His very virtues made his own path, and that of the country, stonier than it might otherwise have been. The Pacific railway was the biggest single issue of the time, and even in prosperity Mackenzie had been afraid of it. It was too big. Between Lake Superior and Winnipeg it would, he had said, have been enough to put steamer service on the lakes with narrow-gauge 25

Canadian Pacific

portage railways been them. Between the Red River and the Rockies a wagon road would be "good enough for the present".1 In winter American lines could be used to get to Fort Garry. At the same time work could go forward on the link through the mountains. Now Mackenzie was no longer in opposition, he was the leader of the government! Hope of a private company to take the initiative (and find equity money) was dead, and the country was in depression. What could he do that would satisfy his own austere conscience, that would not further increase taxation, and that would also satisfy British Columbia, which was beginning to look to the explicit words of the contract and to forget the soothing reassurances given when it was made? Willy-nilly he was in the railroad location and construction business! It was fortunate that Mackenzie had a first-rate chief engineer through whom to administer the project. Sandford Fleming was an able man of great energy. Had he not been, things might have been a great deal worse; as it was he did not have an adequate group of skilled men to support him and some of his responsibilities were not honoured to the full. One safe thing to do was to set up a program for a very respectable set of surveys so that decisions could be made with knowledge. This had two advantages. When decisions had to be made, they would be better than wild stabs in the dark. Best of all, one could put off most other major capital works until the survey was complete. No doubt it would leave the government open to criticism, but better criticism which would be blunted by pointing to the surveys than total disaster as a result of dashing blindly into overwhelming difficulties. Surveys could cover some of the gap, but not the whole of it. The objections of British Columbia to further delay could only be met by promising to spend more money within the province.' Second, a connection had to be built between the American lines and Winnipeg because, when construction eventually did begin, it would be desirable to work both east and west from the Red River. By the end of 1876, Fleming could report that he had located a line as far west as the Yellowhead Pass.' On the two most important sections, namely from Fort William westerly to Selkirk and from Selkirk southerly through Winnipeg to Pembina on the U.S. border, work had already begun. The latter was three-quarters graded and was ready for track-laying. A large quantity of rail had already been 26

The Attempt at Public Construction

delivered. On the route to Fort William, the contract had already been let for clearing the land and for the erection of the telegraph line. Grading. bridging and track-laying were in progress at each end over a total of 226 miles (out of a total of 410 miles). Rails had been laid on twenty-four miles and the telegraph line was erected for forty-five miles. Solid progress was being made. By the end of 1878, the first locomotive came into Winnipeg. True, it came by water down the Red River; but it was there, a portent of a new age. The line from Fort William to Selkirk was a good line, well located, with easy grades against eastbound traffic. And so it continued in the years 1877-80. But when all was said and done, progress was slow. Money was being spent, and there was so little to show for it. Unless one has looked at the preconceptions governing public spending and its results on the prosecution of the work, one cannot understand why the country turned with such relief to construction by a private company with public help in 1880-81. For that reason the balance of this chapter will be given over to case studies of two particular contracts which are broadly typical, before closing with the opinion of the Royal Commission which examined them all. We live today under the broad and spreading shadow of the welfare state. We are accustomed to the idea that the state should attempt to use its powers to help some of its citizens, if need be, at the expense of others. It is not a mere impartial arbiter between competing groups; it should take the initiative. The apparatus is run by a senior civil service of acknowledged competence which has risen immeasurably in relative power in comparison with Parliament and the Cabinet. If we are to understand what happened in the 1870's. we must shed most of our preconceptions about the role of government in society and make a real effort to think our way back into a world in which governments started from the assumption that their citizens were competent to spend their own incomes intelligently and in which there was not a civil service capable of applying positive policies on any substantial scale. Administrative discretion was kept down to the absolute minimum, and the most detailed accounts of what was done and of how each penny was laid out had to be preserved. Nothing should be done except under the explicit direction of Parliament and under the closest departmental control. If those directions were late so that part of a construction season was lost, it was unfortunate; but it was 27

Canadian Pacific

no reason for any change in procedures. Waste of that kind was a minor price to pay for parliamentary control. Furthermore, there was no Civil Service Commission. Jobs were allocated by patronage as a reward for service to the party in power. Once installed in office, the appointees all too often acquired "the government stroke." Many of them were unfit for the jobs to which they were appointed, but could not be fired because of the influence they could command. Even when the intentions at the top were of the best, they were often frustrated because the staff just was not competent to implement them. And no matter what was done, a record must be kept so that a report to Parliament could be presented in the most minute detail. It seemed almost as if it were more important to preserve a blameless file of all correspondence than to get anything done. In one case, a contract was made in 1878 for the movement of rail and fishplates from Esquimalt and Nanaimo to Emory's Bar and/or Yale. The whole thing was managed by remote control from Ottawa. Most of the season was lost by fussing over the details—all communicated to and from Ottawa by telegraph—and then when the work was not completed by the official closing date of October 31, the contract was cancelled in a final flurry of telegrams and excited action. Why there should have been such emphasis on that date does not appear, because construction from Yale did not begin until May 1880 and the first four miles of railway were not fit to carry an excursion train until July 1881.4 The preceding example is, possibly, one of bureaucratic rigidity rather than anything more. For all one can tell, the department in Ottawa may not have realized that the season did not shut down on December 1 on the Lower Fraser as it does on the Ottawa River. The following example is, however, much less pleasant in its implications. After the new government came into power, late in 1878 it ordered a line run for two hundred miles west from Winnipeg. In itself, this was a wise decision. The original survey ran across The Narrows of Lake Manitoba, a route which has not yet got a railway. The new line followed the settlers and is now part of the Canadian Pacific main line. The execution of the work, on the other hand, was truly dreadful. In the summer of 1879, there was a great flurry of telegrams from Ottawa ordering the contractor for the first hundred miles to get 28

The Attempt at Public Construction

busy at once. Both contracts were cancelled within a year with a great show of indignation against the contractors' lack of progress. But in a letter of July 26, 1880, the holder of the first contract said that no part of his line had been located until October 1879 and then only for twelve miles.5 The balance was not located until May 1880. He began track-laying in June. The spring had been very wet and although he had been ordered to ditch in order to get the work started, that order had been countermanded. The appearance was one of playing to the grandstand without any real care for economy or even for completion at an early date which was the ostensible object and which certainly was the main interest of the settlers. In the summer of 1880, a Royal Commission of three was set up to consider the charges of disorganization which were laid against the work. The Report was a typically Canadian document in its fear of exposing dirty linen, but if one reads between the lines of their summing-up one can find ample reason for the decision to pass the primary responsibility over to a private company. It reads:

As far as concerns the period over which our enquiry has extended, the evidence as a whole leads us to the following conclusions: That the construction of the Canadian Pacific Railway was carried on as a Public Work at a sacrifice of money, time and efficiency. That in this work numbers of persons were employed as Government officials who were not efficient in the positions to which they were appointed, having been selected on party grounds, irrespective of the question whether their engagement would be advantageous to the public interests. That during the progress of the undertaking, delays occurred which would not have occurred, but for the necessity of staying operations from time to time until the necessary appropriations were made by Parliament. That the examination of the country over which the line was located was inadequate, failing to give to the Government that information which could have been given, and which was necessary to enable the Government to estimate, with reasonable accuracy, the probable cost of the railway. That large operations were carried on and extensive purchases made with much less regard to economy that would have happened under similar circumstances in a private undertaking. That the practice which permits a Department to originate and enter 29

Canadian Pacific

upon transactions involving the expenditure of large sums of money. and without other authority, to award the contracts under which such expenditure is intended to take place, is a disadvantage. That the system under which the contracts were let was not calculated to secure the works at the lowest price or the earliest date; it pledged the Department to treat with tenderers irrespective of their good faith or financial strength, upon the single test of a deposit of money, so small as to be useless as a guarantee, the possible efficacy of this being neutralized by the invariable practice of returning his deposit to each defaulter. Such a system promises to every tenderer a position which he risks nothing to procure, and which he may at his option abandon, or retain, or sell if he can.' It was not a happy story. The country was too small and poor, and the necessity of applying capital to finance growth too urgent, to allow wastes of this major order to continue. And if there had been admitted wastes in government construction, still worse was ahead when there was government operation of a completed property. The example of the Intercolonial Railway which was operated out of the office of the Minister of Railways and Canals was there to prove that point. If the contract with the Canadian Pacific Railway has been described in later years as being unduly favourable to that Company. the reason is that those who speak so have failed to look at the difficulties which had to be faced and surmounted, or at the unrelieved picture of waste and inefficiency which had developed under public management.

30

CHAPTER 4

dickering for a contract 1879-80

S

ir John A. Macdonald returned to power in October 1878. His program was for the balanced development of the country, the protection and development of manufacturing in the east, settlement as a means of developing the west and providing stronger markets for manufactures, and a transcontinental railway to provide the link between the two. This was the famous National Policy. Whether it won the voters or whether, after five years of depression they were ready for a change, and would have voted for a change regardless of the platform, is not now important. Macdonald was again in power—pledged to restore prosperity. What could he do? So far as the Pacific Railway was concerned it seemed as if Macdonald could do no more than follow in Mackenzie's footsteps. No one came forward to take it off his hands. But the one thing he could not afford was to appear to be stymied. In 1879 the government proposed to set up a commission, on which the British government was to be represented, which would hold 100 million acres of land whose proceeds would build the railway. A mission was sent to England, but the British Government would take no part in it) As a stopgap to give the appearance of meaningful activity the plan had its points, but no informed person could take it seriously. It was going to need cash as well as land to get this project off the ground. And then economic recovery became stronger. The stock market, which was at that time a more dependable forecaster of future economic developments than it now is, had touched bottom in June 31

Canadian Pacific

1877 and then recovered a little in the next six months. In 1878 it marked time, but in 1879 it made a substantial recovery. Prosperity had returned and securities were easier to sell. At last the external conditions were such as to make it possible to get serious bidders on the railway. From the standpoint of the government there were three very obvious factors to be kept in mind. The first was that London was the financial capital of the world. All other markets were peripheral and lacked its great absorptive power. Therefore adoption of the project by a merchant banking house in the City (in American terms, by a major London investment banker) was almost essential. Without that support, financing the project would be a much chancier venture than it would be with it. That fact made the attitude of the Grand Trunk painfully important. If it would take up the project, the government's worries were largely over. If Grand Trunk opposed it, the difficulties might be multiplied manyfold. The second factor was that if the government was to carry Parliament with it, it must not only make a good deal, it must be seen to have been trying to do so. That meant that a deal concluded in London, after due search and the passage of a reasonable amount of time, would be easier to support and defend than one made in Ottawa. The unspoken assumption would be that only in London could all possible bidders be interviewed. The government negotiators would be dealing with principals and could take their pick; in Ottawa they could only deal with a few agents of limited power to commit their principals. The third factor was that the government must keep all groups at arm's length. Macdonald had behind him one unhappy experience in which he had failed to do so. It must not happen again. Representatives of two groups came to Ottawa early in 1880 to press their ideas upon the government. One was headed by Puleston Brown and Company of London, represented by the Earl of Dunmore, and one was headed by George Stephen, represented by Duncan McIntyre of Montreal. What was even more remarkable, there were three other groups in the background who were interested though not openly active.' Galt, who was High Commissioner for Canada in London, reported that the shareholders of the old Canada Company were showing a curious interest in the project, as was Lord Brassey, the great English railway contractor. The third was Andrew Onderdonk, the American railway contrac32

Dickering for a Contract 1879-80

for who held the contract to build from Yale easterly.' He, however, decided that the time was too short and dropped out. Puleston Brown and Company was one of the smaller London houses. Its success depended, therefore, on getting a syndicate together with itself acting as group manager. Its initial offer, made in June 1880, was to build and operate the railway for a subsidy of $9,500 cash and 16,000 acres per mile. Simultaneously the government was holding discussions with Duncan McIntyre representing the Stephen syndicate. In the latter half of June these negotiations ceased temporarily because the two parties were too far apart. The government would not offer more than $20 million cash and 30 million acres of land; the syndicate would not accept less than $26.5 million in cash and 35 million acres of land. One may guess that, even if Macdonald was inclined toward giving the contract to either one, he wanted to hold off the formal closing until after he had been to England. He, Sir Charles Tupper, his Minister of Railways and Canals, and John Henry Pope, his minister of Agriculture, had passage booked for England on July 10. The London market was to be checked before any final decision was to be made. However, the door was not by any means closed. McIntyre went to England also, on the same ship. He would be available for further discussions if need be. Stephen sent a letter to the ship which tells so much about the man, his object, and his manner of conducting the negotiation that it is reproduced in full: Causapsca I, 9th July, 1880. Private and Confidential My dear Sir John, Referring to your private and confidential note of the 5th. instant, to which I wired you I would send an answer on board the Mail Steamer at Rimouski, I quite understand the difficulties the Government have to contend with in dealing with the work of constructing the Pacific Railway: they have to be guided by considerations quite different from those that you or I would have to deal with were it a personal matter in which we were free to use our own best judgment. I am aware it is often impossible for a Government to adopt the best course, and it is the knowledge of that fact that makes me rather hesitate to commit myself to the enormous responsibility involved in this undertaking. You will have no difficulty. I feel sure, in finding men on the other side, more or less substantial and with greater courage—mainly because they know less of 33

Canadian Pacific

the difficulties to be encountered, but also because they will adopt measures for their own protection which I could not avail myself of. There are two ways by which you can get the road built and operated: one by getting up a financial organization such as Allan contemplated and such as Jay Cooke & Co. got up for construction of the Northern Pacific Railway—with what result I need not remind you. A scheme of this nature involves the issue of a large amount of Bonds, just as large as an attractive prospectus will float (and you have capital material to offer for a very 'taking' prospectus): the outcome of a plan of this character is that the real responsibility is transferred from the Company to the people who may be induced to buy the Bonds, while the Company or the projectors pocket a big profit at the start out of the proceeds. This, in the rough, is I fear the method any English financial organization is likely to follow.— The risk to the Government and to the country of allowing the matter to be manipulated in that way is sufficiently obvious.—It would indeed be a disastrous affair to all concerned if the English public were induced to invest in a bond issue which the road could not carry—that is on which the interest could not be paid.—The other plan, and the one I should have followed, had we been able to come to terms, would have been to limit the borrowing of money from the public to the smallest possible point, and if we issued a bond at all to take care it did not much exceed $5000—(Five thousand dollars) a mile—to have looked for the return of our own capital and a legitimate profit entirely to the growth of the country and the development of the property—after the work of construction had been fully accomplished.-1 could not be a party to a scheme involving a large issue of Bonds on a road which no one can now be sure will earn enough to pay working expenses.-1 am more willing to risk my own means in the venture than those of the English public. It would be quite useless my going over to London; we are certain to be outbid there, and for the reasons I have given.—No English or American organization could really do the work as advantageously and at so little cost as we could, nor could they so readily develop the earning power of the property; but, while we should wait for our profit and take the risk of its coming at all, they would inevitably pocket theirs at once. When I met Pope in Montreal on Saturday he told me that the Government had decided finally to give no more money than twenty millions. and as I could not see my way to do the work for a less cash bonus than twenty-six and a half millions, I thought it better to end the negotiations, leaving you perfectly free to make the best bargain you could on the other side. Pope was disappointed and not very well pleased with me. but I thought and still think it was the right thing to do.—Mr. Angus has been with me all the week, and we have done little else than discuss the matter, the salmon being few and far between. We are both satisfied 34

Dickering for a Contract 1879-80

of our ability to construct the road without much trouble, but we are not so sure by any means about its profitable operation; but in regard to this, if we cannot operate it successfully no one else can. We think, as I explained to you at Ottawa. that we could immediately utilise the Thunder Bay branch for our Lake traffic and in this, and other ways, earn enough to secure the payment of interest upon such indebtedness as we might incur. Our experience of settling lands in Minnesota would be a great help to us in the management of the lands granted to the Road.—We are also clear on the point that the Canada Central and the Quebec roads would have to be incorporated. Nipissing is nowhere. Montreal or Quebec must be the starting point. Although I am off the notion of the thing now, should anything occur on the other side to induce you to think that taking all things into consideration, our proposal is better upon the whole for the country than any offer you get in England, I might, on hearing from you, renew it and possibly in doing so reduce the land grant to some extent. Here let me say that, so far as I am able to gauge public opinion. I think most people and especially the opposition fif we may judge from the utterances of the 'Globe') would prefer limiting the grant of land and increasing the cash subsidy—that is, they would prefer giving 30 millions cash and 20 millions acres of land to 50 million acres of land without any cash; but as to this you can judge much better than anybody else. Yours faithfully, Geo. Stephen4 It was a magnificent statement of Stephen's aims as much for its quiet restraint as for its positive content. He was telling Macdonald that he and his group were not promoters trying to wangle a profit on the capital of others. They were men of character and of substance who would commit their wealth and their reputations to the venture. If he took their offer. Macdonald need never fear that a scandal would erupt underneath him based on the financing of the railway. There would be no construction company to make a quick profit for the insiders with the bondholders who had contributed the risk money left to bear the losses if the company should later fail. It was a statement which must have had a great appeal to Macdonald with his bitter memories of the Pacific Scandal and the defeat of his hopes to tie the country together by a railway. The Canadian group arrived in London on July 19 and that very same day were swept off by Puleston to the Speaker's Gallery of the House of Commons. Great droves of important people came up to be introduced by their friend Puleston. It was a most impressive show. Perhaps it was a little too much so. Macdonald was too old a 35

Canadian Pacific

hand to be impressed. He knew, none better, that Puleston's problem was to get other houses with capital and the power to distribute securities to associate themselves with him. Big names in the House of Commons buttered no parsnips. The first formal call paid by the Canadian group was on Sir Henry Tyler, President of the Grand Trunk; for nothing could be usefully done elsewhere until that company had declared its position. He turned them down, refusing to consider any proposal calling for a line north of Lake Superior. Tyler's position was a reiteration merely of the company's refusal to believe that a railway could be profitably built on that route; a belief first stated in the early seventies and not really reviewed again until about 1900-1902. What was much more important, it was the first blow in a very powerful campaign against the new railway and whoever undertook it. Such a railway was bound to rock the boat in Ontario and Quebec, and Grand Trunk wanted that whole area to itself. Since acceptance of a route south of the lake would have been a betrayal of all that Macdonald hoped for and gave his life's effort to secure, the Grand Trunk was clearly out of the running. The Canadians were therefore left with two serious bidders, Puleston Brown and Company and the Stephen Syndicate. In August the former submitted a revised offer which called for the issue of $65 million of 4 per cent bonds, payable in full or in ten annual instalments at the option of the holder, having a call on land at $2.50 per acre, and with interest guaranteed for twelve years from the date of issue.5 Common stock in the company was to be given as a bonus at the rate of one common share for each $100 par value of bonds. The section of line from Winnipeg to Jasper was to be built first to give access to the land grant, but the whole line was to be completed in ten years. What was far more important, they had brought in the Societe Generale of Paris. This was an important acquisition for two reasons. First, it meant solid financial power. In addition, the presence of a large French financial house in the syndicate could ease the passage of the bill through the House of Commons. Unhappily, the Societe Generale had second thoughts. Since there was no general contractor, the new company itself would have to assume that position. If the costs exceeded the $65 million, the banking syndicate would either have to find whatever additional money was necessary or else let the company go bankrupt. The po36

Dickering for a Contract 1879-80

tential risk was so great that they withdrew. That put an end to Puleston's syndicate because the Societe was its strongest member. The news of this change came to Macdonald on September 2. Stephen's syndicate wat now alone in the field. The discussions with McIntyre, broken off in Ottawa at the end of June, had been resumed on August 12 in London. When Puleston Brown and Company dropped out, they moved into high gear. On September 4, Macdonald, Tupper, and Pope sat down with McIntyre, Sir John Rose, and the latter's son Charles to prepare a formal agreement. By the late afternoon they had hammered out the main outlines of a contract and Macdonald cabled Ottawa that this was the best offer he could get and that he hoped for concurrence. He and his party sailed for home the following week.

37

CHAPTER 5

the eontraet and the men who made it

n a matter so complicated and containing so many areas of possible misunderstanding as the building of a transcontinental railway, there is a great gap between hammering out rough heads of agreement and the preparation of a formal and exact contract by whose terms the parties agree to be bound. The remarkable thing about this contract for the incorporation of the Canadian Pacific Railway Company and the building of its main line from coast to coast was the shortness of the time between that first commitment to paper on September 4 in London, and the completion of the final draft of the formal contract on November 26. How was it possible to have it run so smoothly? The answer is twofold. First, there was a true meeting of minds so that there was no need or room for that extremely precise definition which begins as an attempt to make provision for possible areas of conflict in interpretation and ends in an attempt to bind the illimitable future. Both parties wanted to make the railway a success. Second, each party approached the matter with a largeness of spirit. This attitude was most clearly expressed in the first letter which Stephen wrote to Macdonald after the latter returned from London. In it he said that he and Angus, a member of the syndicate, had talked with Pope who had given them a general idea of the course of negotiations. He had also seen McIntyre and the document which his friends and his enemies alike agreed would be the ruination of himself and his associates. For himself, he said: 39

Canadian Pacific

I want whatever arrangement is made that it shall be fair and creditable to both the government and ourselves, and that not a day should be lost in the preparation of the contract and the act of incorporation.' Part of the time was taken up in an attempt to get the SocieteGenerale to join. Stephen went overseas to extend the invitation; but as he reported to Macdonald, he told them frankly that he was committed to build with or without their help: This confidence on my part in the scheme and in our unaided ability did them good and now I am satisfied we can carry them all with us though I still think Paris is not the market for our securities.2 Stephen did manage to bring in the house of Kohn Reinach et Cie but that was all. Despite this potential cause of delay, the whole thing was wrapped up by November 26 for on that date the Company's Counsel, Mr. J.J.C. Abbott, sent certain minor modifications of the contract to Macdonald and closed his letter by saying "I suppose we may consider the contract and charter settled, and I have sent copies of them to Stephen today."' The passage through Parliament was another matter. This was the first item of business considered when it met on December 9 and the battle to get it through was bitter; but the government majority held intact. The successive amendments were beaten back and the bill became law on February 15, 1881. The charter was issued the following day. The Company was now fully operative. As the Act and the Contract and Agreement are documents of record, it is enough to synopsize their main provisions here. After stating in the preamble that it was necessary to build in order to honour the obligation to British Columbia, that "the Parliament of Canada has repeatedly declared a preference for the construction and operation of such railway by means of an incorporated Company aided by grants of money and land, rather than by government," and that some parts of the line have been built by government and others are under construction, the Act states that the government is given power to pay a subsidy of $25 million in money and 25 million acres in land and to give the Company possession without equipment of sections now built and, when completed, of those now under construction, with transfer of full title to take place when the whole line is complete. The Company may also take public 40

The Contract and the Men Who Made It

land for right-of-way, stations, shops, and yards, and for docks and terminals on navigable waters. The government shall also permit admission duty free of steel rails and other track material, of wire, and of all bridge material for use in the original construction of the railway and telegraph line. The railway is also protected for twenty years against any line south of it within fifteen miles of the 49th parallel. The government is to take a desposit of $1 million at once as security for construction; upon completion it is to take $5 million of land grant bonds, as security for continuous operation for the ten years following. For its part, the Company promised "the completion and perpetual and efficient operation of the railway."' Construction was to start west of Winnipeg not later than July 1, and the whole was to be completed by May 1, 1891. With the Act passed and the Canadian Pacific Railway Company a legal entity, it was now time to face the crucial questions. Who were the men who would direct it? Would they really be able to breathe life into it or would it be just another paper charter to gather dust in a lawyer's office? Was it a bona fide transaction in which each party offered no more than a reasonable price for the benefits it could reasonably expect to receive? (Time might upset those expectations in favour of one or the other, but that is a different matter. The basic question is what could reasonably be expected at the end of 1880.) Alternatively, it may be asked whether the ease in reaching agreement did not indicate some failure to bargain at arm's length. The key common factor which resolved these questions was the degree to which there was a unity of purpose animating both the government and the syndicate. Both wanted to see a railway built to the Pacific to tie the country together. There was a very real patriotism here. Until it was built, Canada was vulnerable and Canadians could not hold up their heads in pride. They always knew that to reach British Columbia they had to go by way of the Union Pacific— Central Pacific route to San Fransisco. The presence of Sir John Rose when the committee of Cabinet and McIntyre were hammering out their heads of agreement in London was no accident.' He was peculiarly fitted by character, intelligence, and experience to help Macdonald see his problem clearly. Rose was a Scot who had come to Canada in 1836 as a youth of sixteen. He was called to the Lower Canada Bar in 1842 and moved 41

Canadian Pacific

rapidly to become one of the leading lawyers of Montreal. By 1857 he had accumulated the competence which he felt necessary to assure his independence and took office as Solicitor General, Canada West. In 1858 he became Receiver General, in the next year Minister of Public Works. III health forced his retirement in 1862, but he remained active in various ways, and in 1867 he returned to public life as Minister of Finance in the new Dominion. As such he played a leading part in the promotion of a variety of measures to consolidate the new order. Rose not only possessed intelligence of a very high order, but was blessed with unusual diplomatic skills. These qualities won admiring notice in Washington; and, just before he accepted the Finance portfolio, the banking firm of Morton Bliss and Company of New York asked him to establish a British affiliate.6 He put them off until he had the Finance Department running well, and then the offer became so good that he felt unable to turn it dowh. The London house carried the name Morton Rose and Company. He remained a member of it until 1876 and was succeeded by his son Charles. In London, Rose was more than a leading light in the City. He enjoyed the confidence of the Foreign Office and of the Colonial Office, and also was formally accredited to the British government as Canada's unofficial High Commissioner. It was, for example, at his suggestion and through his efforts that British troops formed a part of the force sent to Manitoba in 1870 to suppress the rebellion. That move underlined to the United States the fact that Britain stood behind Canada in the matter and was a necessary answer to the suggestion of Fish, the American Secretary of State, that there should be free vote in Canada "or any part of it" on annexation to the United States.' It is a very good example of Rose's easy diplomatic skill. On the wider scene, it was his quiet work in Washington which set the stage for the Treaty of Washington. His contacts with the leaders of the Republican Party through Morton gave him an influence which the British government was very glad to use. With it, he could and did accomplish things which were impossible through the usual diplomatic channels. He continued to serve as Canada's unofficial High Commissioner in London until November 1879, being retained by the Mackenzie administration despite the close ties which he had previously had with Macdonald. From May 1871, there is, in the Macdonald Papers, 42

The Contract and the Men Who Made It

a fairly steady flow of letters between Macdonald and Rose, the one telling of the progress of his plans for a railway, the other telling of the movements of opinion in Britain as they affected its prospects. In short, there existed between Macdonald and Rose a respect and affection born of twenty-five years of working together, and a confidence which cannot be built up on any other basis. Macdonald could turn to him for advice about the financial feasibility of any plan proposed and know" that this advice came from an independent man with very wide contacts and equally sound judgment. Rose was the perfect man to back up Macdonald. He was a "back-room" type, interested in making things work. Keeping out of the limelight himself, he complemented his friend's talents for operating front and centre stage under the lights. A second factor should be kept in mind as a probable rather than a certain explanation, because it is based on inference rather than on documentary proof; namely that Macdonald was influenced by the experience of the government of the United States with the Union Pacific Railroad. Union Pacific had been in its time an equally premature enterprise.' It was politically essential; it was likely to produce total social gains which would fully justify its construction, but it could not raise enough private and individual earnings to pay interest on the capital invested in it. The United States had advanced to the company thirty-year bonds which were to be repaid at maturity, and took a second charge on the property as security for repayment. This left the company free to sell first-mortgage bonds for construction; but if the combined interest charges exceeded the probable earning power (as it did), the shareholders faced extinction of their interest. Since very few people are willing to encompass their own destruction, open-eyed, the controlling shareholders formed a construction company which contracted to build the railway on terms which ensured that they as individuals would have a cash profit on completion, no matter what happened to the Union Pacific, as a company or a property, or to the bondholders. The end product was the bitterest wrangling between the government and the company, and its security holders, which went on almost unbroken until the final reorganization of 1897. If Canada had to subsidize a company to build the first Canadian transcontinental, would it not be sound common sense to profit by this example; to give aid in such fashion that the company could 43

Canadian Pacific

stand on its own feet from the very beginning, with the strongest incentive to operate honestly and to maintain its independence? Niggardly aid at the beginning would bring it back and back for further help. In the end that would probably prove far more costly. What was much more important, it would be a destructive force in the political life of the country.' Finally, the choice was between a Canadian syndicate which would know in its bones the nature of the country and how to get along in it, and an English syndicate which might have better access to capital markets (though that was not certain) but which might also duplicate the performance of the Grand Trunk twenty-five years earlier. Macdonald had been a member of the government when the Province of Canada had turned down the idea of building railways slowly and carefully under local control and had gone overboard for the grander scheme of the Grand Trunk with its vaunted ease of access to the London capital market. He would have proven himself incapbable of learning from experience if the subsequent history of the Grand Trunk had not weaned him of any belief in the power of capital to overcome the handicaps of lack of either care or intelligence in day-to-day operation. The other factor which made things very much easier was that, while Stephen was nominally the chairman of the syndicate, he was so completely the leader that there was no time wasted in arranging internal differences of opinion. From all the evidence now available (and it is scanty), when Stephen's mind was made up, the group's mind was too. George Stephen had left the village school in Scotland at fourteen.' He was for a short while an hostler at the local hotel, then apprenticed to a draper in Aberdeen. Having finished his apprenticeship in 1848, he tried his luck in Glasgow without success. Going on to London he got work in a wholesale dry goods house in St. Paul's Churchyard. Two years later he happened to serve his father's cousin, in London on a buying trip for his wholesale house in Montreal. The cousin was struck by his efficiency, noticed his name on the receipt, and ended by offering him a job. He took it and arrived in Montreal on May 1, 1850, a month short of his twenty-first birthday. Stephen took to the life as a duck to water and was soon himself a buyer making regular trips to England. He never looked back. In 1862 his cousin died, and he became head of the firm. 44

The Contract and the Men Who Made It

By 1866 Stephen was ready to extend his range to manufacturing as well. In that year he took an interest in a woollen mill in Almonte. Two years later he was one of a group which took on another woollen mill, this time in Sherbrooke. It grew not only out of its internal resources but also by absorbing two neighbouring mills. From there on his ventures were group ventures: the Montreal Rolling Mills in 1869: the Canada Rolling Stock Company in 1870; the Canada Cotton Manufacturing Company in 1872; and, also, an interest in the Canadian Locomotive and Engine Company in Kingston. By 1871 he was a Director of the Bank of Montreal, the largest bank in the country. By 1876 he was President. When this story opens in 1880 he was a power in the land, with his finger in many pies. However, the largest single source of his wealth probably did not lie in Canada at all, but in the northwestern United States. The St. Paul and Pacific Railroad running north out of St. Paul had been first chartered in 1862 to succeed a predecessor chartered in 1857. It had the very chequered history of a pioneer railway staggering from receivership to receivership with intervals of building in between. It is too complicated a story to be worth telling here, but one fact is important. Bonds were sold in Holland on which interest stopped with the last payment in 1872. By 1877 it had operating earnings but the bond interest, whether annual or total unpaid, was enormous. The situation could not help but be of interest to anyone interested in the trade with Manitoba. Two ex-Canadians, Norman W. Kittson, who had been St. Paul agent for the Hudson's Bay Company and who had bought out its interest in the Red River Transportation Company, and James J. Hill, who was now a partner in that firm with Kittson, became interested in taking over the St. Paul and Pacific Railroad. They put their case to Donald A. Smith who moved fairly frequently from Montreal to Fort Garry and he put the idea to his cousin Stephen. In the end, the four of them went together to buy the property. It was a cliff-hanging performance running from the spring of 1877 to completion in June 1879, but when it ended they were securely in control and they had a gold mine." As the depression lifted, population poured into the tributary area, and an equal volume of traffic poured out shortly after. What was more, since most of the public lands had been taken up in the preceding fifteen years, the railway lands sold very well indeed. What was most important of all was that Hill was a genius at railway operation. Personally he was not attractive. He was unutterably 45

Canadian Pacific

sanctimonious in his speech, and equally devious in his actions. He used a torrent of words running for hours on end without a stop to eat, and no perceptible stop for breath, in order to conceal his thought. Those who had to deal with him found it an unbearably wearing experience, and generally found themselves coming out on the short end of the deal. If they did not, they were likely to find that Hill would conveniently forget that any deal had been made, so that the end result was the same in any case. Hill ended up on top. For present purposes the important result was that the St. Paul and Pacific was a cornucopia for those who invested in it; the gains were multiplied as the corporate vehicle became first the St. Paul Minneapolis and Manitoba and later the Great Northern Railway. As such it became ultimately the first transcontinental to be built in North America without subsidies. There had been sticky moments at the beginning when Stephen and his friends had had to pledge their credit rather heavily, but in the end all had come out very well. Stephen was therefore quite willing to repeat the process in Canadian Pacific. It was his misfortune—and Canada's—that this next time around was a slow, wearing, delayed, and much less profitable venture. The other members of this central group can be disposed of more quickly. Donald A. Smith at age sixty was the oldest of the group. He had risen in the service of the Hudson's Bay Company, had saved his money and had invested it wisely. He had, for example, started to buy shares in the Bank of Montreal when he was still in Labrador. He had been one of the group in most of Stephen's manufacturing ventures, but the chief early source of his fortune had been stock of the Hudson's Bay Company itself. When the lands were sold, speculators sacrificed their stock. Smith knew that the sale was a favourable rather than an unfavourable factor and bought as heavily as he could. He was a dour character, but he was able. Duncan McIntyre began business life as a merchant in Montreal. In 1880 he was the manager of the Canada Central Railway, which was soon to be absorbed by the Canadian Pacific. R. B. Angus had been General Manager (in modern terms, chief executive officer) of the Bank of Montreal until midsummer 1879 when he resigned to become manager of the St. Paul Minneapolis and Manitoba. These four, with Hill, formed the more active members of the syndicate. The banking members were three in number: Morton Rose 46

The Contract and the Men Who Made It

and Company in London, J. S. Kennedy and Company in New York, and Kohn Reinach in Paris and Frankfurt. Morton Rose and Co. were important not only in themselves but because, if they came in, their correspondents in New York, with larger capital and greater distributing power, might also enter for an even larger subscription. Bliss was the New York partner with whom the conversations were conducted, and he spent two days with Stephen in Montreal discussing the matter. By November there were hopes of getting that firm in for a subscription of $10 million; but when the subscription book was finally signed, Morton Rose and Company were on it for the largest single subscription, but Morton Bliss and Company's name does not appear!' J.S. Kennedy was a Scot who started to work in a shipping office at thirteen!' At seventeen he switched over to iron and steel and in 1850, at the age of twenty, came out of America to represent his firm, staying until 1852. In 1857 he came out on his own, joined a steel merchant firm, and stayed with it for ten years. He then withdrew to found his own firm. He began largely as a merchant; but the need for credit on the part of nearly all railways, and especially of those in the West, was so extreme that he was soon as much a banker as a merchant; and the banking function finally became dominant. He resigned as a member of the firm in 1883 but left it in the charge of his nephew J. Kennedy Tod. Stephen had known him at least since 1877 because he had been the U.S. representative of the Dutch bondholders of the St. Paul and Pacific. It was, therefore, a compact group which knew its own mind and which was psychologically adjusted to the inevitable uncertainties of a pioneer railway. Kohn Reinach were the only members who were not so adjusted. They were at first interested in a quick profit, but were brought into line." One was entitled to hope for good things from this company. No doubt it was a premature enterprise, but the government was contributing aid which would largely offset that factor. The management of the venture was concentrated in the hands of entrepreneurs of proven capacity who were putting up their own money. No doubt they hoped also to sell stock to others in order to complete the railway, but this was nearly unique among pioneering railways in North America in that it was heavily financed in common stock and that there was the strongest determination to hold the sale of bonds to a minimum until the property was fully operating and needed additional funds for growth. 47

CHAPTER 6

the primary construction period

fi

tting a railway charter is very much like getting a hunting license. It is a right to go out and do what you can for yourself. No one guarantees a moose for each hunter—or even a rabbit as a consolation prize. In failure there are losses only. That was the position of the Canadian Pacific in 1881. There were two enormous hurdles to be cleared. The first was the sheer physical problem of establishing a final location and then building a railway from Callander to the Pacific. Closely connected was the equally difficult task of keeping up a flow of money to pay the construction crews and the materials they used. The first task is generally regarded as glamorous. Here is the conflict of brave men against elemental forces. They may be repulsed in the first attempt, but in the end they triumph, and the world is never quite the same again. They have put the impress of their minds and personalities upon it. More than one book has been written about the C.P.R. upon this romantic theme. The financial story is something else again. To the average man, it all seems terribly intangible, mysterious, beyond the reach of his understanding, and therefore open to suspicion. He can see that when the flow of money stops, the construction work stops too. Material no longer flows to the job; and when their pay stops, the construction crews vanish like a snow drift in midsummer. But how does a change in the prices of securities in London or New York come to have such a direct effect upon the work of building a railway in Western Canada? 49

Canadian Pacific

Construction and finance are two facets of one set of events. The wages of the construction worker are capital outlays to the company for which the work is done. Each has its own special conditions, and neither one is possible without the other. The actual building of a railway is pretty straightforward. Given time, patience, money, and brains, it can be accomplished; and usually the more brains the less money is needed. But the raising of money to construct a large railway is something else again. Even when there is a group of wealthy men willing to come together and get the thing started, as they did in the case of Canadian Pacific, their money is no more than the starter yeast. They have not enough money to carry it through to completion. They must be able to inspire others to participate in the venture. There must be a receptive market for the company's securities based in part on general credit conditions, but dependent also on the expectation that the project will be able to earn and distribute enough to justify the prices at which the securities are sold. Canadian Pacific was extremely unfortunate upon the first count. Its formal organization took place in February 1881, which was just about the peak of the market for railroad stocks for the balance of the century. It was not until November to December 1900 that railroad stock prices got as high again as they averaged in the whole year 1881. In the eighteen months to July 1883, they managed to keep inside the range 90-99 per cent of the 1881 average. Then they began reeling downward until they ended at a level of 69 which they reached in October 1884 and at which they stayed until July 1885. It was not simply a matter of falling prices. One could meet that by matching the general decline. What really hurt was that, with financial opinion unsettled, people were hesitant about buying the securities of established operating companies, and rejected without serious consideration those offered by new companies without established earning power. This was not some inexplicable disturbance effecting the financial markets only; it was a response by financial markets to a major transformation taking place in the railway industry. Railway freight rates were dropping with a sickening speed. The unweighted average revenue of five major U.S. western lines dropped from 2.12 cents per revenue freight ton-mile in 1881 to 1.43 cents in 1886, or by 33 percent.' So large a change in a short period inevitably was 50

The Primary Construction Period

hard on all of them, and was especially hard on some. Investors became cautious. The first candidates for closer scrutiny were the new companies with no record of established earning power—and Canadian Pacific was the largest of them. In addition to these general adverse factors, Canadian Pacific had certain special handicaps. Within Canada, it was under attack as Macdonald's folly, a wild attempt at national independence before the country had first learned to walk alone. The Grand Trunk was fighting it in Eastern Canada and in the financial markets in London. And as time went on, the people of Manitoba became restive under the hand of a single railway. The very fact that there was no immediate standard of comparison made it all the easier to criticize. it is against this background of an unfavourable general environment that C.P.R.'s growth must be projected if it is to be seen in perspective. The first meeting of the Board of Directors of Canadian Pacific Railway was held on February 17, the day following the formal incorporation. At that meeting, the promoters subscribed for $5 million of common stock at par, $100, with 30 per cent payable at once and the balance in instalments, with the last payment to be made by December 31, 1882. These were concentrated holdings. Stephen, Angus, Hill and Smith each took 5,000 shares. McIntyre took 5,000 (4,750 for his firm and 250 personally). J.S. Kennedy took 5.000 (4,500 for his firm and 250 each in his own name and in the name of Kennedy Tod. his nephew and partner. The Rose interests took 7,660 shares (7,410 in the firm's name and 250 in the name of Charles D. Rose). and H. Stafford Northcote 1,860,2 accounting in all for 79 per cent of the total issue. Ten other subscribers took 7,330 shares or an additional 15 per cent. The twenty-one smallest subscribers took 3,150 shares. or 6 per cent. By the end of the year there was respectable progress to report. The Canada Central Railway had been merged, giving the Company access to the other railways of Ontario and Quebec. The line from Pembina northerly through Winnipeg to Selkirk and from Selkirk easterly to Cross Lake, 162 miles in all, had been taken over from the government. The decision had been taken to abandon the Yellowhead and to seek a more southerly route through the Rockies. The American lines were too actively interested in extensions into Canada to leave the soft underbelly of the country wide open all 51

Canadian Pacific

across the Prairies. But after all was said and done, the record was not unduly exciting. Only one hundred miles of new line were opened in 1881. More drive had to be shown or else the whole project would be in danger of bogging down. Speed was of the essence. The line had to get into operation quickly or it would be drowned in a sea of interest charges. There was so little local traffic that it could not slowly push along and use the strength so developed at each step to support the next extension. It had to get the whole project into motion so that through traffic could help support it until population could flow in and make local traffic possible. Further, the main line alone was not enough. There was need of branches and connections to feed traffic to the main line. Stephen as president had his hands full with the financial problems; and in any case that was his forte. He needed someone in the field who was specially competent in construction and operation. He turned to J. J. Hill for help and Hill nominated W. C. Van Horne.' After some consideration, Van Horne took the offer and arrived in Winnipeg on December 31, 1881. His appointment was probably the most decisive single factor in setting the character of the first twenty years of C.P.R.'s existence. He was one of those men who seem to tap sources of energy of which ordinary folk never even dream; and here was the ultimate challenge, a whole transcontinental railway on which to leave his mark. Van Home's whole early life, from delivering telegraph messages part-time from the age of eleven (his father having died of cholera), to full-time work from fourteen on, until he resigned as General Superintendent of the Chicago, Milwaukee and St. Paul in order to come to the C.P.R., was merely a preparation for this supreme experience. His salary was generally supposed to be larger than any other paid in the West, but no amount of money as such could have evoked the kind of surging vitality that Van Home brought to his job. His energy, drive, and largeness of vision, the width of his interests, and the gusto with which he threw himself into everything he did made him a legendary figure in his own time. Within his first year the Company added 646 miles to the main line and 113 miles to its branches by construction. In addition 347 miles of main line were acquired by purchase and 435 miles of main line and 65 miles of branches were turned over by the Government. 52

The Primary Construction Period

He set up an organization, including expediters in the major ports and railway yards through which material flowed to the job, and hired an American firm from St. Paul to build the main line west. They advertised for 3,000 men and 4,000 horses, later increased to 5,000 men and 1,700 teams, and set to work with the objective of completing 500 miles by fall. They failed mainly because spring floods in the Red River drowned out the Pembina branch and cut the flow of supplies so badly that the lost time could not be made up; but they did manage to lay 417 miles with 28 miles of sidings, and graded an additional 18 miles beyond the end of steel.` Van Home's drive for performance shook some of the men who had to carry out the orders. Some fell by the wayside. others were fired when they were found to be using their connection with the Company for their own profit, but the pressure was such that people produced more than they themselves thought possible. With Van Home in the saddle the line was as good as built if the financial side could keep up—and there was the rub. During 1881 and 1882 the Company was able to place $10 million par value of land grant bonds at 92.5 per cent, netting $9,250,000 from them. The first million-dollar slice was to be taken up on October 1, 1881, the last one in November 1882. At first the issues went very well indeed. Land companies bought heavily because they were able to buy the bonds at a discount and tender them in payment for land at 110. But after that $10 million had been distributed, the market was exhausted because the land boom was over. This was grim news indeed! The whole venture was predicated on active sales and settlement of land; first of all to provide funds for construction and then, more important, to provide traffic for the completed railway. If the land did not sell, what did this tell about the future? In any case. there it was. The market for land grant bonds was dead. A further million dollars of them were sold in 1884-5 out of the $15 million balance available. It was a piddling amount. The pressure was beginning to shift from the area of construction to the area of finance. In 1883 construction was pushed with equally great vigour. Money was pouring out of the treasury and a great deal of it went in preparation for the crossings of Northern Ontario and of the mountains in British Columbia where the work was the heaviest. Single 53

Canadian Pacific

miles could run as high as $750,000, but the cash subsidy per mile on completion was only $13,333 in the mountains and $15,384 in Northern Ontario. Despite the difficulties, a total of 693 miles were built. Steamships were under construction for use on the Great Lakes. Negotiations were under way to lease the Ontario and Quebec Railway to give a line from Montreal west and south to Toronto and, ultimately, to the lakes at Owen Sound and to the U.S. border at Windsor. Arrangements were also made to lease the Manitoba Southwestern Colonization Railway as the start of a system of branches to gather in traffic to feed to the main line in the West. In 1883, the Company managed to raise a total of $20,437,000 by the sale of common stock; $5 million of it by the sale of 200,000 shares to the existing shareholders, the balance by the sale of 300,000 shares through J. S. Kennedy & Co. With this sale the market was, for the time, exhausted; it would absorb no more. Yet something had to be done quickly. Having exhausted its capital funds, the Company was now running up its floating debt to dangerous proportions. It was at this time, also, that McIntyre, Hill, and Kennedy dropped out of the syndicate. McIntyre found the size of the Company's commitments too heavy for his taste. Hill retired because he had taken it as a matter of course that the line through Northern Ontario would be delayed, possibly for years, and that his line would get all the winter traffic to and from the C.P.R. west of Winnipeg, and, in summer, whatever did not move to Fort William and then down the lakes by water. It was not in Van Home's nature to put up with dependence when he could be independent. When his policy of building at once was adopted, Hill's interest in C.P.R. vanished. He had his own plans and did not want to dissipate his efforts by retaining an interest in a property which was not going to contribute to them. Kennedy had been and remained a close friend of Hill's and a heavy investor in Hill's securities. He withdrew when Hill did. What really hurt was that Stephen had to take over their stock in order to protect the market. They were large, concentrated holdings. Under any conditions their sale on the open market would have been disturbing. But with C.P.R. only half built, without a developed earning power, and needing to raise large amounts of new capital. sale of their stock on the open market would have had an almost catastrophic effect. Stephen took over their holdings. By so doing he solved one problem; but equally, he reduced correspondingly his 54

The Primary Construction Period

own capacity to take up securities from the Company itself. This was no abstract piece of financial theory. At the end of 1883, C.P.R. was exhibiting the classical signs of financial involvement. Nearly every pioneer railway in America went through it at one time or another—first the exhaustion of permanent capital, then dependence on short term borrowings, and finally receivership when nothing more could be raised at any price. Bad as that was for a company which had started out with an inadequate common stock, it was far worse for Canadian Pacific which had already raised $25.4 million by the sale of common stock and only $9.2 million by the sale of land grant bonds, and which, moreover, still had over $12 million of unearned subsidy coming to it from the government. Surely such a Company could still be saved from going on a rake's progress of ever-expanding short-term debt borrowed at rising rates on increasingly stringent terms until failure occurred! The initial answer to the problem was made in November 1883 on the advice of English and French bankers. Simply stated, it was that the Company should deposit with the government a sum sufficient to guarantee a 3 per cent dividend on the stock for the next ten years. In that time the railway would be completed, settlement would increase, and traffic would develop. Therefore, additional shares should be saleable at once to people who would be assured of a minimum of 3 per cent for ten years and who would expect to receive a much greater dividend after the property was more fully developed. However, this plan meant locking up money urgently needed to pay debts arising out of past construction and to pay current bills until additional stock could be sold. How could it be raised? The solution came in two steps. The first was to pledge 100,000 shares of the Company with J. S. Kennedy and Co., acting as agent for a group, for a loan of $5 million. The second was for Stephen, Smith and Angus to pledge their holdings in the St. Paul Minneapolis and Manitoba and 50,000 shares of C.P.R. to raise a total of $3,712,240 at short term from three different lenders.' These securities were pledged by these men without cost to the Company. They had been the originators of the Company and they stood behind it, at their own risk, in adversity. These two transactions got together enough money to cover the first five years. Provision was made for the balance to be paid in at a later date.' The government was therefore a trustee, 55

Canadian Pacific

agreeing to pay back evenly over ten years what was paid in to it, in advance, in a lump. It was acting without risk to itself and without increasing its aid, and with this added assurance of a continuity of dividends, the Company hoped it would be able to sell additional common stock and, out of the proceeds, complete the line by May 1886. The intentions were wholly honourable and the plan was reasonable; its very reasonableness was the chief cause of its failure. The whole market in rail securities, and especially in Western ones, was on the edge of collapse. Suspicion was rife; and in New York this plan was not viewed as a perfectly reasonable approach to the problem of uncertainty of income in the early years. nor were the promoters viewed as men of probity who were risking their own financial lives to help, without charge. the Company they had formed. Since nobody could be that public-spirited, there must be an "angle" to explain what they had done. It all must be part of a gigantic stock exchange ramp in which the insiders would suck in the gullible and then unload their own holdings. The Company was worse off than before. It had pledged its resources, and had failed to market additional stock! The generally depressed state of the market was bad enough but the Company had also to face a set of special circumstances. Very severe attacks were being made upon the Canadian North West as an area for settlement; and of course, the Company's credit was under attack, partly the running attack from the Grand Trunk and those journalists whom it supported, and partly from bear operators who were looking round for the next candidate for the slaughter. By December 15, 1883, it was touch and go. As Stephen put it in a letter to Macdonald of that date. Things have gone to the d—1 in New York, and I am off there tonight. but will be back here on Tuesday morning in time to catch Tupper. Something must be done at once to put the Company out of discredit or we better give up and let the Government step in and carry on the business of the Company! If money could not be raised from the general public then there were only two choices open. Either the government could offer temporary assistance to be repaid later when financial markets became easier, or the Company could give up its hope of finishing the road 56

The Primary Construction Period

within two years and fall back on the May 1891 date in its contract. The first alternative would be especially hard on the Cabinet which would have to reopen the whole question of railway aid in Parliament; but the second would be even worse because it would have repercussions across the country. Development would be delayed for several years. The effect on C.P.R. would also be adverse because the partly finished work would deteriorate rapidly and the Company would be left with the full burden of interest charges on the money already laid out. On January 15, 1884, Stephen wrote a letter to the Minister of Railways and Canals setting out the position of the Company at some length. He showed that there was still $12.7 million of cash subsidy unearned and 21,247,000 acres of unsold land available under the subsidy. The Company had spent some $37.4 million out of its own resources on construction to December 31, 1883 ($58.7 million including the proceeds of cash and land subsidies) so that its good faith and commitment to the project could no longer be doubted. He therefore asked: a) that the government release to the Company (i) the $1,000,000 in cash which had been deposited in February 1881 as an earnest of good faith, and (ii) the $5 million of land grant bonds which were being retained to guarantee operation; b) that the remaining cash subsidy be paid in proportion to the work remaining to be done rather than in proportion to mileage; c) that the payment of $2,853,912 to the dividend guarantee fund which was due on February 1st should be deferred until November 1888 when it would be needed for that purpose; d) that the government advance to the Company the sum of $22,500,000 at 5 per cent taking in return a first mortgage on the whole property including the Pembina branch and the lines east of Callander (subject to the existing Canada Central mortgage issues) and having a first claim against all future proceeds of the lands which were to be applied against interest and as a sinking fund to extinguish the principal. Adoption of this scheme meant a partial defeat of the high hopes entertained by the promoters. It meant that they had been forced over into a reliance on mortgage bond financing, which they had hoped to avoid. It also meant that they could no longer deal at arm's length with the government. Until they could pay off that debt by floating other securities with the general public, they would be 57

Canadian Pacific

totally dependent. It was a bitter pill. They had started out so proudly; now they had no option but to swallow the pill, and be grateful it was no worse. The government accepted the proposition, but with powerful sanctions. It advanced up to $7.5 million to pay off the floating debt, first requiring proof of that debt. It provided for monthly advances of the remainder of the money, but set May 1, 1891, as the date for the repayment of the whole sum. As security for repayment of the loan and of the $7.4 million not yet paid into the guaranteed dividend account, it took a first charge against all the property of the Company, real and personal, including main line, branches, rolling stock, steamers, plant and land grant earned or unearned, subject only to the existing mortgages on the line between Cal!ander, Brockville and Montreal and to the land grant bonds outstanding. It also took power to retain all moneys earned as postal subsidy and for transport services. If the Company was in default for twelve months on either interest or principal, then its right to either cash or land subsidy was to cease without notice, the land grant bonds in the hands of the government were to become its property, and "all employees of the Company shall become employees of the Government." The Act also provided that if the government was not satisfied with the progress made to ensure completion by May 31, 1886, and the Company did not respond, the government could cut off all further advances. Further, the 350,000 shares of stock now in the hands of the government might be sold by the Company with its consent, or upon giving notice, the government could require the Company to sell it, in whole or in part, specifying a minimum price. If the Company failed to act, the government itself could sell the stock. Nominally, the Act gave the government complete protection on the monies advanced. But as is always the case, legal penalties do not build railroads. The Act was so completely inclusive that from then on the Company could borrow nowhere else because all its assets were tied up. With money in hand, construction could be pushed ahead without a break in schedule. There was greater concern to keep inside the estimates and to adopt measures which would save capital as well as time; but even with that resolve the work went on and the costs accumulated. By December 1884 rails had been laid to a point near the summit of the Selkirks forming a continuous rail connection from 58

The Primary Construction Period

Montreal westward for a distance of nearly 2,500 miles. Rails had been laid on the government section between Port Moody (the then terminus on tidewater) and Savona's Ferry. Even on the intervening segment of 203 miles between Savona's Ferry and the end of track near the summit of the Se!kirks, work was well advanced. Mileage in operation at year-end totalled 3,474 miles consisting of 2,479 miles of main line, and 995 of leased lines and branch lines. The money asked for a year earlier was not enough. Once again the Company was living on the ragged edge of bankruptcy. The Act had imposed such stringent controls that financial opinion turned strongly against the stock. The annual average of the index of American railroad stock prices fell by 9 per cent between 1883 and 1884; Canadian Pacific fell by 30 per cent. What was more important, the protective provisions as first applied by the Department of Railways and Canals made it difficult to lay out the money effectively. Nothing could be drawn from the fund except the bare cost of construction together with the stipulated amount of rolling stock. But material and supplies had to be procured and expensive tote roads built months in advance of construction in order to distribute the materials to their points of ultimate use. Months could pass before these totally necessary expenditures could, under the Act as first interpreted, be converted into cash by completion- of the lines. The Company was dependent on the government for funds because its own resources had run out; yet the Act, as interpreted, assumed that it had ample funds out of which to carry these utterly necessary preliminary expenditures. Eventually, the matter got straightened out, but only after much needless difficulty. Furthermore, a railway with its equipment is only part of the process of creating traffic. A terminal elevator at the Lakehead might do far more to create traffic by reducing cost and speeding the movement of grain than any amount of sidings or section houses, and if there is to be a terminal elevator of adequate size then there must be a supporting rail terminal to hold cars. The unity of the whole productive process had to be respected or the whole thing would fall apart. Yet there was no provision for either of these in the Act! By February 1885 the financial condition was so tight that Stephen and Smith had to pledge the last of their personal securities in order to get an advance from the bank to meet the Company's dividend. They also endorsed a note for a million dollars to keep the 59

Canadian Pacific

Company afloat. As Stephen put it to Macdonald. not only had he and Smith found the $650,000 for the dividend but: We have had to endorse a five months note to provide the Company with current funds to keep it going for the next few weeks. It is necessary that you should know this as in some quarters there is a feeling that we do not do as much for the Company as we might. The real truth being that what Smith and I have done and are doing individually, is simply absurd on any kind of business grounds. I venture to say that there is not a business man in all Canada, knowing the facts, but would say we were a couple of fools for our pains.' He was quite right. It verged on the preposterous that these two men should risk being reduced to beggary. And yet, a default would have unleashed a landslide and there was no other source to which the Company could turn. No matter how large and dangerous this commitment was to Stephen and Smith. it was a mere stopgap to the Company; equally obviously there was no place to turn except to the government. Every asset of value that the Company had was already pledged to it; there was nothing left on which to borrow anywhere else. On the other hand, the problem of the government was serious. It had promised a subsidy at incorporation, but from there on the Company was to look after itself. In a buoyant economic climate it might well have done so, but the buoyancy of 1880-81 had been short lived and was followed by a slow dragging period in which all financial markets were weak and unresponsive. Railway revenues and earnings were falling, so that new railway securities were peculiarly hard to float. Only last year Canadian Pacific had received a large loan; now it was back again! Where was the point at which it ceased to be a private venture in receipt of public help and became a government venture running out of control behind a facade of private direction? And even if Macdonald was willing to give further aid, could he carry his party with him? Could he, indeed, keep his Cabinet intact?9 Perhaps delay would not solve anything. but at least it would keep Macdonald's party from blowing apart. If it worsened the Company's position, that was inevitable. Where would the Company be if the opposition were in power? Work was going on and each passing day added its quota to the outflow of cash; but for a time it could be left to juggle its bills as best it could. 60

The Primary Construction Period

That is, in fact, what happened. Men could be left unpaid until they quit and left the camps. Suppliers could be talked into letting their bills run until all the wholesale houses were so deeply committed that, had C.P.R. failed, the rest of Canada would have gone under shortly after." The danger was that if one creditor took legal action to collect, every other creditor would have to move too in order to protect his own claims and the whole house of cards would tumble in. If that happened a receiver would be appointed to conserve the assets until the wrangling creditors could achieve some kind of composition of their claims. But he would clearly be a conservator acting under direction of the court, and Canadian Pacific Railway as a great national work would end right there. Perhaps it would resume after a year, or two, or more —a complicated receivership can drag out dreadfully—but completion of the railway would be put off until a new corporation had been erected to succeed the existing one and fresh arrangements could be made with the government for subsidy. And then, while everything hung fire, the Second Riel Rebellion broke out. Van Home saw at once what it could mean to the railway and offered to transport the militia units west, provided he was given undivided control of the whole movement. It seemed an impossible offer. There were, all told, gaps totalling a hundred miles in the road around Lake Superior. It meant carrying the men in sleighs between completed rail sections. There were two places where they had to cross over the ice, but twice a day there were good hot meals with plenty of strong coffee. A flat car in early April in Northern Ontario is a cold way to travel: but no one came to serious harm and the units which were loaded in the east on March 30 were in Winnipeg on April 4. Less than a week later the first of these columns moved out of Qu'Appelle for Batoche, Riel's headquarters." Because the railway was there, the troops could move at once. Had they had to wait for the opening of navigation the whole West might have been aflame before they arrived. In later years, Van Home was to say that, in simple gratitude, the Company ought to erect a monument to Riel as its greatest benefactor; but. immediately, its situation was growing more perilous from day to day. From the first of the year it had been running on the personal guarantees of the directors. Stephen, worn out and perplexed, telegraphed on April 16: 61

Canadian Pacific

Van Home writes: Have no means paying wages, pay car can't be sent out, and unless we get immediate relief we must stop. Please inform Premier and Finance Minister. Do not be surprised, or blame me, if an immediate and most serious catastrophe happens.' And still Sir John had come to no decision. There was nothing left in the Company treasury, and the personal fortunes of the prime movers were all pledged—including in Stephen's case his house and its furnishings down to the very linen on the beds. There was nothing more they could do; and yet Macdonald kept them dangling from day to day and week to week, never quite ready to tell them they were finished, but not ready either, to give them the help needed to carry the railroad to completion. And then finally, on April 30, he carried his plans for the salvation of the railway to the Conservative caucus, and the next day he gave notice of the resolutions he would introduce to Parliament. It looked like a final release but in fact it was far from being that. The Franchise Act then before the House was the object of a bitter and prolonged battle and Macdonald refused to let the railway resolution come up until it was disposed of. Not until June 16 was the bill introduced. It did not become law until July 20. The only relief the Company got was a guarantee of a bank loan of $1 million toward the end of May. It was pitifully little compared with their necessities. On July 13, Stephen and Abbott went up to Ottawa to make one last despairing bid for immediate help. Cabinet was in session and they sat down to wait—and wait. At the end of a long hot afternoon they found that, shortly after their arrival, the meeting had broken up and the ministers had departed by another door. At long last the bill became law and Canadian Pacific was in the clear. It provided for: a) the cancellation of the $35 million of unissued shares, b) the issue of $35 million of 5 per cent of bonds with a maximum term of 50 years, c) an immediate cash loan of $5 million secured by $8 million par value of the bond issue, and a further loan of $7 million if the Company should demand it. secured by a deposit of an equal amount of bonds, d) the postponement of payment of the debt to the government in the amount of $29,880.913 to May 1, 1891, 62

The Primary Construction Period

e) acceptance by the government of $20 million of the bonds as security for the payment of an equal amount of the debt and of a first lien on the unsold lands of the Company subject to the outstanding land grant bonds, for the balance. With their immediate problems solved, Stephen went to England to see what could be done to market the bonds. It was so easy that it was almost an anticlimax. Baring Brothers, one of the great English banking houses, whose connection with Canada stretched unbroken back to the 1830's, had until now held itself aloof from the Company. Now they took £3 million ($14.6 million) at a net price of 90 per cent of par value, yielding $13.1 million. It was an imprimatur upon the Company from the inner circle, a recognition that it was no longer a rank speculation but one in which careful' men could reasonably participate. At last the Company had full access to the English capital market! The bonds sold so well that in the first half of 1886 Barings took up the balance of the issue at 99.40 per cent of par. Within a year, therefore, the Company's credit had risen from a 6 per cent to a 5 per cent yield basis. There was still a long way to go. British Consols were selling on a 3 per cent basis so that C.P.R. bonds were rated as semi-speculative; but they were moving up, and that was the important thing. While all this was going on in the financial side of the effort, the work in the field was pushing on to completion. On November 7, 1885, the last spike was driven home by Donald Smith at Craigellachie. "The last spike," said Van Horne, "will be just as good an iron one as there is between Montreal and Vancouver, and anyone who wants to see it driven will have to pay full fare."" Despite that, there was a good crowd there to see it done. Not the least of them was Sandford Fleming who had been engineer-in-chief during the period of government construction and who had stayed on as a director of the Company. He and Van Home each wired Macdonald after the last spike was driven, paying him just tribute as the man whose vision of Canada as a united nation was at last realized—Stephen also cabled from London. The through line was complete. Regular train service began in June 1886, and almost coincidentally the Company paid off the last of its debt to the government: $19,150,700 with interest in cash, and $9,880,912 with interest in land surrendered from the land grant at $1.50 per acre. And, having paid its debts, the Company 63

Canadian Pacific

recovered the collateral which had been pledged to secure the debt, namely the land grant bonds, except for the $5 million to guarantee operation for ten years, and the debenture stock of the Ontario and Quebec. It had all been a fearful strain. From the end of 1883 to the placing of the second and final instalment of bonds with Barings in 1886, the syndicate had been hanging on the ragged edge of destruction. Had the Company failed, its members would have been wiped out because they had endorsed the Company's paper and would go down with it. Now they had a reprieve. If traffic and earnings would only rise as hoped, they might still come off well—and that is the subject of the next chapter.

64

CHAPTER 7

the dismal years 1886-96

n November 1885 there was an unbroken track from Montreal to Port Moody, fourteen miles east of Vancouver and the then Pacific terminus. By June 1886, through traffic had begun. Looking backward, it was a tremendous accomplishment for five years; looking forward, it was merely a beginning. From now on the task would fall into two complementary parts. The first was the operation of what existed in a manner which would build up traffic. The line was there, but without a growing volume of traffic and rising revenues it was forever condemned to poverty and weakness. It could not properly serve either the Company's own interests or those of the country unless it could grow fairly rapidly. The second part was to keep the work of construction going as rapidly as the country could absorb it. The building of new branches and extensions as soon as new settlement would permit was one part of this effort. Less obvious but quite as important was the never-ending business of improving the major lines—more ballast, reduction of limiting grades and curves, longer sidings, heavier rail and larger yards. The property was hungry to have money spent on it as traffic increased. There were a thousand different ways to spend capital monies wisely if only they could be safely borrowed. The transition from the phase in which construction was primary to the later one in which operations took first place was not sharp. From the beginning, service was normally given by the contractor even before the line was turned over to the Company; once in the Company's hands, the effort to build up traffic had to proceed in even more vigorous fashion. 65

Canadian Pacific

It was a difficult equation. Most of the outbound traffic from the West originated during the navigation season on the Lakes. In the winter traffic declined, but the cost of being open for business increased sharply. This was before the days of effective snow-ploughs and a heavy snow fall meant that some places had literally to be dug out with shovels. There was, therefore, the gravest danger that the earnings won from a light traffic in the summer would all vanish in operating losses the next winter. With every dollar looking as big as a cart-wheel, it called for great skill on the part of management, and some consideration on the part of the public, to keep up the essential service and still have a net profit left over. Despite the inevitable winter losses there were net earnings Of $1.2 million in 1884 and $3.2 million in 1885 on gross revenues of $5.8 and 8.4 million respectively. The ratio was good. The great problem was how to increase the gross revenues. Of necessity, this was bound to be a difficult balancing act. The original group was still in control of the property, but the risks they had taken had been enormous. They had had their share of excitement and wanted no more of it. Granted the government in the period 1881-87 had contributed $25 million in cash and land sales had produced an additional $18 million. This however was small compared with the $106 million which had flowed into the property from stocks and other securities. This huge private investment must not be placed in jeopardy. As Stephen expressed it in the Annual Report for 1885: It is impossible, and it would be folly for the Directors to attempt to forecast the nature or the extent of the opportunities that may occur for the profitable employment of additional capital in the future, in developing and increasing the business of the Company. But to "hasten slowly" will, now that the main line is finished, be the wisest policy for the Company to pursue. And while the results of the operation of the railway up to the present time have been highly satisfactory and have exceeded the expectations of the most sanguine, and while everything points to a continued and rapid increase in profits, the Directors feel strongly that until the net earnings have reached an amount sufficient to pay, above fixed charges, a reasonably fair dividend to the shareholders independently of the 3 per cent guaranteed dividend, they are bound to take special care not to incur any expenditure on capital account, involving an increase in fixed charges, unless such expenditure can be clearly shown to be to the immediate advantage of the holders of the ordinary shares.' 66

The Dismal Years 1886-96

Knowing the extent of the risks that had been run one cannot help but respect this statement. It was dangerous to expand unless the new work could carry its own costs. There was no margin of earnings to carry an immediately unremunerative outlay no matter what its promised long-run benefits might be. The very survival of the Company was still an open question, and unwise borrowing could end it. But on the other hand, what would be the price of failing to expand? If development was retarded, would that not also involve costs? Perhaps those costs would be hidden—the lqss of potential profits and a failure to get as big a place in the sun as a more aggressive policy would achieve—but they would be serious costs nonetheless. For the whole period 1886-96 the Canadian Pacific management wrestled with this problem. The urge to make an affirmative decision was strongest in relation to branch lines in the Prairie West because they would feed traffic to the main line. In 1886 C.P.R. was still very much a pioneer railway. It had gross earnings of $2,357 per mile, up from $2,093 in 1885. It was a good gain, but the average gross earnings of the railways of the northwestern states were $4,715 or exactly twice as much.' Even if one looks at the St. Paul Minneapolis and Manitoba and the Northern Pacific, the closest parallels to the Canadian Pacific, one finds earnings per mile of $4,978 and $4,316 respectively, again about twice as high. Obviously the Canadian Pacific figure was terribly low, and it was imperative to build up traffic and earnings as fast as possible. There were fixed costs of being open for business. Section crews had to keep busy on maintenance and agents had to be on duty no matter what the level of traffic. Interest accrued on bonds, inexorably, minute by minute. The ability to spread these costs over a higher volume was vitally important. Of course, if others were interested in building local railways in order to earn a land grant, then the C.P.R. was more than ready to do what it could to help the little company function effectively. In some cases it was willing to operate the property as agent but without assuming any responsibility for the results. In others, it would take a lease, paying over a given proportion of the gross revenues.' Inspection of the Railway Statistics for these years shows that these lines had earnings per revenue freight ton-mile of from two to three and a half times the corresponding figure for the C.P.R.4 One has also the testimony of Mr. D.B. Hanna to the very substantial 67

Canadian Pacific

encouragement given to these small lines.5 They were valuable to C.P.R. and they were encouraged by every means in its power. This was not a matter of the C.P.R. dealing generously with roads furnishing traffic to it because it had a high rate to come and go on. Its average earnings per ton-mile and per passenger-mile were sharply below those of comparable lines below the border. In fact between 1886 and 1896 freight revenue per ton-mile averaged some 21 per cent below those of the U.S. Northwestern lines and passenger revenue per passenger-mile some 26 per cent lower. These low rates, and generous division of the revenue on interroad shipments with local connections, were part of an overall policy aimed at building up the country. As Stephen put it in the 1883 Report to the shareholders: The wisdom of establishing unusually low tolls for the carriage of freight and passengers is already manifest in the development of business along the line. The gratifying results of the operation of the railway for the past year were obtained from tolls far below those of most of the neighboring lines in the United States....6 Low rates alone could take up only part of the load. Though there were the most urgent reasons for delaying growth in mileage to whatever extent was possible, the pressure to expand was overwhelming. At the end of 1885 the mileage operated by the Company had stood at 3,998 miles; by the end of 1896 it stood at 6,476 miles, an increase of 62 per cent. So far as possible the Company tried to shape its own destiny and not to float with the tide. If it was to do so it must act on two fronts. The first was to prevent the Grand Trunk from establishing a through route south of Lake Superior; the second was to protect its territory from invasion by Hill's St. Paul Minneapolis and Manitoba (Great Northern after 1890). The occasion for the first came up in 1888 when the Soo Line appealed to Stephen for financial assistance! It was given by C.P.R. at the price of an exclusive and perpetual agreement to interchange traffic at Sault Ste Marie. Otherwise the Grand Trunk could have run an extension from North Bay and shortcircuited the Canadian Pacific line to the West. Stephen expected that Hill would take over the road. Indeed •there was an understanding to that effect, but Hill changed his mind. Shortly after, the Soo Line and the Duluth South 68

The Dismal Years 1886-96

Shore and Atlantic stood upon the edge of default. The question then became more urgent. They were regarded as properties which would ultimately be successful and fully justify their cost. And the need to block their control by Grand Trunk or by interests which would co-operate with it was paramount. Canadian Pacific took control by an arrangement which included the guarantee of principal and interest on the funded debt. Achievement of the second objective was more difficult. From its very beginnings, the strategy of Canadian Pacific had been designed to protect the country from invasion by American lines. That was the major reason the Yellowhead route was abandoned. The Crow's Nest Pass was not one of the alternatives explored only because Macdonald thought the route beyond it in British Columbia too exposed to military action from the United States. It just was not possible to build all the defensive lines needed; but when the Soo line came into its hands it made a potential backfire in Hill's main base in the Red River valley. A second and potentially more powerful weapon came into Van Home's hands when the Duluth and Winnipeg got into difficulties late in 1892. This line ran northwest out of Duluth and had in addition land holdings in the very heart of the Mesabi Iron Range. Eventually it was the base on which Hill founded the Great Northern Iron Ore Properties and from which his railway drew a heavy traffic for many years after; immediately it was an opportunity for C.P.R. to lay out new capital in very large amounts and the size of the ultimate earnings could not be clearly estimated in advance. This was moving in on Hill with a vengeance, for Hill had been quietly preparing to take over the property and squeeze out the stockholders. Indeed their discovery of his plans was what drove them to open negotiations with Canadian Pacific.' This put Stephen, who was interested in both lines, on the spot. He had to become an arbiter between Hill and Van Home. They both could not have the property and finally it was turned over to Hill, largely on the ground that Canadian Pacific did not have the money to develop it.9 There is a great deal more to operating a railroad than thinking in terms of broad corporate strategy. Indeed, only those whose earnings base is totally secure can dare to think well ahead. In these terms the 1890's marked a low point in Canadian Pacific's history. It did not have the free income to let it hold a property whose long-run 69

Canadian Pacific

future might be bright but which was, immediately. a demand for heavy capital outlay with no current net return. Canadian Pacific was increasing its mileage and its total operating revenues, but there was also a dangerous rise in fixed charges. The margin of safety was comfortable in the years 1888-92, but then it fell off terribly in the years 1893-95. In 1894 the Company could not even cover its fixed charges. The depression of 1893 hit the Soo Line and the Duluth South Shore and Atlantic with especial weight and they had to be supported. There was no money left to pay the common dividend in the second half of the year. From the standpoint of the common stockholders, this was a horrifying development. They were no fly-by-nights hoping to make a profit by their financial skills in getting control of property created by the solid investments of others. They were respectable investors who had put up a substantial share of the total investment in the Company. An unbroken dividend, in reasonable amount, was no more in their eyes than interest upon the capital they had sunk in the enterprise. And now, when the completed property was nearly ten years old, when the growing pains should have been over, the Company was compelled to stop dividends altogether. In 1895 Stephen felt forced to advise his friends to sell their C.P.R. stock and it fell as low as 35—stock which they had bought on his advice at higher prices in previous years."' During these years of adversity the administrative structure and operating principles that guided Canadian Pacific were forged. In those years there was no substitute for care and economy in operation, for keeping debt to a minimum, or for always having adequate cash on hand. Its behaviour in the ensuing years of high prosperity is not really intelligible unless it is seen as the result of those gruelling years when prosperity seemed to elude its every effort. In the end, things changed. The middle 1890's represented a low point. Number one Northern wheat at Winnipeg averaged 94 cents a bushel in 1889-91; in 1894 the average was down to 61 cents. Recovery followed from there. To those who lived through that period there was no other place to go but up; even so, those who had to face that long decline ending in the middle nineties were not easily convinced that any recovery was likely to endure. Their past experiences made it nearly impossible for them to believe that they stood at the beginning of a long upward swing which would not be seriously interrupted until 1912-13. 70

The Dismal Years 1886-96

Those who find it hard to believe that it could be so have only to think of the way in which so many of the people who were scorched in the great price decline of 1928-33 were subsequently unable to assess the inflation of the subsequent war and post-war periods. Experience is a great teacher—but sometimes it is very hard not to draw the wrong lessons from it.

71

CHAPTER 8

the erows's nest

T

h e preceding chapters dealt with years in which almost nothing seemed to work out as hoped. The next chapters will cover the years of high prosperity when everything clicked. This one deals with a line which, in a very real sense, bridges the two periods. It was hoped and planned for from the end of the 1880's. It was finally built in 1897-98 just as the new period was opening and before anyone could realize how brilliant it was going to be. And building the line gave rise to an agreement which has been of growing importance ever since 1918. The Crow's Nest Line was and is a line from Lethbridge westerly through the Crow's Nest Pass to Nelson, British Columbia. In order to get it built the federal government gave a cash subsidy of $11,000 per mile up to a maximum amount of $3,630,000 and which in fact, came to $3,404,720. In return for that help the Canadian Pacific agreed to make a reduction in rates of 10 per cent on a list of eleven commodity groups inbound into the Prairie West, of 20 per cent upon coal oil and of one third on all green and fresh fruits, and of 3 cents per hundredweight upon "grain and flour" outward bound to the Head of the Lakes. These are the bare facts: now to turn back and see what these facts meant in the late nineties. Once the main line was completed in 1885, southeastern British Columbia became the last important area in Canada which was cut off from the rest of the national economy. There was a pack-horse trail in from the West but it was, of course, difficult for people and impossible for any substantial movement of goods. 73

Canadian Pacific

The rivers ran north and south and the initial mining discoveries were made by prospectors who moved up from the United States, for whom the border was an irrelevance until they needed to register their claims. Socially, southeastern British Columbia was an extension of the United States. In the election of 1896 there was only one man in Trail who was entitled to vote. He was American born, but he had to take Canadian citizenship in order to get the job as Mining Recorder. There were a few Canadian voters in Rossland, but not many. The Canadian election was small potatoes; but all the camp followed William Jennings Bryan's Free Silver campaign of 1896 with rapt attention, and the depression of spirit when he lost the election had to be seen to be believed. Even as late as the early 1900's the great summer celebration fell on the July 4, not on July 1.' For very obvious reasons, then, there was a national interest in bringing this area inside the national economy. From the local standpoint, a railway was the necessary foundation for any large scale mining effort. Without a railway, transportation costs on outbound products were impossibly high. Consider, for example, the problem of producers in the new camp at Rossland, the most promising camp in the whole area at the time. When it first opened, the ore had to be bagged and moved seven miles by horse-drawn wagon to Trail. There it was offloaded and piled on the river bank. It was next loaded into a steamer for the run down to the railway. Again it had to be manhandled out of the steamer and into a railway car and shipped off to a smelter. The whole process was so expensive that only very high grade ore would move at all. It meant that mining had to neglect any medium grade ore. What was taken out had to be hand sorted to select as little as one ton out of 5-7 tons raised; and even then there was very little profit because transport costs were so high. And, of course, until a railway was built the inbound foods and other consumer goods originated south of the border so that Alberta was denied a valuable and growing growing market for meat and agricultural products and Canadian wholesalers lost the markets for other goods. A cluster of keys was needed to open this treasure chest—a railway for cheap carriage, smelters to process the ore close to the mines, and good cheap coking coal for the smelters. The 74

The Crow's Nest Line

Crow's Nest area had such coal, but without a railway it might as well have been in Timbuctoo. Coal for the early smelters was brought in from Vancouver Island and since it was a water-railwater haul, trans-shipment costs added to length of haul produced high laid-down coal costs with a corresponding effect on smelter costs. But once a railway connected the Crow's Nest with the metal mining areas, cheap coal would be available, and a whole new economic horizon would open up. The Province of British Columbia was naturally most interested in the matter. In 1888 it chartered the Crow's Nest and Kootenay Lake Railway Company, subsequently renamed the British Columbia Southern Railway Company, with power to build from the provincial boundary to Nelson.' In 1890 the province authorized a land grant of 20,000 acres for each mile of railway constructed.' In each of the years 1891, 1893, 1894 and 1895 the province addressed Memoranda to the Government of Canada requesting assistance toward the construction of such a line by a cash subsidy.' Its own financial position did not permit any such luxury; there the project lay. In seeking federal assistance the B. C. Southern hit a major road block. The local traffic would not return any great net revenue, but the off-line shipments of metal to consuming centres would involve long hauls at favourable rates. Therefore, the property would be of greatest value to its shareholders only if C.P.R. was compelled to bid for the traffic, or for control of the line itself, against the American lines to the south. How could the Government of Canada be expected to subsidize a railway which would certainly be under the strongest pressure to follow an antinational policy, and which might end up being owned and controlled by a foreign line? The Canadian Pacific was deeply interested in getting into the area, but its great problem, aside from finance, was how to do so in a fashion that was not unbearably wasteful. The main line had been located before any mineral deposits had been found, and now it appeared to be in country which, it seemed, was not likely to produce much. If another line was to be run in the mountains it should be planned so that it could pick up as much local traffic as possible. Any mountain line was bound to be expensive. It would be a tragedy to build it, and then find that it too was in the wrong place. 75

Canadian Pacific

Secondly, this line should fit into a balanced pattern of development. It should not be a stub pushed into the mountains; it should be the beginning of an alternative route to the Pacific Coast. But no matter whether it was considered as a simple stub line or as the beginning of an alternative main line, it meant the patient, costly accumulation of knowledge so that when a decision was taken, it would be wise and consistent with the facts. Finally, the line should be able to carry itself from the earliest possible moment. At that time, C.P.R. just did not have the resources to build a development line and then wait years for traffic to build up. It was too raw and new a property and its fixed charges were so high that that was impossible. As operating head of C.P.R., Van Home planned a whole program of economic development for the area, each part of which would reinforce all the others. A main railroad line to connect with the outside world was only the beginning. There were also to be branches which would connect all the mines that could hold out hope of adequate traffic, and two smelters would tie the whole package together. The plan was there; but the means were lacking. While the B.C. Southern charter to build from the provincial boundary to Nelson had been in existence from 1888 it was not a serious threat to C.P.R.'s plans until its holders could raise the money to build under it. As Van Home said in a letter to Sir John A. Macdonald, Colonel Baker, the principal promoter, had a little political backing "and that is about all the backing he has except from his creditors. Five minutes talk with him will satisfy you that he is a drowning man in search of a straw." The B.C. Southern charter as such was of less concern than the possibility that the Great Northern might get hold of it and locate a line through the Crow's Nest Pass so as to block any later line by C.P.R. Poverty kept Van Home from doing very much, but he did what he could. In 1892 Canadian Pacific took over the Alberta Railway and Coal Company's line from Dunmore (just east of Medicine Hat) to Lethbridge on a traffic lease. There was no immediate cash outlay but there was an option to purchase by 1897.5 The Company also spent nearly $100,000, a substantial sum in those days, on surveys west from Lethbridge and on some construction work, partly to stake a claim on the approach to the Pass, 76

The Crow's Nest Line

but mostly so that it could start construction speedily once the decision to build was taken. These efforts protected the eastern approaches, but once the depression struck the Company was powerless to do more. Inside the territory itself Van Home did what he could to serve by building short stretches of connecting railway and by putting steamers on the Arrow and Kootenay Lakes so as to reach as wide an area as possible with such capital as was available to him. If Van Home hoped to protect the territory until C.P.R. was strong enough to move in with full rail service, he hoped in vain. In 1891 the province chartered the Nelson and Fort Sheppard Railway. In 1892 it was given a land grant. In 1893 it was declared a work for the general advantage of Canada and the federal government ratified its agreement with the Spokane Falls and Northern Railway which connected with the Great Northern and which eventually became a subsidiary.' The Great Northern was into the territory ahead of Canadian Pacific. Van Home was cut to the quick. He felt that he had been doublecrossed. Under pressure from the Dominion and the province he had built the Columbia and Kootenay Railway from Robson to Nelson, thus connecting the Columbia River and Arrow Lakes with Kootenay Lake. The British Columbia government had promised that if he did so, the charters asked for in the interest of American lines would not be granted. But before it was completed they went back on their word and chartered the Nelson and Fort Sheppard. Now the Columbia and Kootenay, which cost over $750,000, was substantially valueless. Bad as this was, worse was to follow. F. Augustus Heinze, a genial scoundrel of great talent, came into the territory in 1895 and set up a small smelter at Trail, with a narrow-gauge tram line up the hill to Rossland. In 1896 he got a charter for a standard-gauge railway from Trail to Robson and thence west to Penticton.' This gave him the middle portion of the route which Canadian Pacific hoped to follow to the coast. What was equally important, his railway would be the most valuable if he could get the Great Northern and Canadian Pacific bidding for the traffic of the smelter until one or the other would buy. Heinze was no man to trifle with. He. was an able geologist and mining engineer, but those skills were the merest substratum of his power. At twenty-five he was already a millionaire. He had 77

Canadian Pacific

come in to Butte a few years before, and in very short order he had set the whole camp on its ears. He demonstrated a remarkable capacity for political in-fighting and for rabble-rousing. He bought newspapers and used them as part of his general plan of campaign against the big mines. He deployed lawyers in platoons. He was generally credited with complete success in corrupting both the legislature and the courts. When he finally sold out, the big companies were glad to pay him $10.5 million, partly for his properties, but in substantial part to be free of him. He was intelligent, skilful, and ruthless; and in a fight he was never restrained by a respect for truth or for the rights of others. It is a hard combination for decent men to fight. Heinze had already put $25,000 into the paper in Rossland and imported two journalists of fortune to edit it with instructions to blacken the C.P.R. at every turn.' Heinze was now a very uncomfortable neighbour; he would become downright dangerous if he tried to run the same kind of campaign against the Company that he was running with such skill, and success, in Butte. As long as he was around, there was danger. When the depression began to lift, Van Home was ready to move. All the necessary surveys had been made and he had done some preliminary work on the eastern slope of the Rockies. By 1896, the revenues per mile of line had risen enough to give him hope. What he now needed was a decision to build—and the funds to do so. Ever since 1882 the government had been giving cash bonuses of $3,200 per mile to any railway which could get Parliament's ear, and of $6,400 for those which could bring forward any reasonable claim for special consideration.9 When the government had pressed Van Home to get on with the construction of the Crow's Nest Line in 1893 he had proposed a subsidy of $5,000 per mile and the loan of the government's credit for twenty years to the extent of an additional $20,000 per mile. Given the difficulties of construction it was a reasonable enough offer, but nothing came of it. In 1896 the Conservative administration had placed upon the Order Paper a resolution almost identical to the above proposal, but specifying a rate of 3 V2 per cent on the $20,000 per mile loan. This did not reach the floor of the House and died when the House was dissolved. Following the coming into power of the Laurier Government the proposal was resubmitted by the Company. Later the Com78

The Crow's Nest Line

pany made an alternative proposal. If the government preferred not to lend its credit, the Company would take a cash subsidy of $10,000 per mile and would raise the balance of the cost by the sale of its own securities. From this point on there were many proposals and counterproposals, but finally a bill got before the House and the Act became law on June 28.10 The formal agreement between the government and the Company was signed on September 6, 1897. In brief the agreement provided for the construction of "a railway from Lethbridge in the district of Alberta, through the Crow's Nest Pass to Nelson, in the Province of British Columbia," the government agreeing to grant the Company a subsidy of $11,000 per mile, not exceeding in the whole the sum of $3,630,000. In addition the agreement provided for a reduction in the Company's then existing rates on the stated commodities inbound to the Prairie West in the percentages shown earlier and on grain and flour from all points on its main line, branches or connections west of Fort William to Fort William and Port Arthur and all points east thereof of 3 cents per 100 lbs. Half of this reduction was to be put into effect on or before September 1, 1898, and the remaining 1.5 cents on or before September 1, 1899; thereafter no higher rates should be charged. While these arrangements were being made, Van Home was busy developing plans to get the line built as quickly and economically as possible and to have coal mining started in one coordinated operation. Canadian Pacific had already started to build west from Lethbridge in its own name prior to the signing of the Agreement with the government. By the end of the year the line was within twelve miles of the summit of the Rockies. By October 1898, under the charter of the B.C. Southern, it reached Kootenay Landing. A gap of thirty-four miles was left from there to Procter, from where the line was continued to Nelson. From Kootenay Landing to Procter a train ferry on Kootenay Lake permitted through train service to Nelson. This train ferry service was continued until 1930 when Canadian • Pacific constructed a railway along the shore of Kootenay Lake from Kootenay Landing to Procter, at a cost of which amounted to $3,000,000. No subsidy was paid with respect to its construction. Construction cost of the line, excluding the section from Kootenay Landing to Procter and also excluding motive power, rolling stock 79

Canadian Pacific

and vessels, was $9,898,392. The cash subsidy received was $3,404,720 or only one-third of the initial cost of the line. The land grant attached to the charter of the B.C. Southern proved of little value to Canadian Pacific. A total of only $1.8 million was realized from these lands and this over a period of some fifty years. Of the 3,755,733 acres granted to the Company, only 10 per cent were sold to the public; the majority were returned to the Province of British Columbia. Even before rail construction was well under way the plans to develop coal production were being pushed. The Provincial Charter to the British Columbia Southern Railway was still outstanding, and its owners could expect to be bought out if only for their nuisance value. More important, the province had voted a land grant to that railway and it covered most of the potential coal lands along the route. If construction was to be pushed, the quickest way to clear things would be to buy out the owners of the charter, build under it. and earn the land grant. With this in view, Van Horne, Angus, and Shaughnessy. acting in the interest of the Canadian Pacific, made an agreement with William Hanson of Hanson Brothers, bond dealers of Montreal. to purchase the shares of the British Columbia Southern for $100,000.11 This purchase was completed by mid-August, 1897. To build a railroad into a new territory is a relatively simple matter. Anybody with enough money can do it. Building is merely the way into a problem. Real skill is shown by developing enough traffic to pay operating expenses from the beginning and to cover capital costs as soon as possible. In the case of the Crow's Nest Line the development of coal and coke production was a key factor. The line was going to depend on mining traffic; mining traffic depended on smelters; and cheap fuel meant cheaper smelting and therefore more mining traffic. On July 30, 1897 a tripartite agreement was made between the British Columbia Southern Railway, the Canadian Pacific and the Kootenay Coal Company, subsequently named the Crow's Nest Pass Coal Company Limited.' In brief, it provided for the conveyance by the Company of all the coal lands to the Dominion Government and to the Coal Company, reserving only six sections (3.840 acres) for itself; that the Canadian Pacific would not mine coal for ten years after construction of the Crow's Nest Line; that the Coal Company expend such sums as might .be necessary for 80

The Crow's Nest Line

the purpose of developing and equipping coal mines upon its lands and develop and equip them so as to be ready to supply all available markets with coal and coke as soon as possible after the railway was finished. Most important of all, Clause 21 of the agreement stated that the Coal Company would furnish coal from its mines to those requiring it for any purpose at reasonable prices so as to co-operate with the Canadian Pacific in the development of smelting and manufacturing enterprises in the territory to be served by the railway and its connections, and to provide settlers with the cheapest coal possible. The railway's profit was to be earned by constructive service to the territory served. It would co-operate in getting a coal mine started. It would guarantee the rates to be charged for carrying coal; but it would not itself mine and sell unless the Coal Company fell down on its commitments. Early in 1898 one other piece fell into place. Heinze could see most difficult and costly law suits building up against him in Butte. It was therefore wise to withdraw to his main base until his position there was secure. Though he may have planned a major blackmailing operation on C.P.R., he eventually settled for a generous but not an unusual price for his interests. The Company had been bracing itself against a full-scale attack, knowing that it could not help but be hurt. Any irresponsible attacker can always make charges faster than a careful man can answer them; and a damaging residue of doubt accumulates in the public mind. And now, quite suddenly, the whole problem vanished into thin air and was gone. It was a piece of good fortune almost too good to be believed. The payment was divided into three parts: (a) $600.000 plus an undivided half interest in the land grant earned to date for the railway; (b) $200,000 for the smelter property; and (c) $5,980.16 for the inventory of materials and supplies at the smelter. It was not much of a smelter; but here was the nucleus from which Cominco ultimately sprang. Getting the railway built was the primary consideration of both the government and the Company and the reduction in rates was a minor but interesting addition to the contract. Canadian Pacific's grain revenue per ton-mile was already sharply below that of Great Northern and Northern Pacific, the most nearly comparable U.S. lines. Traffic density was also less so that the earnings per mile of 81

Canadian Pacific

road were painfully far below the U.S. level. Why, then, did the Company agree to a still greater reduction? The nearest one can come to an answer is—it was a gamble. Land sales were almost at a standstill. Something had to be done to get settlement started again or else Canadian Pacific would always remain a marginal property. If a reduction in rates could be the precipitating factor which would budge the area of dead centre and start it moving again, it would be justified. If not, the rate reduction would be an unrelieved loss. One thing was certain: these rates would afford a major challenge to the skill of management, for there were certain off-setting advantages which might be exploited. The haul was long. There was, effectively, one destination. Cars could be loaded to capacity. As the traffic built up, larger stronger cars could be built, and moved in longer trains. If the traffic could be brought fairly quickly to the main line and then hauled through to destination in heavy trains, and with a rapid turnaround of cars, perhaps it could still be made to contribute a reasonable proportion to the general overhead of the railway despite the handicap of a very low rate level. In sum, this would come very close to creating a new kind of railroad, but so be it. That was what progress was: the exploration of technical limits until a breakthrough was scored. By the time the rate reductions had come fully into effect in September, 1899, it was clear that prosperity was returning and the rising prosperity of each succeeding year to 1912-13 proved that, however desirable they may have been, the reductions of rates was not really necessary. Prosperity and a rapidly rising flow of settlers would have come, with or without. To state this fact is not to criticize the C.P.R. officers who made the agreement. Their decision was made in the winter of 1896-97 in the light of the facts which were known at the time. At that time a forecast of a stationary or declining price level was completely reasonable. It was also hopelessly wrong.

82

CHAPTER 9

the golden years 1897-1913

/

f the years 1886-96 were years of trial, then 1897-1913 were years in which all C.P.R.'s cards came up trump. Settlement began to flow strongly into the Prairie West, and kept on rising until it was a flood. Two other transcontinentals were built. In the end they were to provide intense competition, but immediately, they added greatly to the flow of traffic on the C.P.R. Almost it seemed as if it could do nothing wrong and its only problem seemed to be how to withstand the temptations of constantly increasing good fortune. In 1896, C.P.R.'s total gross revenues were still below the peak of 1892. Per mile of line which is, in some ways, a fairer comparison, they were a full .10 per cent below. But in 1897, both figures reached new highs; and this was merely a first installment. Revenues kept on rising year after year, with slight halts in 1901 and 1908, to a peak in 1913.' The total rise was from $20.7 million in 1896 to $139.4 million in 1913, or an average rate of over 12 per cent per year compounded annually. The mileage operated almost doubled in this period, but despite this, the figures per mile of road rose so strongly that the net earnings available for fixed charges were higher in each of the years 1906-13 than the gross earnings had been in 1896. The reason for this enormous growth was clear enough. There was a convergence of several favourable factors. Any one of them would have been important; together, their effect was tremendous. First of all, the climatic cycle turned its favourable side. Rainfall became more generous and more dependable. People learned how to farm prairie country, using summer fallow to conserve moisture. 83

Canadian Pacific

Early maturing wheats were developed, greatly reducing the danger from frost damage. The cost of transport to world markets was reduced, and especially that segment of it represented by the cost of ocean carriage.' The long decline in prices ended and began to reverse itself. Finally, the American West had by this time filled up. Land values began to rise. Free lands were no longer available; instead of being a competitor for settlers it became a source of supply. With all these factors set fair, wheat growing in the Prairie West began a development so rapid that it ultimately became a self-perpetuating boom with the new capital investment creating its own momentum. Population poured in so that the three Prairie Provinces which started with 419,000 people in 1901, rose to 1.698,000 in 1916. The five eastern provinces with 4,773,000 in 1901 stood at 5,847,000 in 1916. In absolute amount, the growth in the Prairie Provinces was greater by 200,000 than in the five eastern provinces. It was a tremendous performance. It meant that they started in 1901 with 7.8 per cent of the population of Canada; they ended in 1916 with 20.9 per cent. It was a total shift of the balance of power in the country. The other face of this enormous inflow of population is, of course, the rise in the acreage under grain crops which is shown in Table 2. With a gigantic investment boom going on, the railways were obviously in the very centre of it. Over the whole period leading to the First World War, freight traffic per head of population was growing rapidly so that the totals were the result of the compound effect of rapid growth in population and in tons carried per head. In the years 1890-96 the total tonnage carried by all railways ranged between 20.7 and 24.3 million tons. That figure grew to 58.0 million tons in 1906 and 107.0 million tons in 1913. For obvious reasons C.P.R. more than held its own in this growth. Its lines were right in the centre of the growth area and its share of total tonnage rose from 18.5 per cent of the total in the years 189096 to 24.2 in 1905-09 and 28.1 per cent in 1910-13. Faced with this explosive growth, Canadian Pacific reacted in two ways. The first was the obvious and inevitable increase in sheer physical capacity. In 1896 it had 584 locomotives, 15,459 freight cars and 709 passenger train cars. In 1915, when the prewar expansion of equipment was complete, there were 2,255 locomotives, 88,928 freight cars and 2,781 passenger cars. These figures obviously understate the real change which took place because of the 84

The Golden Years 1897-1913

TABLE 2 Number of acres under the five principal grain crops in the Prairie Provinces, 1891-1915 Manitoba

Saskatchewan

Alberta

Total

(000.000 omitted) 1891

1.31

.18

1.50

1898

2.16

.43

2.59

1902

314

1904

3.76

1906

8.04

1908

4.97

3.52

.93

9.42

1909

4.92

5.78

1.40

12.10

1910

4.42

6.75

1.82

13.00

1911

4.94

9.02

3.15

17.10

1912

4.77

10.21

3.38

18.37

1913

4.76

10.20

3.47

18.42

1914

4.45

9.12

3.15

16.73

1915

4.71

12.97

4.33

22.01

Sources: The Statistical Year Book of Canada, 1903. pp. 104-6; The Canada Year Book, 1911.pp. 35-6; ibid.. 1914, pp. 155-62: ibid., 1916-17. pp. 192-94 and Province of Manitoba. Report of the Department of Agriculture and Immigration for the year ending December 31, 1902, pp. 7-8; and Annual Report of the Department of Agriculture of the Northwest Territories. 1902. pp. 27-29.

change in capacity per unit which was, of course, greatest in motive power and freight cars. This was not a matter of growth of an existing plant so much as it was the creation of a new one, piece by piece, by renewal with better and larger units, heavier rail, double tracking where needed, 40 and 50 ton freight cars with steel underframes to replace 20 ton cars with wooden underframes, and so on through all the categories of railway property. The second was that the character of the line was set as a western line. By 1915 over half the mileage was in the Manitoba, Saskatchewan, and Alberta districts, compared with a little over one third in 1896. From now on, Canadian Pacific was predominantly a "granger" railroad. Its highest prosperity would be reached when the Prairie territory was also prosperous. The relationship was not always smooth; but the two were inextricably bound together. 85

Canadian Pacific

In these respects, Canadian Pacific responded to its opportunities; but in its financing of growth the Company responded to its past history and to the character of its management. They were sober folk and they were building for permanence. No doubt the Company was now prosperous, but they had also known the years 1886-96. They were not going to dance like may flies of a summer evening and then perish at the first touch of adversity. They wanted to build a structure which could persist through any strain or trial.' Nowhere is this quality of long-term planning more obvious than in the financial plan adopted from the beginning. The first element in it was reliance upon the issue of consolidated debenture stock rather than mortgage bonds for a fixed term of years. This was the British practice. A railway was an institution with an effectively infinite life. Therefore, its securities should be designed to match. Provision was made that the debenture stock should become the sole senior security, that it should be perpetual and that, if interest should fail to be paid, the right to vote in the meetings of the Company should be transferred from the common stock and preferred stock to the debenture stock. When the default is purged, voting power returns to the junior stocks. The superiority of this simple procedure as compared with the immensely complicated receivership and reorganization which takes place in the United States, when a railroad with many mortgage bond issues on various parts of its property becomes financially involved, is quite overwhelming.° The second element in the plan was a determination not to rely upon debt of any kind, not even upon so desirable a type as the debenture stock, as the major source of funds. In the years 1887-96 nothing else was possible but the proportion of new money raised by debt issues dropped in each successive period, falling to less than one-quarter in the years 1906-15. In the United States, railroads were meeting the same problem with a much larger proportion of debt issues. Immediately. it had a favourable effect upon earnings for the common stock; ultimately, it was to be nearly disastrous; but Canadian Pacific resisted the temptation. It sought to create a nearly impregnable structure by keeping debt issues down and raising as much as possible by the sale of common stock. Canadian Pacific's growth was only a part of the railroad story, for this period also saw the development of two additional transconti86

The Golden Years 1897-1913

nental lines. Especially in the West, there had been a hunger for railway competition. The theory of the time stressed its value as a sovereign remedy for all economic ills. It took time and bitter experience to make people realize that, where capital costs are high, competition may produce higher costs as well as other undesirable side effects. The result was that from the time of the formation of C.P.R. the people of the Prairie West developed a state of mind best described as economic claustrophobia. The fact that grain rates were on a lower basis in Canada than in the adjacent states of the United States had very little effect on public thinking. The people wanted to see competition. This feeling of being hemmed in and dependent had created trouble in Manitoba in the eighties even before the C.P.R. line was completed. Finally in 1888 the Company gave up its rights under the "monopoly" clause of its charter in exchange for a bond guarantee. The Northern Pacific came in under the charter of the Northern Pacific and Manitoba, built a fair mileage, but found it relatively unprofitable and was ready to get out; partly for that reason, partly because with grain rates higher in the U.S.. the haulage of Canadian grain to Duluth for less than was paid for the shorter haul on the American side was likely to raise awkward questions in the American territory whence most this railway's revenue came. With revival of prosperity, hope returned. One of the first of the new railways to get into motion was the Lake Manitoba Railway and Canal Company. Its first charter dated from 1889, but nothing happened until it was taken up by Mackenzie and Mann, a pair of Ontario farm boys who had cut their eyeteeth on the construction of the Canadian Pacific main line and who had then gone on as free wheeling entrepreneurs ready for anything, anywhere. In 1896 they built 125 miles of line from Gladstone to Dauphin under this charter and were open for business before the year was out. The company had a land grant from the Dominion of 6.400 acres per mile and the Province of Manitoba guaranteed interest payments on bonds to a total of $8,000 per mile, with provision that the company might delay payment of interest for two years if need be. It was a highly desirable protection against the difficulties of a slow start, but it was not necessary. The company earned and paid its bond interest from the very beginning. Here was tangible proof that the increased flow of settlement was making investment in railways far less risky than it had been. If that was the case Mackenzie and Mann were not 87

Canadian Pacific

going to let the grass grow under their feet. In fairly short order they got hold of the Winnipeg and Great Northern charter and built north out of Winnipeg. Then they got the charter of the Manitoba and Southeastern and began to build southeast out of Winnipeg. Most of the traffic available to the latter was cordwood, but a woodyard was set up in Winnipeg and that line too paid for itself. These were pioneer lines and were operated as such. There were no walnut desks in the front office, but they were paying their way. The Lake Manitoba line was also pushing out north and west of Dauphin. At the beginning of 1901, the Mackenzie and Mann properties had just made physical connection with each other but their only financial connection was through the ownership of the stock of each by Mackenzie and Mann. By the end of the year they were both part of a regional system under the name of Canadian Northern Railway Company and Mackenzie and Mann had been converted from shortterm speculators in railway property to long-term speculators in the creation of a great railway system. Before they were finished they had 9,500 miles of line under their control. This transformation took place in three moves. The first was the amalgamation just referred to. The second was the lease in 1901 of the Northern Pacific and Manitoba Railway by the province and its sublease to Canadian Northern. With this additional 350 miles of lines the latter had a gathering system adequate to support a line to the Head of the Lakes. The third step was for the province to guarantee the bonds of Canadian Northern for such a line. By the end of 1901 the line was through and Canadian Northern was a regional system with nothing to stop its further expansion westward until it reached the foothills. This rather complicated deal was the decisive turning point for Mackenzie and Mann. Left to themselves, they might have sold out and gone elsewhere with a substantial capital profit. Even if they had hung on and slowly built up their gathering system it might have taken years before they could have accumulated the strength to support a line to the Head of the Lakes. Now the provincial government had carried them over both obstacles and the Canadian Northern was a railway with a substantial mileage. It was no longer a speculation by a pair of contractors; it was an operating entity. The province exacted a heavy price for this help. The Canadian Northern was required to reduce its rates by 15 per cent on commodities other than grain within Manitoba and between Manitoba 88

The Golden Years 1897-1913

points and the Head of the Lakes. In addition, the grain rates, which had already been reduced by three cents per hundred-weight under the Crow's Nest Agreement, were to be cut by a further four cents from Manitoba points. As a unilateral reduction applying only to Manitoba points on Canadian Northern lines this would discriminate rather sharply against other points in Manitoba and against all the territory west thereof. In the ensuing discussions it was agreed that the full four cent reduction would be retained in the Winnipeg block, that all other Manitoba points should have a three cent reduction and other points should have two cents. Having made so great an expansion of mileage so suddenly, other men might have waited to see how it would turn out—but not Mackenzie and Mann. They turned to the federal government and got a guarantee of interest of $13,000 per mile for a 620 mile line from Grandvjew, Manitoba to Edmonton. For them, the way to stay upright was to run twice as hard. In the short space of six years, the Canadian Northern had established itself as a regional carrier between the foothills and the Head of the Lakes. It had broken C.P.R.'s position as sole carrier to the Lakes; it had cut grain rates below the level which C.P.R. thought safe; and it had challenged C.P.R.'s position in the grain growing area by pre-empting a valuable route to Edmonton. Canadian Northern's decision to build west to Vancouver and east to Montreal and Quebec was not taken until 1907, but by 1903, it had established itself as a line to watch. And, from the standpoint of its promoters, the wonderful thing was that it had all been done without any investment of cash in the common stock. Mackenzie and Mann were the complete antithesis to Stephen, the careful Presbyterian Scot, who had tried to build with a minimum of debt and whose first act when he got a charter was to get a substantial subscription to the common stock. The common stock which Mackenzie and Mann received represented nothing except the work of supervising construction and turning in land grants. They had financed first on provincial guarantees and now they had managed to tap the Dominion as well. Railways are supposed to be very difficult to finance because the turnover of capital is so slow. Mackenzie and Mann had not only done it without putting up any equity money. they had made it look easy. While Canadian Pacific was going from strength to strength and 89

Canadian Pacific

while Canadian Northern was building a regional railway system under its very eyes, the Grand Trunk began to feel that it was left in a backwater. It was known as the fifth trunk line between Chicago and the seaboard and was a minor but significant participant in that traffic. It was the dominant local carrier in Ontario and Quebec. But business to the Canadian West was growing; and on that traffic shippers preferred to route traffic to North Bay and thence west by Canadian Pacific. This gave Grand Trunk a relatively short haul for a growing share of its total business; and it could not press for a routing through Chicago without cutting across national feelings. At long last, it gave up its opposition to building in the Canadian West and worked out a deal with the Canadian government which went a long way toward producing the "railway problem" of 191617. What the railway wanted was a line from North Bay west to the Coast, preferably to Vancouver, with, of course, its main gathering lines in the wheat country. What the government wanted was a grand plan of national development which would also do something for Quebec and the Maritimes where much of its strength lay. The result was a very grand plan indeed and one which was far more ambitious than the Company had contemplated. The Grand Trunk was to incorporate a subsidiary, the Grand Trunk Pacific, which was to build a line from Winnipeg to Prince Rupert to physical standards as high as those of the parent company's line from Montreal to Sarnia. The government was to guarantee the bonds to the extent of $13,000 per mile for the prairie section and to three-quarters of the cost for the mountain section. Second, the government was to build a line from Winnipeg east through Cochrane and Quebec City to Moncton to the same standards and to lease it to the Grand Trunk Pacific at 3 per cent of its cost. If economy had been the object, the Canadian Northern and the Grand Trunk Pacific would have been made to merge their interests so that only one new transcontinental would result. The government brought the two together, and suggested co-operation, but did not go beyond that. Obviously, the government had the power to compel co-operation, but all the short-term considerations ran in favour of unlimited spending; and the long-term disadvantages of duplication of lines between Quebec City and Moncton, and the creation of two additional transcontinentals west from Quebec City to the Pacific Coast were only going to show up slowly. Both lines, therefore, went on to 90

The Golden Years 1897-1913

create between them the "Canadian railway problem" of 1916 and later, using government backing as their primary financial support. And when they ultimately broke down it was almost universally described as the failure of private ownership.

91

CHAPTER 10

the ending of the boom, the war and its aftermath

T

he peak peak of the great boom came in the year 1912-13 and the drop into depression was severe. For C.P.R., it meant a drop from railway revenues of $139.4 million in the year to June 30, 1913 to $98.9 million two years later, a fall of 29 per cent. This was no mere halt on an upward march; it was a major turning point. Canada had had nearly fifteen years of growing prosperity and of rising prices. Great amounts of new capital had flowed in, first for the necessary finance of a major expansion in the capital equipment of the community—new railways, new farms and factories, housing, streets, sewers and water mains, and all those myriad other things needed when a growing population is rising to a new and higher level of consumption. After 1908 money also flowed in for speculation in townsites and the other frothier accompaniments of a prolonged boom; even after all the debits are recorded this was, in the balance, a highly productive period.

Inevitably the Canadian balance of payments adjusted itself to this great prosperity. Imports increased and were paid for by the proceeds of sales of securities. Exports were relatively reduced because so much Canadian effort was being given to capital formation. And now it was over. It was not simply that the providers of capital began to question the probable yield of some of the wilder projects; the boom had run rather a long time and substantial changes in price relationships were beginning to show up. In particular, interest rates rose to heights which people had come to 93

Canadian Pacific

think quite impossible. The Government of Canada which had borrowed at less than three per cent in 1897, now saw its credit at four and a half-to-five per cent. Also, the possibility of war in Europe became something which thoughtful investors could not quite neglect. They might not know how to allow for it; but it checked their enthusiasm for securities of enterprises in other countries. When war finally came in August 1914 it was to a Canada which was experiencing its first depression since the middle of the 1890's. The process of readjustment was only partly completed and could be expected to go on until a balance was restored with much larger exports, smaller capital imports, and probably with a lower level of capital creation. Under conditions of peace such a structural reorganization could be a long, drawn-out affair but the outbreak of war cut it off. Modern wars have a voracious appetite for goods. Once war demands began to be exerted, employment rose, and by the end of 1915 there was very little slack left in the Canadian economy. The war also brought, almost unnoticed, one of those major but subtle changes whose influence is cumulative. For nearly a century the world had lived with a gold standard. By 1914, none but a few cranks thought it open to criticism, and all sober people regarded it as the only sensible way to retain faith in the value of money. But wars are fought by governments which have power; and power over the value of money is power indeed. After 1914, the citizen lost the power to demand gold in exchange for paper money, and governments took a great leap forward in the pressures they could bring to bear on their own citizens as well as on external enemies. This is no minor technical change but the birth of a new order. One of the consequences of this power of the state to issue paper money is that, since 1914, money is no longer a dependable store of value. From this time forward it will not be safe to look at changing revenues only; it will also be necessary to look at the physical volume of service rendered in order to avoid being misled by a shifting dollar. Inflation of the currency during the war posed severe problems for all railways. The unemployed resources of the community were mostly mopped up by the end of 1915. Thereafter, the spending of increased amounts of money did much more to push 94

The Ending of the Boom

up prices than to expand output. Railway rates, which are the prices of railway service, were not allowed to rise until long after other prices had risen. Even then, the amount of the permitted increase was much below the rise in other prices. An uncritical reading of the newspapers of the time would leave the impression of skyrocketing railway charges. It is quite misleading. Railway rates were controllable. Therefore a change in them drew a disproportionate amount of attention. All other prices rose, on the average, much more rapidly during the war. Even after railway rates had been allowed to rise and other prices had collapsed in the sudden inventory depression of 1921, railway rates were relatively depressed. This great movement produced a major downgrading of the railways within the Canadian economy and was the product of two complementary forces. The first was the great rise in the uncontrolled prices of other commodities; the second was the manner in which the machinery for the control of railway rates was set up. The whole structure of the regulatory authority had been erected on two unspoken assumptions. The first of these was that the major, perhaps the sole problem of a regulatory commission was to prevent the exploitation of the public by a railway monopoly. The second was that since prices changed very slowly, it was wise to build procedural delays into the regulatory system. Now, rapid inflation put the shoe on the other foot. What was needed was a defense of the railways as viable institutions. Under the new conditions the railways rather than the users of their services stood in urgent need of protection; the built-in institutional inertia made it impossible to recast the regulatory machinery to do the job which the public interest now required. This was not a purely Canadian idiosyncrasy. In the United States, the same problem of stable railway rates and rising prices and wages existed. The first reaction was to sweep it under the rug by having the government take over the operation of all railways and absorb their losses into the government deficits as one of the costs of the war. Not until the size of those costs became clear was the first halting increase in railway rates given, and not until the railways were handed back to their private owners in 1920 was an attempt made to adjust rates fully to current costs of operation.' 95

Canadian Pacific

The effect upon the railways in Canada depended in part on past behaviour. All were hurt, for that was inevitable: but Canadian Pacific was able to survive. The conservatism of its management had made provision for nearly any strain that could be put on the Company. The careful husbanding of financial resources, the great issues of stock and relatively small issues of debentures had cut fixed charges down to very small proportions. And the physical property itself was in magnificent shape so that, if the worst came to the worst, it could absorb a year or two of low maintenance outlays without serious harm. For the new railways, the Canadian Northern and the Grand Trunk Pacific, the blow was catastrophic. Their average density of traffic was much lower and the burden of fixed charges was much greater than those of the Canadian Pacific. Their past maintenance outlays had been skimpy so that they had nothing to come and go on. They both had long stretches of new line just coming into operation on which maintenance would be greater than normal until they were stabilized. And now, when they needed heavy maintenance outlays in the worst way, they were being compelled to retrench still further in order to pay the interest on their debts. By midsummer 1916, it was clear that a critical situation was in the making. Even with stationary prices and rising traffic, Canadian Northern was a very doubtful proposition. If it lived, it would be a minor miracle. Grand Trunk Pacific was beyond hope, regardless of how favourable external conditions were. But prices were not stable. They had begun to lift in 1915. They were to rise by almost 35 percent by the end of 1916. For both new roads, but especially for Canadian Northern, the very increase in traffic was a mixed blessing. It had hoped for and planned on a rapidly expanding traffic after completion in order to generate additional net earnings. Now, inflation narrowed the earnings possible from a given gross revenue, while rising traffic demanded more freight cars, more sidings and better yards, which were nearly unavailable because the resources to create them were fully employed on the production of war goods. In any case, it was quite impossible to borrow the capital monies required because earning power was low and doubtful. Here was the acid test of government's policy of giving bond guarantees to railways instead of cash and land subsidies. It had 96

The Ending of the Boom

all seemed so reasonable, so simple, so cheap and so obvious when it was first adopted. More railways were clearly needed. The government endorsement would make it easier and cheaper to sell bonds, and rising traffic would make the whole operation costless, a mere formality which would never mature as a claim for reimbursement. And now, those claims were falling in with horrifyingly large burdens and the Minister of Finance was of the opinion that he could not finance the war unless they were honoured in full.' The responsibilities of the war made it hard to give attention to domestic problems. In any case it was a bigger question than any Cabinet would want to tackle alone. A Royal Commission free to give its whole time and attention to the matter was obviously called for on two grounds. It might see some solution which was not obvious without study. And even if it did not, its formal report would help to get acceptance of whatever course was finally adopted. The Commission, as first set up in mid-July 1916, consisted of Sir George Paish of London, England, Sir Henry Drayton, a Canadian, at the time the Chairman of the Board of Railway Commissioners, and Mr. A. H. Smith, the president of the New York Central Railroad "of whom the said Alfred Holland Smith shall be Chairman." It was at this point that fate, or chance, intervened. Sir George Paish was not well at the time of his appointment, but hoped to recover and be able to serve. Instead, his health deteriorated and he was compelled to resign in mid-October. He was replaced by Mr. W. M. Acworth. It was a hurried appointment and he was not able to reach America until early in December by which time the work of the Commission was well along. It seemed a very simple change—one Englishman for another —but it changed the whole balance of the Commission. Sir George Paish was of a conservative cast of mind. Had he been able to serve, he and Smith would certainly have formed the majority and might even have brought Drayton to agree to a conservative solution along the lines ultimately taken by Smith's Minority Report. Mr. Acworth had a very different set of preconceptions. He had been an interested student of the Prussian State Railways. He was deeply impressed by the size of the profits they had turned over to the State of Prussia each year. Far from being fearful of 97

Canadian Pacific

the effects of government ownership, he welcomed it. The idea that some things which are possible to an aristocratic government in a compact country are impossible to a parliamentary government, democratically elected, in a geographically segmented country was, to him, an irrelevance. As luck would have it, Sir Henry Drayton had been in municipal politics in the formatiye days of the Ontario Hydro' and had, equally, the feeling that public ownership was a superior way of organizing public services. That single substitution of Acworth for Paish made the former and Drayton a majority in the Commission. As such, they recommended that a new independent body be set up to take over all the important railways in the country with the exception of Canadian Pacific. The Canadian Northern and the Grand Trunk Pacific were to be taken over because they stood upon the edge of failure and because they needed a substantial additional capital investment to let them give adequate service. The IntercoIonial and the National Transcontinental were already government owned. They were to be put into the same hands in order to end political pressure upon them and to improve their efficiency. The Grand Trunk was to be taken over, partly because it had guaranteed some of the junior securities of the Grand Trunk Pacific and would go down unless the government stepped in to relieve it of that burden, but also because the new body would be under painful pressure to expand in Ontario and Quebec unless it got hold of the Grand Trunk as well. These recommendations were not made in desperation. They were, instead, a boldly confident statement that public ownership was fully as efficient a form of organization as private ownership and possibly more so. Drayton and Acworth did not foresee any long-run problems inherent in the new form. Indeed they gave far more weight to immediate problems such as providing more freight cars and, possibly, some double tracking for the next winter's traffic. The long-run question with which they did concern themselves was how to provide for the distribution of profits which were expected to be present in disturbingly large amounts once a normal economic situation had been re-established after the war. When one looks back from 1967 one wonders how sensible men could have brought themselves to consider the question at all. In the fifty intervening years the railway thus begun, Canadian 98

The Ending of the Boom

National, has almost continuously drawn upon the public treasury for operating funds and for new capital. The inability of Drayton and Acworth to foresee that such would be the case is a measure of their blindness to the near impossibility of insulating Canadian National from political and other public pressure. The government adopted the majority Report and created Canadian National Railways with the most solemn and frequently repeated declarations that it was to be a totally independent institution run upon commercial principles. It was meant to be an exact statement; but the makers could not fully realize the kind of problem into which they were running. No doubt the independence of the C.N.R. was important. All sensible people who considered the question in the abstract were in favour without qualification; but low freight rates were desired by more people, and much more ardently. The result was that the Board of Railway Commissioners was instructed to set such freight rates as would permit Canadian Pacific to live, and the necessities of Canadian National were not to influence its decisions. This meant that if Canadian National could not prosper on the same rates, then it would be forced back on the government for an annual contribution to cover its deficit; and those who must beg for help are inevitably dependent on the givers. An equally serious flaw in the structure was that Canadian National was never forced to raise new capital on its own responsibility. Its borrowings always carried the government guarantee. Therefore it never had to ensure earnings on its capital or find its access to capital markets cut off. And, finally, what does management on commercial principles really mean? Is it simply a question of having a charter, a Board of Directors, and of calling the operating head the Chairman and President? If so, then who holds the shares and bears the losses or reaps the profits is a matter of no importance. Any and every government operation from the post office to the diplomatic service can become a public corporation. For obvious reasons, these questions of formal organization are minor. A commercial enterprise is one which is compelled to keep its income in excess of its outgo. It cannot borrow unless it can convince lenders that it will be able to service the debt to them. If it fails to pay its debts then it must pass through bankruptcy. 99

Canadian Pacific

Whether the business is reorganized, or is liquidated and the proceeds distributed to the creditors, pro rata, is determined by the creditors and the courts, not by the debtor. Solvency is the price of independence. The business which cannot adjust itself to the needs of its customers and make a profit from serving them is living on borrowed time; and sooner or later it is wound up. The real meaning of those words "commercial enterprise" could not be determined in advance. It would have to be deduced from the actions of the railway officers and from the interaction between them, Parliament and the Cabinet. But one thing was clear. Canadian Pacific would come into a new world when Canadian National was fully organized. How it responded to the new situation is reflected in not only the next chapter, but in all succeeding chapters in this section.

100

CHAPTER 11

the inter-war period

B

y the middle of 1922 Canadian National had been put together. Most of the capital outlays which were immediately necessary had been made and the two great systems were, almost unconsciously, choosing the strategies on which they would compete with each other. The decisive choice was made for Canadian National in 1922 when Mackenzie King chose Sir Henry Thornton, an American who had been in England since 1914, to head it in the place of D.B. Hanna who had come up through the ranks. Hanna had been operating head of the Canadian Northern from its beginnings in 1897. As such, he had been compelled to perform heroic impossibilities daily in order to keep it going because Mackenzie and Mann were always ready to skimp on maintenance and operations in order to push on with new construction and fresh acquisitions. His whole life had been an extended training in wringing the last ounce of value out of each dollar spent. He and his Canadian Northern group had moved into the chief offices in Canadian National on merit. Their years of high ambition and immediate poverty had honed them to a razor sharpness which the executives of the Intercolonial and of the Grand Trunk could not approach. When the government took over Canadian Northern in 1917 these men found themselves, for the first time in their lives, with ready access to all the capital needed to give them a first class line. But this sudden good fortune could not wipe out the habits of a lifetime. Capital to extend passing sidings, to enlarge yards, to buy new

101

Canadian Pacific

locomotives and cars was a benefit with a double edge. It made better service and larger earnings possible, but it also imposed an obligation to earn the carrying charges on it. Hanna was deeply conscious of the amount of new capital he was getting, and of the additions which it made to his fixed charg6s; and he was horrified to see how little could be purchased at the new price, level by the expenditure of large sums of money. A commercial enterprise was one which covered all its costs and he was ready to pursue a quiet conservative course if it would generate the maximum net earnings. If that meant leaving the C.P.R. as the principal passenger carrier west of Sudbury, so be it. Freight trains might not be so glamorous, but they made money; passenger trains did not. Such a policy was never tried. Hanna was a cautious, careful Lowland Scot who would pay his bills and run a profitable railway. He was replaced by Sir Henry Thornton who was an eye-catching showman. It was all very well to say that Canadian National was politically independent; no doubt it was to a far greater degree than the IntercoIonial ever had been. But Mackenzie King realized very early that the appearance of success for Canadian National would reflect credit upon his government; for every person who studied the accounts there would be a thousand who would notice a flamboyant railway president who understood the uses of publicity. Thornton had those qualities to a supreme degree. He was offered the post, and arrived from London in November 1922. The Presidency of Canadian National has never been an easy post to fill; it was especially difficult at this time. The railway had a low average traffic density. Freight rates were, relatively, lower than they had been up to 1914. It had too many main lines, yet it was very difficult to down grade any one of them without stirring up a political hornet's nest. The position of the Canadian West was particularly difficult. All prices had gone down in 1920-21 but grain prices dropped with a special severity and did not reach bottom until 1923.' It was inevitable, therefore, that there should be an agitation to restore the Crow's Nest rates on grain which had been suspended during the latter part of the war. From the standpoint of the railways nothing could have been more unfortunate. This was an immense traffic, perhaps as much as 60 per cent of total revenue freight ton mileage in a good year.' True, grain was even more important to C.P.R. than to C.N.R., but it was still of decisive importance to both lines. Those 102

The Inter-War Period

rates had been set in 1897. Costs had been rising ever since, and especially so during the war. The rise had far outrun any gain in productivity in the same period. Canadian National made its defense of higher rates as strongly as it could in the Annual Reports of 1923, 1924, 1925, and 1926;3 but in the end, main line points regained the grain rates of 1899; branch line points were put upon the main line scale which was a net reduction; and these rates were by statute directed to be applied to all grain shipping points, not those existing in 1897 only, and to cover westbound movements to Pacific ports as well as the eastbound movements. It was a resounding defeat. With a supportable rate structure Thornton might possibly have tried to run a railway on commercial principles. With low traffic density it would be difficult but not impossible. But with low rates and low density it was a near impossibility. By this time Thornton had begun to take the measure of the country. He saw the degree of support he could get for C.N.R. from any program of capital investment, whether in hotels, branch lines, steamers on the Pacific Coast or what have you. Many of the expenditures on hotels and branch lines were strictly for their effect on public relations. There was not the faintest hope of these properties ever paying their way; but there was a solid substratum of good work which improved the standing of Canadian National, made it possible to give better service, and helped to create morale so that men began to think of themselves as Canadian National employees rather than as Canadian Northern or Grand Trunk men who had been taken over against their will. While Canadian National had been finding its way into a policy of rapid capital expansion, the Canadian Pacific was trying to find out how to live in a world in which its only competitor was bigger in revenues and in mileage and had access to a seemingly unlimited amount of capital, regardless of past or present low earning power. Mr. E.W. Beatty was President from October 1918. He was the fourth president of the Company, following Stephen, Van Home, and Shaughnessy, who had all been founding fathers. When he took office the first two had died within the past three years; Shaughnessy was still there as Chairman of the Board. These men had given their lives to making C.P.R. an institution of nearly impregnable strength. They came as close to success as is possible in this world, even for the fortunate. Now Beatty appeared in that most dangerous of all roles: the conserver of what other men had built. 103

Canadian Pacific

In a changing world there are few roles more thankless. As the years unfolded it was gradually seen that the railway industry was going to shrink in relative importance, not in Canada only, but all over the world. In Canada, motor competition would increase. Railway unit costs were increasing while unit revenues were not. And now a new transcontinental had came into being, more by accident than by design, backed by all the resources of the Government of Canada. In the face of this new and powerful competitor, Canadian Pacific could not remain as completely dominant as it had been before 1914. Some shrinkage was inevitable; but how much of that former position could Beatty and his staff keep? Almost inevitably there was a trial of strength between the two railways, in which both lost; but the stakes were higher for Canadian Pacific than for Canadian National. Canadian National's losses increased the annual deficit and its unwise investments created additional funded debt, both ultimately to be written off. The railway as an operating entity was not affected. But for Canadian Pacific there was no convenient pot of gold under the table. It had to meet its own costs in full. Unwise investments ultimately fell back upon the Company itself. The result of that conflict was a striking increase in the fixed charges of both lines. Between 1923-31, those of Canadian National went up $22.3 million, those of Canadian Pacific $8.0 million.' It was an increase which neither could afford, Canadian Pacific least of all. The year 1928 marked the peak of its post-war revenues. In the following year the stock market crisis ushered in the most prolonged depression that the country had known since the 1870's. It may have been the deepest ever. Its really horrifying quality did not come from the sharp crisis on 1929 but from the length and persistence of the downward movement. To those living through it, it seemed as if the decline would never end. Its effect on Canadian Pacific was deeply distressing. By the end of 1933 its railway revenues were 50 per cent below the high of 1928. Not until 1942 was that high again reached. Dividends on the ordinary stock stopped with the payment of April 1932, and were not resumed until March 1944. Even the preferred stock did not escape, with payments being totally omitted in five years, 1933-35 and 1938-39, and being sharply reduced in three others, 1932, 1936 and 1937. In 1893, the dividend had been cut on the common stock, but not 104

The Inter-War Period

on the preferred. Now, despite Canadian Pacific's intensive conservatism of the intervening years, the careful refusal to distribute all the income earned, and the $262 million raised by the sale of additional common stock in 1903-14, there was no money to pay either preferred or common dividends. Yet all the outstanding securities of the Canadian National, whether issued by itself or inherited from the predecessor companies, were receiving their full interest, not because the property had any earning power—in 1930-32 and in 1938 it could not even earn its operating expenses—but because the Government of Canada was providing the funds by annual appropriations. This was a complete perversion of all that was reasonable. The careful and the provident whose property had been carefully run were denied returns; those who invested in a line prodigally financed and extravagantly run were untouched. It was a completely preposterous situation, but there it was. What creative response could the Canadian Pacific make? It came to the conclusion in 1931 that the only way to head off a progressive worsening of the situation was something as close to amalgamation as was politically possible and proposed that a Royal Commission be set up to investigate the whole railway problem. Sir Henry Thornton endorsed the suggestion, and it was accepted. Not even the joint recommendation of Beatty and Thornton was able to convince the Royal Commission that amalgamation under the control of Canadian Pacific was the answer to the problem.' The evils of the existing situation were clear enough. A great deal of capital had been wasted in the competition between the two railways. Annual operating costs were also sharply higher than would be necessary for a railway monopoly operating under ideal conditions. But there was the rub. An enlarged Canadian Pacific could no longer be treated as a private enterprise. It would have become a monopoly of all rail service by Act of Parliament, and it would be under even more public pressure than the Canadian National had been in the 1920's. So long as the Canadian Pacific had to operate on its own resources it acted as. a measuring stick; unduly wasteful departures from normal operating practices by Canadian National stood out. Its excesses were, to that extent, restricted. But if the two were combined, no matter how it was done or what the union was called, that restraint was wiped out. A minor reason for rejection of this solution was that the bottom 105

Canadian Pacific

of a depression was not the right time to consider so extreme a solution. No matter whether the plan was put forward as a unification for purposes of operation only or as a total amalgamation, it could not produce economies unless the two properties were meshed together and operated as one. Great stretches of line would be totally abondoned; others would be down graded from main to branch line status. It would never again be possible to unscramble them without facing absolutely prohibitive costs. After the Commission reported, the government brought in a bill establishing a regime of compulsory co-operation between the two railways and making provision for arbitration of differences.6 To the Canadian Pacific, this was adding insult to injury. The Company was in effect to be deprived of its property, by law, and was not to get any guarantee of returns. This was the equivalent of confiscation. It was beyond belief, but there it was. For the rest of 1930's, Beatty made speeches periodically "in favour of unification of these properties for the purpose of administration," but it was all whistling down in the wind.' He was getting nowhere. He knew it. but the devil of consistency rode on his back and would not let him stop. Then the war broke out. Both railways had to brace themselves for the coming storm, The sterile combat of the 1930's was dropped with relief. There were now more useful things to do. However, there were lessons driven, home in that experience which would not be forgotten. Canadian Pacific had begun life in the 1880's as a commercial institution which had been chosen as an instrument of national development. It could be proud of its role in building Canada. In its early days it had spent more on immigration than had the Government of Canada itself. So far as was within its power, it had followed a long-run policy of national development. And now, its very success was working against it. It had financed the growth of its property by heavy sales of common and preferred stocks at premium prices, but that did not give security of income to the holders. It seemed instead to make it easier for the government to follow policies which cut down the income that could be earned. The Canadian National was directly owned by the government. In the years 1918-22 capital had been advanced to it to bring it up to full efficiency and Sir Henry Thornton had paid full tribute to his predecessors for the work they had done.' But from then on. more and more capital had been advanced for odder and odder purposes. The 106

The Inter-War Period

initial instalments had been defended as necessary to let Canadian National serve its territory adequately, but that limit had been left behind long ago. Once Thornton was firmly in the saddle money was freely provided for objects which were completely outside such a test. When Canadian National had been set up, the threat of all-out competition with the bottomless purse of government had been a cloud the size of a man's hand; now it obscured the sun. The question was not whether Canadian Pacific could apply capital more wisely and effectively than Canadian National, it was that no test of economic effectiveness ran against the latter. Canadian Pacific faced a competitor with nearly unlimited access to interest free money. No matter how intelligent or how skilful its management, no company could face that kind of competition for long and survive. The new world was upon C.P.R. with a vengeance. Within fifteen years it had been pushed out of its role as the leading railway in the country. Its earning power had been undercut; its very existence challenged. If it was to survive it must learn to be flexible and to do the best it could in the more restricted role which government would allow it.

107

CHAPTER 12

the seeond world war

T

he whole of the 1930's had been a slow and wearing time in which the whole economy dragged along bottom. Nothing seemed to work. The drop into the pit of depression had been horribly deep; and even when recovery did occur it was halting, uncertain, and without staying power. There was a respectable pickup in 1936 and the first half of 1937. At its best it was still sharply below the previous peak; and even then the drop in the second half of the year was painfully sharp and the whole of 1938 was depressed. All through the decade a substantial part of the community's resources of capital as well as of labour were either underemployed or totally unemployed. Inevitably people began to adjust themselves to this condition. The totally unemployed represented only part of the total loss. Many competent people were forced back into low-paid, relatively unproductive employments which amounted to concealed unemployment. The more speculative economists began to elaborate theories of secular stagnation to account for the depth and duration of depression. This movement, they said, could not be regarded as a cyclical depression, not even as one of giant size. It must be the beginning of a retrogression just as powerful as the growth of previous decades had been.' And then the war came; demand increased; by midsummer 1941 all the unemployed resources which were easily reachable were back in use. A desperate search began for ways to upgrade skills in order to squeeze more production out of the available labour force. 109

Canadian Pacific

By 1943-44 the economy was screwed up to the highest pitch it could bear. So sudden a change presented a formidable challenge to Canadian Pacific, and the Company rose to it magnificently. Freight ton-miles, the product of tons carried times average distance moved, soared from 12.1 billion in 1938 to 27.3 billion in 1945, an increase of over 125 per cent. The average number of tons per train increased 31 per cent during this period reflecting the movement of goods in longer and more heavily loaded trains. The increase in the passenger business was even more remarkable, partly because the underemployment of resources before the war was much more severe. Passenger-miles, the movement of a passenger one mile, almost quadrupled, going from 761 million in 1938 to 2,869 million in 1945. In 1938 there had been an average of only 46 passengers per passenger train; by 1944 there were 140. There were substantial costs involved. A rail journey became a bit of an ordeal. Parlour cars were taken out of service and converted to coaches to increase their carrying capacity. This was the only way capacity could be increased because no new cars could be built. Some very old-fashioned cars were fixed up and used on main line trains. At the peak, all main line trains were crowded, and so were most of those on branches. But the railways came through the war without having to appeal for rationing which was the only alternative measure if they had proven unable to meet the strain. It was a near thing, but they made it. The choice of 1938 as a base from which to measure Canadian Pacific's climb to the wartime peaks tends to accentuate the size of the gain in output. As a correction to that bias, a comparison with the previous peak in 1928 shows an increase of 49 per cent in freight ton-miles with only a 6 per cent increase in freight trainmiles, and of 110 per cent in passenger-miles with a reduction of 6 per cent in passenger train-mileage. This greatly increased volume of business was accomplished with a staff which was about 10 per cent smaller. Revenues per ton-mile dropped from 0.965 cents in 1928 to 0.864 cents in 1943-4; per passenger-mile from 2.70 to 1.94 cents, or by 10 and 28 per cent respectively. The result was that aggregate revenues went up much less than the volume of traffic handled, but still at 34 per cent it was highly acceptable. The one slightly chilling aspect was that despite the increase in 110

The Second World War

gross revenues, there was no more net revenue at the peak of the war than there had been in 1928; but taken as a whole, the war produced a striking demonstration of the value of railways when the whole economy was stretched to capacity. No doubt it had been difficult to maintain the great body of capital embodied in them during the 1930's, but the war vindicated that policy. Given even moderately favourable conditions, no other land carrier could equal the railways except large diameter pipe lines. The railway services, though major, were not the only part of the Company which was pushed to capacity during the war. Express, telegraph and hotels also handled record-breaking volumes of business. The railway shops not only kept ahead of the demands for the maintenance of motive power and rolling stock, they also built tanks for the army, engines for corvettes and frigates, heavy armament for landing craft and other items for naval vessels including guns and gun mounts, antisubmarine devices, range finders and fire-control equipment. Building equipment of that kind became a major activity in the railway shops. The Company's steamships played their part in the Second World War as they had done in the First. Twenty-two ships were requisitioned by the British Government and twelve of them were lost in action. In the air, the Company pioneered the transatlantic delivery of bombers by air, the famous "Atlantic Ferry" which did so much to speed up delivery and to reduce the demand for shipping. The Company also had a share in the British Commonwealth Air Training Plan. Canadian Pacific Air Lines had its origin during the war and its work was invaluable in the opening of the Canadian North and especially in the opening of the route to Alaska. This sense of all-out participation in a great national purpose was an immense relief from the frustrations of the long depression. It was almost a return to the spirit which animated the Company's beginnings when C.P.R. was the cutting edge of Canadian ambitions. It was all too clear, however, that the ending of the war would precipitate the Company into a vastly different world. Canadian National was a different operation from what it had been in the 1920's. Its earnings available for fixed charges had reached a maximum of $48.3 million in 1928. In 1943, they were $106.9 million, which was far in excess of anything C.P.R. could show.' Trans-Canada Air Lines had been organized in 1937, and was obviously going to 111

Canadian Pacific

become progressively more important in the handling of passengers and mail, but Canadian Pacific Air Lines was denied access to transcontinental runs. The question of economic efficiency did not enter into the decision; Canadian Pacific was excluded, period. If C.P.R. was to survive in this new era its primary concern would have to be flexibility. It had survived until now in large part because of the immense strength built into the Company in the period before 1914. That had been a lifesaver; but it had also taken its toll. The successors had converted the Company into an institution with more pride than flexibility. But now the lesson was clear. No private company which must finance on its own responsibility and which must pay its own debts can have any position other than that assigned to it by the government which is willing to finance its competitor. In that situation, relative economic effectiveness was almost meaningless. Government decision would determine what the publicly-owned railway could do, and the privately-owned C.P.R. would have to learn to survive as best it could in such an environment. By 1945, C.P.R. had passed beyond the stage of using pride in its past to conceal from itself the radical reduction in its power. It was again a company running a railway on commercial principles, attempting to respond to the demands of the rest of the community for service, and to its own costs. This it could do; the Canadian public seemed to have decided that it should not go beyond that role. The next chapter will carry on that story of evolution into a commercial institution, ready to vary the mix of its assets as well as to alter the kind of service given by the railway in response to the pressures of costs and selling prices.

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the recent past 1945-66

n many ways the last war marked a major turning point in the n relations between the railways and the Canadian economy. Until 1939, it had still been possible to think of them as the primary land carriers and of motor carriers as nibbling round the edges but unable to touch the central heart of the business. After 1946, that distinction was progressively less and less possible. It took a little while for the relative growth of good roads and of inter-city road traffic to register with the general public. The railway strike of August 1950 was the first great eye-opener. It did not have the impact expected because trucks not only moved in to take the obvious light and valuable cargoes, but took over a lot of other traffic on an emergency basis and then retained it permanently by offering special advantages. By the middle 1950's it was clear, even to the unobservant, that a major change was under way. Railway passenger business had become progressively less important than the freight business from the time the first statistics were collected in 1875. Between the wars it shrank absolutely and after the Second World War that contraction resumed at an even faster rate. The total freedom of private transportation in one's own motorcar and the increasing speed and comfort of air transport over the longer distances were upsetting the whole basis of railway passenger service. Passengers were disappearing so rapidly from the rails that, even if passenger train costs had remained stationary, many trains would have to be cancelled for lack of patronage. 113

Canadian Pacific

This loss of passenger business could be borne. Passenger service was expensive to provide because it took a lot of direct labour which was rising in price much more rapidly than were commodities. Whether it ever had been profitable was doubtful; now it was so hopelessly unprofitable that, with patronage dropping away, a very substantial recasting was inevitable; and unless the trend reversed, its ultimate disappearance was in the cards. People were no longer interested in what was offered. The freight business was another matter. This was life or death. The railways proved able to retain most of the heavy tonnages of low and medium value commodities—grain, lumber, sand and gravel, ores and concentrates—though even here they were open to loss. The switch-over from coal to oil and gas cut their coal business to ribbons. What was worse, there was no way they could fight back. Rate reductions can do nothing when the real reason for the switch is the chance to install automatic equipment in place of an increasingly expensive fireman. The great change, however, came in the goods of higher value. Here road transport ceased to be a mere supplement and became an increasingly challenging competitor. As late as 1946-49 the class rates had been thought of as the heart of the railway rate structure and the commodity rates as exceptions thereto, which were compelled by competition. By 1960, the class rates were still printed in the tariffs, but they were largely "paper rates."' Motor competition had forced the setting of so many competitive rates that the great bulk of the traffic moved under them. The class rates covered the few unimportant exceptions. From the beginning of the railway era rates had been set on the value of service; now they were set by the costs of motor carriers; and a growing proportion of the traffic in goods of higher value went to the trucks because they were faster, more flexible and more convenient, not for reasons of price alone.' Shippers were no longer comparing rates, they were comparing total costs of distribution. A major change of this kind does not proceed under laboratory conditions so that, with all other factors held constant, its net effect can be easily measured. By 1946 the new theories of economic management, which are associated with the name of the late J. Maynard Keynes, had totally triumphed. In that theoretical system, a business depression was not to be regarded as an inevitable consequence of past unwisdom; it was proof of the failure of aggregate 114

The Recent Past 1945-66

demand. Therefore, the answer was not to suffer without complaint, it was to have the central bank expand the volume and reduce the cost of credit. With a rising volume of low cost credit available capital expenditures would increase, the aggregate demand for goods and services would rise, and unemployed resources of all kinds would be mopped up. Depression was no necessary period of correction, it was the result of a failure by the central bank to show courage and resolution in forcing out purchasing power. The first tentative steps in the application of this theory had been taken during the war and had worked so well that by the beginning of 1941 most unemployed resources had been taken back into productive use, and by October price and wage control had to be introduced to keep the economy from blowing apart in a wild price inflation. There was a willingness which verged on eagerness to apply the same ideas to the emerging problems of the peace. The conversion of the economy from war production to peace was going to be difficult enough in all conscience. Why complicate it still further by adding an unnecessary depression with its unemployment and misery? The central bank kept credit very easy indeed; and, despite the massive readjustments needed, there was only a minor fall in output before the country took off on an upward movement of production which ran almost without a break until 1954. If one fixed one's eyes solely on the course of the index of physical volume of production, one would be compelled to described the experiment as a complete success. There was no loss of output in depression and no mass unemployment. The consequences of the extreme ease of credit and increases in its quantity showed up in sharply rising prices. Had all prices been equally flexible this would not have been a serious matter; but when some are conventional and sluggish in movement and others are under institutional restraints, very substantial inequities can be produced by unequal movements. Those who profit by early and large increases are very greatly benefited immediately; those whose selling prices are held down are proportionately hurt. And even those whose money remuneration rises quickly find that it is not all pure velvet. All income payments have two faces. They are costs to the employer as well as income to the recipient; and the employer has the constant problem before him of balancing income and outgo. If wages per hour rise, he must find ways to increase 115

Canadian Pacific

output per hour also, or else he must raise selling prices. If the rise in selling price meets with resistance he may be compelled to reduce the amount of labour he employs. A price or wage increase may be just the beginning of a complicated and difficult adjustment which those who initiate it do not and cannot control. Railways were one part of the economic society in which the adjustment to the new level of prices was particularly difficult for a number of reasons. The first was that the institutional structure for the regulation of rates was unconsciously founded on the assumption of a price level which was roughly stable and which was not subject to a conscious upward pressure by government as part of a policy of guaranteeing full employment. That structure had been elaborated when the country was still on a gold standard and when public management of the price level would have been regarded as a gross invasion of the rights of the citizen. It was not designed to accommodate the consequences of a massive upward movement in wholesale prices such as took place between 1946-51 and which has continued in lesser degree since then. Even with foreknowledge and a will to provide for such a situation it would have been extremely difficult to alter the machinery for that purpose. In any case, under the law as it stood, the Board of Transport Commissioners could not entertain an application for a set of progressive rate increases in step with the change in other price indexes. It could only consider such increases as had taken place up to the time the petition was filed. One result of this procedural limitation was that the first application for increased rates was filed in October 1946. The increase, when granted, came into effect in April 1948. But between those two dates, the general wholesale price index rose from 141.6 to 187.5. Within four months of the effective date of this increase, a second was filed to take account of the price and wage increases which had taken place while it was under consideration. The second reason is that the Board of Transport Commissioners is a specialized court. Proceedings before it are legal proceedings from which appeal to the Supreme Court is allowed on questions of law but not of fact. Primary reliance is put upon the adversary process to elicit the truth. Those who will, in the first instance at least, be paying the increased rates are given full right to be heard and adequate time to prepare their cases. As shown above, this is a time-consuming process, and counsel for the shippers would not 116

The Recent Past 1.945-66

have been worth their salt if they had not seen that, with all prices rising, delay of any kind was a positive gain to their clients. On the other hand the greater the gain to their clients by exploiting the opportunities for procedural delays, the greater was the inequity to the railways. If rising prices are of such value to the whole community that they must be compelled by action of the central bank, then all prices should be allowed to move freely. It was a gross inequity to leave movements in some of them subject to serious impediments imposed by law. Third, the most important single traffic handled by Canadian railways is grain out of the Prairie West which is handled at rates fixed by a statute of 1925 at the level of 1899.3 They were good rates when they were introduced, both for shippers and for the railways. The rise in prices between 1899 and 1925 had made them dangerously low at that latter date. Had they not been imposed by statute, the Board of Transport Commissioners would have been compelled to consider whether they should not have been brought into the same relation to other rates that they had had at the time of their introduction in 1899. The further rise in prices after 1946 put them still farther below all other rates. Since the grain movement at statutory rates covered so large a part of the total traffic moved—the range was from 27 to 47 per cent of total revenue ton-miles from 1951-65—the straight percentage increases which were granted on other traffic had to be proportionately larger because this grain traffic was excluded.4 However, before unbearable inequities were produced for this reason, percentage increases had to be given up because, by the early 1950's, their principal effect was no longer to increase railway gross revenues but to speed up the diversion of traffic from the railways to the trucks. This question of statutory grain rates is especially important to Canadian Pacific because it is much more deeply committed to this traffic than is Canadian National. While smaller in total revenues it has a larger grain traffic at statutory rates than has Canadian National. If it was difficult and finally impossible to maintain railway solvency by increasing rates, the alternative route to the same end of reducing costs also generated enormous resistances. The general problem was one of responding intelligently to changes in the general economy of the country. Hard surface roads, 117

Canadian Pacific

and motor cars and trucks to use them, had created a new world since the broad outlines of the railway network had been roughed in before 1914. Wages were rising steadily until average hourly rates in 1965-66 were about at the level of daily rates at 1914. These major changes called for a complete re-thinking of the place of railways in the community. Yet the people who welcomed the immense programs of capital investment which were the chief underpinning of the prosperity of the post-war period, and who accepted with joy a much more rapid increase in wages than in commodity prices, were loath to accept the inevitable consequences of these major changes in relationships. They had a perfectly natural desire to have their cake, and eat it too. It was their misfortune to live in a world in which actions have consequences; and those who will the act must also be ready to abide by the consequences. If there is to be a high rate of capital investment by a technically progressive society, then there must also be massive continuous changes in the way in which people earn their living. This resistance to change showed up most markedly in two separate areas, the abandonment of outmoded branches and the redeployment of railway workers. Railroads are mass carriers. Where volume of business is inadequate they are clearly wasteful; where there is very high volume they are remarkably effective. Yet there has always been the greatest difficulty in getting permission to abandon any branch, however hopeless. Sometimes the resistance has some show of justification in that a few shippers still rely on it; sometimes it is a pure case of inertia. Nobody really needs the branch or ships much over it. but the local municipality just hates to see it go. People like to hear the engines whistle even if they would not be caught dead on a train. and have not shipped traffic over the branch in years. There are substantial economies available if railways are finally able to bring the pattern of their lines more closely into line with current conditions; but no one can expect an early or a large success. The resistances are just too great. Cost reductions by the redeployment of labour have proven equally difficult. Because all the railway unions are long established, they are craft rather than industrial unions. A craft man with divisional seniority has definitely limited interests. His primary interest is in the pay for and the security of the job he now holds and of those jobs for which he may bid in his seniority district. The general pros118

The Recent Past 1945-66

perity of the railway as such is of interest only if its total failure is likely to put him out of a job. The greater his seniority, the less his dependence on the prosperity of the industry. Second, the railways have national wage scales. In prosperity, this means that they may have real difficulty in filling their needs in the areas of most active labour demand while having the pick of the market in the stagnant areas; yet it is seemingly impossible to adjust relative rates to the state of regional markets. A growing industry can adjust itself to problems of this kind. A stationary one can get along. But when it is in rapid retrogression then resistance to all change produces a nearly impossible situation. The industry can live only if it responds to those major changes which are taking place in the rest of the economy and which it cannot control. Yet the limited interests of most of its strategically placed senior employees leads them to fight all change. The opposition of diesel "firemen" to any recognition of the forces of change was typical of a general position. The only difference between the firemen and the other trades was that a specific technical change exposed them more starkly. In steam operation, firemen were totally essential workers. On diesel power they were doubtfully useful on passenger trains, quite useless on freight trains, and a harmful hindrance in yard service. Yet they fought a prolonged, bitter, rearguard action against progress for years on end. They were unwilling to concede even the smallest point until, at last, a hardening public opinion made their leaders see that a total intransigence was becoming dangerous. But even when they did grudgingly concede that there was nothing for these men to do, the sole concession was to permit the railways to stop hiring additional men to draw pay and contribute nothing in the way of useful service. Those already hired as such should continue to—work" as firemen until the slow processes of time should remove the existing engineers from the employment roll to the pension roll and let those now "firemen" work as engineers. The nature of railway operations was changing. A great deal of traffic was drifting away to the motor carriers; a great deal of what was being held was retained only at the expense of deep cuts in rates. The railways desperately needed operating flexibility and cost reductions if they were to adjust effectively to the new conditions. But to the leaders of the unions all this was irrelevant. Their job was to bargain for their men. Through years of bargaining they had 119

Canadian Pacific

gained a very desirable position for their members. They would not accept any change in working conditions, no matter how much it might help the railway as a business, if it made the jobs less attractive. Running the railway was the job of railway management. If it elected to cut rates that was its business. But the fact that traffic was slipping away was no part of the union's business. What it had. it would hold. From the standpoint of railway management it all added up to total frustration. Everybody professed to see the railways as totally necessary parts of the Canadian economy. But every separate special group in the economy wanted to compel the railways to serve its special needs and interests regardless of cost. They wanted the railways to maintain all existing branches and, where necessary, to build others; to maintain passenger train mileage 'on the highest scale even when some trains were so ill-patronized that the conductor got lonesome for someone to talk to; to be "good" employers, matching the highest wage scales offered anywhere in Canada; to leave the requirements of particular jobs unchanged even when newer operating techniques radically reduced the effort involved; but not to raise freight rates and to reduce passenger fares in the hope of attracting back to the rails some of the people who had abandoned them. Stated bluntly in this fashion it all sounded like Lewis Carroll: Speak harshly to your little boy And spank him when he sneezes. He only does it to annoy Because he knows it teases. These were mutually incompatible objectives. They could not all be honoured without additional revenue. Canadian Pacific, which was privately owned, would have to cut its coat according to its cloth. No matter what others urged, it only had the power to do those things which its income would support. For Canadian Pacific's management this was a time of agonizing reappraisal. No large company can insulate itself from the currents of opinion flowing around it, least of all a large railway company. The Company was being exhorted to do so many things, but the relation between its costs and revenues spelled out with searing clarity what the public was in fact ready to let it do. The gap between the exhortations and available revenues was unbelievably wide. 120

The Recent Past 1945-66

What would the Canadian public elect to have when the chips finally came down? It had demanded the maintenance of competition between Canadian Pacific and Canadian National in the 1930's, clearly understanding that that course imposed certain costs. Now conditions had changed. Railways were now a much smaller part of the economy. Motor traffic had picked up a large part of the traffic in goods of higher value and the Canadian people seemed to have become conditioned to provide large amounts of new capital for Canadian National and, as well, to cover its substantial annual deficits, out of tax revenue. Did it all build up to a situation in which C.P.R. would be allowed to starve to death quietly? Only time could answer these large questions of principle, but in the meantime C.P.R. buckled down to the job of keeping itself worthy of the right to survive. People can die of rare and wonderful diseases; but large companies die of simple malnutrition. They lose control of their costs until costs exceed revenues, and after a certain point the process becomes cumulative and collapse ensues. The Company therefore set itself to keep its costs below its revenues. Those parts of its service which consumed manhours most extravagantly had either to be abandoned or reworked to reduce their demand for labour. It meant many things: a sharp reduction in passenger train-mileage; substitution of self-propelled rail cars for the more expensive locomotivedrawn trains; longer freight trains so planned that they needed less switching effort in intermediate yards; a fundamental reconstruction of the whole system of handling express and less-thancarload freight to speed it up and to cut down its demand for labour; at least the beginnings of a system in which station services for an area would be centralized using modern communications equipment so that the services formerly performed by station agents could be performed more efficiently; and so ad infinitum. The major economies realized were not the result of a few big decisions; they were the accumulated total of a nearly infinite number of small economies implemented by years of thought and effort. It was not easy. Sometimes it seemed as if a program had no sooner been fairly launched before the next escalation of costs made it necessary to start all over again; but what can one do except keep everlastingly trying? 121

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The second duty was to acknowledge the shift in the probable source of earnings and adjust policy accordingly. The railway was still the largest investment the Company had, and would remain so. It was a good property, well built and carefully and conservatively financed; but currently its earning power was not good. Management's primary responsibility was to keep on trying to raise the productivity of this asset. This was a duty owed to the economy which expected steadily rising real wages to the employees and to the shareholders on whose money the Company was operating. But in the meantime, were there not substantial other assets— hotels, steamships, airlines, telegraph lines, the investment in Cominco and in lands and forests—on which it might be possible to move more quickly? They might be a minor part of the total investment, but they still added up to a respectable total. Could they be handled adequately so long as they were merely addenda to a railway company? Was it not inevitable that the pull of the major investment with all its problems would push them into the background? The proper organization was by function. Let one set of executives give its whole time to the railway. Bring together other sets, each one charged with responsibility for a particular group of non-rail assets. At the top of the pyramid, the results of all the several functional groups would be merged; but in day-to-day operation each would be struggling to establish a respectable earning power as proof of its managerial skill, and partly also in order to establish its claim to additional capital from the central pool should it be desirable. This was the thinking which resulted in the formation of Canadian Pacific Investments Limited. It was designed to keep the non-rail assets from being run with the left hand by executives whose primary interest and attention was given to the railway, which is as good a way as any to see that neither segment is run as well as it deserves to be. The structure of Canadian Pacific Investments will be discussed more fully in Part II.

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part II other activities

CHAPTER 14

the lands

he Canadian Pacific agreed to build a railway to the Pacific Coast and to operate it perpetually in return for a subsidy of $25 million in cash and 25 million acres of land. In making this offer the Canadian government was following a precedent firmly established in the United States in the period 1850-71. Each country adopted a homestead policy of land settlement, the United States in 1862, Canada in 1872, so that there was no thought of holding land for profit. Each one wanted to encourage settlement and asked no more than that the land should provide the cost of its own development. Each government had land in abundance. While it remained unsold it was a source of expense; when it was settled it became productive. Land subsidies to railways were a way to kill two birds with one stone. No one could have so strong an incentive to go out and get settlers as a railway, for until it got settlement its railway either could not get built, or, if built, was left to wither on the vine without traffic and without earnings enough to maintain the property. As to the size of the subsidy given, the 25 million acres was a 'smaller amount than had been contemplated in any of the railway schemes of the preceding ten years. The first bid by Sir Hugh Allan in 1872 had called for a grant of 50 million acres. When British Columbia entered Confederation, the Dominion undertook to pay it a subsidy of $100,000 a year for conveyance to it of a belt not to exceed 20 miles on either side, but equal to the area appropriated in Manitoba and the North West Territories, in aid of the railway. In the 125

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Liberal program introduced in 1874, the cash subsidy was set at $10,000 but the land grant was 20,000 acres per mile.' When the Conservative party returned to power, one of its first acts was to reaffirm its determination to build the railway "by means of the land through which it had to pass," and the House approved a grant of "one hundred million acres of land, and all the minerals they contain . . . . for the purpose of constructing the Canadian Pacific Railway."2 For the people of the time, the size of the land subsidy given was of minimal importance. Cash was another matter. People thought twice before giving cash, but land was of no immediate value. In the years 1879-81 government sales of prairie lands averaged only $1.20 per acre. Even after the railway was complete in 1886, it was generally considered that when the government took back 6,792.014 acres of the original grant as an offset at $1.50 per acre against cash advanced the previous year, it was doing the railway a favour. There was so much land available: and so few people. The main line grant was not an isolated thing. It was merely the largest among a great number of subsidies given to encourage the construction of railways to order to achieve national objectives. A subsidy was offered the Canadian Pacific and earned by it for the building of the Souris Branch in Southern Manitoba which passed through lands too far from the main line to be served by it. It earned land subsidies offered by the Governments of Quebec and British Columbia. It also took over a number of companies to which grants had been offered, built the lines, and earned the respective subsidies. In addition the C.P.R. purchased the stock of companies which had already built their lines and by so doing acquired both the railway and whatever was left of the land grant at the time of the purchase. A total of 36.370,828 acres came into the Company's hands by various routes. (See Table 3 for breakdown.) If one thinks wisely about so large a property, one must ask the right questions. Not, what would one do today if handed so much acreage? Nor, what would one have done then if given that much acreage with clear foreknowledge of what the future would bring forth? The intelligent question is twofold. First. to the government, could it at the time have afforded to double cash subsidy and given no land whatever? Second, to the Company, did it handle its lands wisely and responsibly so far as the knowledge of the time would permit? 126

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TABLE 3 Summary of major land grants to Canadian Pacific Railway

Acres MAIN LINE GRANT

25.000.000

OTHER GRANTS FOR CONSTRUCTION By the Federal Government Souris Branch By the Province of Quebec St. Maurice Valley Railway Northern Colonization Railway Quebec Central Railway Interprovincial and James Bay Railway By the Province of British Columbia Vancouver Townsite Columbia and Kootenay Railway and Navigation British Columbia Southern Railway Columbia and Western Railway

1.609,024

56,022 96.000 87.000 306.760

6,270 188.593 3,755,733 1,315,273

GRANTS MADE TO OTHER COMPANIES BUT EARNED BY C.P.R. AFTER PURCHASE OF THE CHARTER By the Federal Government Manitoba Southwestern Colonization Railway

1,396,800

GRANTS EARNED BY OTHER COMPANIES WHICH LATER PASSED IN PART TO C.P.R. BY PURCHASE OF THOSE COMPANIES STOCKS By the Federal Government Great North West Central Railway Manitoba and Northwestern Railway Saskatchewan and Western Railway Calgary and Edmonton Railway Alberta Railway and Irrigation Company By the Province of British Columbia Esquimalt and Nanaimo Railway DIRECT GRANT FROM THE CROWN ACQUIRED BY PURCHASE; GRANTEE, THE HUDSON'S BAY CO.

320.000 3.153 98.880 407.402 181,249

1.440,495

102,174 36.370,828

Source: Records of the Company.

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The great difference between land grants in the United States and in Canada was that in the former the land was granted on either side of the line as built. The quality of any given section received was, therefore, a gamble. Taken together, the railway lands would represent the average quality of land in that particular territory, but the differences between sections could be very wide indeed. In Canada, on the other hand, from the very beginning the intent was that the grant should be "of the fair average quality of the lands in the sections of the country best adapted for settlement" as stated in the charter of Sir Hugh Allan's projected railway in 1872, or "fairly fit for settlement" as stated in the Canadian Pacific charter of 1881.3 There is one further aspect which is of no importance now, but which was of the first importance at the time, namely that the manner in which the grant was made compelled Canadian Pacific in its own self-interest to act as land agent for the government. Its primary concern was to get settlers in and traffic flowing out. Obviously no one was going to buy land from the railway until after government lands available under homestead had been taken up. Therefore it had to push government lands first and then hope to sell its own lands later.' The Canadian situation was also different from that of the United States in that, in that country, there were many railways in competition with each other for land sales as well as for traffic. They had very little choice in the matter, and most of them set up land-selling organizations to move the land fast. It was commonly said that it was only after the third transfer that solid permanent settlement began. In Canada, Canadian Pacific stood in a special position. Through the whole crucial period from 1883 to 1902, its line to Fort William was the only connection inside the national boundaries between the Prairies and the outside world. Therefore, any settlement was bound to contribute traffic to its main line. The simplicities of a land organization which could single-mindedly push the sale of land and let the devil take the hindmost were not for it. There were other relatively minor sellers of land, but if they were successful in getting productive settlers they were also benefitting C.P.R. Given this nearly unique position, its own interest reinforced the desire of the Company to encourage the successful settlement of productive farmers rather than to sell land and then leave the rest to chance. Land sold to speculators might hang fire for years and the 128

The Lands

railway would be denied a much needed recurring profit on the transportation of necessities inbound and of grain outbound until it was finally put into use. This would far outweigh any single profit in the sale of land. This is equivalent to saying that Canadian Pacific had a land policy of which a far-sighted government interested in the development of the country could well approve. At the time, it was not regarded as an unusual situation. It was merely considered as another example of that coincidence of public and private interest which explained the unparalleled progress of the modern world. The history of the administration of C.P.R.'s prairie lands falls into two broad periods dividing naturally at the end of 1896.5 Until that date external conditions were so adverse that there was little the Company could do. After it a totally different policy became possible. In the initial period the Company was experimenting to find the most effective way of disposing of its lands. Obviously what it wanted above all was rapid settlement by people attached to the land, who would break it quickly and pour an ever increasing flow of grain upon the market to find its way to the Lakes by rail. The question was how to bring this about. Especially, how was the Company to make it easy for settlers to get on the land without attracting a horde of speculators who would tie up desirable acreage and then wait for land values to rise. Such people would produce no traffic for the railway, and would get in the way of settlers who would. In March 1881 a Land Agent was appointed in London, England and by autumn of that year an advertising campaign had been launched in Great Britain. By April 1881 the Board of Directors had authorized the advertising of its lands in the principal newspapers in Canada at a price of $2.50 per acre with a rebate of $1.25 for every acre brought under cultivation within three to five years from the date of purchase. More important, the purchase could be made in easy instalments and special transportation rates were extended to prospective settlers and their effects. In May 1881 the Company's first Land Commissioner was appointed at Winnipeg. In January 1882 revised regulations regarding the sale of land were put into effect stating that the settler would be required, within four years from the date of purchase, to bring under cultivation one-half of the purchased acreage. They also closed the one loophole of the specu129

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lator by inserting a provision giving the Company the right to cancel any contract if the purchaser failed to carry out the condition in regards to cultivation within the specified time. But even here the power was to be used temperately. An allowance was to be made to the speculative holder for the value of any improvements carried out. These provisions were, broadly, the same as those of the St. Paul, Minneapolis and Manitoba. They had worked for that line, mainly because its territory had been under settlement since 1860 and, with most of the free lands already taken, the railway lands were in great demand.' Canadian Pacific faced a different situation. After the flurry of sales in the land boom of 1881-82, sales of the railway's own land practically ceased. From then until 1888 the principal job of the department was to push homestead lands owned by the government. After that year it had some success in selling railway lands to people who had been successful on adjacent farms and who wanted to expand their acreage. Lack of success did not spring from lack of effort. The price of land was reduced. The terms of payment were extended. An attempt was even made to sell land without cropping conditions which was on the edge of being an act of desperation. Nothing worked. At the end of 1883 the Company had reported the sale of 3,631,640 acres. At the end of 1896, its net sales to the public, excluding the land turned over to the government, came to 3,623,066 acres, a small net reduction. Gross sales in the period included certain large sales made to colonization companies. The Company would have preferred to sell to settlers, but the need for cash was overwhelming; even so, the tide was running so strongly against the West that, over the whole period, cancellations exceeded gross sales. The slight upward movement in the first ten years was overborne by a great wave of cancellations after 1893. The Company was able to sell $10 million par value of bonds secured by the land grant in 1881-82 when the boom was on, another million in 1884-85, and $15 million in 1888 for a total of $23,676,359. Apart from this cash inflow, the land grant was a burden until 1896 and did not contribute further cash toward railway construction. All funds received from land sales were allotted by the Company to the retirement of bonds and as a result of heavy cancellations, the cost of retirement of bonds to the end of 1895 exceeded the funds flowing from the lands. Only in 1896 did the trend 130

The Lands

improve and thereafter for some years the land grant yielded good results. So far as this early period was concerned, nothing could have done half so much for the C.P.R. as the sale of the whole grant at $1.50 per acre. No doubt it would have been questioned by the Company's officers in 1882 when the boom was at its peak; but the wisdom of making the sale even then would have been abundantly clear within two years, and still clearer in each succeeding year to 1896. It is difficult to overstate the magnitude of the change in the economic prospects of the Prairie West which occurred about 1896. 7 First of all, the climatic cycle which had been heavily adverse turned its favourable side. Rainfall in the growing season increased and early frosts became less frequent. Second, and perhaps more important, the knowledge of how to farm in dry country had been accumulated and began to be widely applied. Water was the limiting resource in most years, but summer fallowing would conserve it. Wheat that was drilled in was in contact with the moisture in the soil and developed. Seed scattered broadcast withered in the drying winds. Finally these tillage and cultural practices became widespread so that moderately unfavourable weather no longer took a severe toll. Red Fife wheat is now only a name, but in its day it was an answer to prayer. It was the first early maturing wheat and, as such, was a partial answer to the danger of early frosts. Newer varieties have since been developed by plant breeders, backed up by an expanding knowledge of plant genetics; but Red Fife was the wheat that began the plant revolution which created the modern Prairie West. Finally, the long decline of prices ended and a modest turn-up in the markets of Western Europe was converted into a major change in the West by declines in marketing and transport costs. and particularly in ocean freights.' The combined effect of all these factors upon the profits from grain growing was startling; with profits more certain and rising, land began to sell more freely. Population flowed in. With more traffic available. railway mileage expanded. With new railways being built, homesteaders were able to go to work on railway construction at least between planting and harvest. if not longer. Under the techniques of the time any willing man could be used, and a man with a 131

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team was more valuable than one who had only his own labour to offer. Ownership of that utterly necessary first team of horses was not, under these conditions, a burdensome capital outlay—it was something that could be made to return its costs in less than twelve months in additional earnings off the farm. Having this source of money income, homesteaders were able to push on with the erection of the first house and stable, and to break more land, more quickly, than would have been possible if they had had to depend on financing further development out of the first crops. The very fact that the rate of growth had picked up made more rapid growth possible. Under these favourable conditions the land grant began to be a source of cash rather than a drain. The Company could, therefore, pursue its policies of encouraging settlement with a much greater degree of freedom. The lands were now paying for their own development; because they were selling well it was worthwhile putting effort behind the sale. In the late eighties and in the middle nineties money spent on promotion had been money thrown down the drain. Now, it was a wise investment. In the four and a half years from January 1, 1897 to June 30, 1901, the Corhpany sold 1,491,000 acres, from its own lands and those of the Manitoba and Southwestern. In the fall of 1901 this great and growing development moved over into a wave of open speculation; the profits of grain farming were so lush and the growth in cultivated acreage was so rapid that people of all sorts began to buy land and hold it against a rise in price. A second factor also contributed greatly to the new situation. There were very few large compact blocks of unsettled land left in the United States. The big American land companies had developed great skill in marketing such blocks of land, but scattered acreage defeated them. If they were to continue in business Canada was their next area of activity. There was a certain razzle-dazzle quality to their methods, and their costs were not low; but when conditions were favourable they could sell a great deal of land in fairly short order.9 By the fall of 1901, land companies and individual operators began to move into Canada. At first the memory of the unsuccessful land companies of the 1880's made C.P.R. hesitant in dealing with them, but soon their obvious skill, and the strength of their connections in the area of the Middle West most likely to produce effective 132

The Lands

settlers, beat down all resistance and increasing sales were made to them. In the four and a half years January 1, 1902 to June 30, 1906 the Company sold a total of 8.3 million acres of which 2.3 millions were sold to land companies. It was a highly satisfactory relationship for all three parties. A compactly settled block was desirable from the standpoint of the settlers themselves. It was easier to provide roads, schools, churches and all the other amenities when the land was fully occupied. The land companies made a profit. The C.P.R. cooperated with them to the full, so that they could advertise that the railway would offer "all special rates, stop-over privileges, etc. granted by the C.P.R. Co. to intending settlers on their own lands."1° For the railway, the real gain began when traffic developed. All else was preliminary. Railway traffic was profitable, and especially so when it brought traffic density up from the point where a line was just breaking even to the point where it was returning normal profits. As the Company's financial position became easier, it extended longer terms to prospective settlers so that they would not be cramped by land payments at a time when the need for funds for improvements was most urgent. As early as 1896, bona fide settlers were allowed two years in which to make their first payments on the land. The Company did not wait until it was prosperous before attempting to make it easier to settle; it went out and met rising prosperity by easier terms before its own financial position was fully comfortable. The second major action which followed from the rising prosperity of the West was the development of irrigation in the territory east of Calgary. It was clearly so dry that growing crops without irrigation was a chancier operation that it was between Winnipeg and Moose Jaw. If the rain came during the growing season it was possible to get a good crop even when sown on stubble land; but the risks were very great. Even crops grown on summer-fallowed land might fail when the rains did not come, or came at the wrong time. Left alone, it was ranching country and as such a perpetual temptation to the railway, for it could never produce an adequate local traffic. But if it could be effectively brought under the plough with irrigation, the traffic yield per acre could be as high as anywhere in the West, if not higher. In 1903, the Company took the plunge. It accepted the major part of its still unallotted main line land grant in one solid block in the 133

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irrigable belt and rounded it out by buying the Hudson's Bay Company lands which lay within the block. The Company was now committed to the largest irrigation scheme anywhere in North America. Once in, it embarked on the development with great energy. At first, a land company was used as a sales agent, but soon it built up its own organization and managed to do the job more economically. This effort at development went on along an extended front. On the one hand went the building of a major system of irrigation works which had to get well along before land could be sold. The other phase of the operation was not merely to sell the land but to sell it so that it would be successfully worked. The irrigation works were divided into three basic areas—Western, Central, and Eastern—to be developed in sequence, the westernmost first because it was closest to the first point on the river to be dammed. Each block contained roughly a million acres and an effort was made to set up farms which were half irrigable and half pasture land. Eventually it shrank to two projects, the Western and the Eastern, and an expenditure of over $20 million was made in the construction of the requisite works and ditches in these blocks. Getting the land ready was only the first part of the operation; the second was to get people who would not only buy it, but who would go to work on it. Inactive speculators, holding land for a rise in value, would have spoiled the whole operation. Accordingly the Company worked out various devices to get working farmers onto the land under the most favourable conditions. Even in the first years, when it was using a land company to recruit settlers, that company acted as an exclusive agent only. It did not buy land and then resell; the settler's contract of purchase was made directly with C.P.R. Indeed the contract with the sales agent was so drawn that it could be abrogated at any time on fifteen days notice if the Company's Superintendent of Irrigation became dissatisfied with either the methods used or with the results attained by the land company. Second, the purchase by the settler was made initially on a tenyear contract, one-tenth down and the balance in nine equal annual instalments. As the work developed, and especially after the Company took over the whole work of recruitment, the effort to ease the way of the settler on to the land was carried even further. The C.P.R. was now ready to arrange through its Department of Natural Resources to have land broken, fenced, and the first crop sown by 134

The Lands

others, under contract. It would supervise the work and charge only enough to recover the average out-of-pocket expenses required to see that it was done properly.' The Company also introduced a crop payment plan under which the buyer made the usual 10 per cent down payment. Thereafter he delivered one-half his grain crop to the nearest elevator and so continued until his land was paid for in full. It was as close to a partnership as one could come while still leaving the occupant free to assume full ownership as soon as the land was fully paid for. The next step was the development of ready-made farms—completely fenced, the well dug, equipped with a house and barn, and with the preliminary breaking and seeding done, the whole as part of a compact colony—so that the new settlers would begin life as part of a ready-made community and not on an isolated homestead. In addition the Company set up demonstration farms under the auspices of experts, providing valuable aid to farming operation in the surrounding districts. Unfortunately, this whole scheme possessed the defects of its virtues. If the Company was to attempt to select people who were likely to be successful, was to advance money for the development of their properties, and was to take payment on a crop-share basis, it was no longer dealing at arm's length with the purchasers. It was, instead, actively trying to ensure their success as farmers. For better or for worse, cases were bound to arise in which the Company was compelled to make the major management decisions because the purchaser either would not decide for himself, or could not be trusted to do so wisely. What had begun as a land development scheme had slipped over the line and became a sociological experiment. The process could begin even before the man had himself arrived. One of the regulations of the development department read: The Company does not encourage purchasers of lands to break the same after the end of July. The most favorable time for breaking is between the middle of May and the first of July. The Development Department stands for the best farming practice only. The Company's ambition is that any work undertaken for absentee landlords should bring as good, or even better, results than if such work were performed by them personally. Such being the case, it positively refuses to undertake any farm development work too far out of season to serve its purchasers." 135

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It was equally forthright in its preference for people who were ready to walk before they tried to run, announcing that it was "vastly more interested in a successful farmer on a small farm than in a speculative buyer on a large scale. The latter is not wanted.' The same intense care was shown for the success of the farmers placed on ready-made farms. In recruiting in the British Isles, an attempt was made to get people who possessed a reasonable minimum of capital to ensure their success and who also had agricultural experience. Urban workers who had the capital but who lacked experience were not encouraged. The intentions were praiseworthy; the execution was not and could not always be the same. What was ultimately required was energy, initiative, and, above all else, flexibility. Those who were able to adjust quickly and who were prepared to persevere in the face of the inevitable discouragements of the early years were the ideal settlers; but it was easier to measure in advance the amount of cash in the bank and the years of agricultural experience than it was to assess these intangible but more important qualities of spirit and intellect. To attempt to measure in advance the degree of fitness for settlement in a new country is very close to attempting the impossible. Before the process was over the Company had reason to wish that it had remained a soulless corporation which let the buyers make or mar their farms on their own undivided responsibility. Those who succeeded were very sure that their success was the result of their own intelligence and good judgment. Their memories of their relations with the Company tended to select the occasions when the advice of its employees was less than perfect. And those who had been rightly dissuaded from making the attempt at all were not there to express their gratitude, so that a balanced judgment on the Company's performance was not possible because the full information was not available. The great boom broke in 1912-13. It marked the end of an era, although that fact was only slowly recognized. The war broke out in 1914, but when it ended in 1918, most people seemed to expect that normal life would take up where it had been broken off. The realization that a new world had come into being was only slowly accepted. The year 1923 is as good a marker for the transition as any, but it marks only the first step toward readjustment. The C.P.R. had two main problems in its land operations after the 136

The Lands

First World War. The first was that its best lands were now mostly all gone. It still had a great deal of land sold but not yet fully paid for so that the administration costs could be shared between this and that yet to be sold. Had the latter only remained, it would have been best to sacrifice it for what it would bring rather than to meet carrying charges and management costs. The second problem was that the great shift in price relationships, which was the most enduring product of the war, had made agriculture a much less profitable employment than it had been before 1914. This factor struck with special force in the irrigated lands. Land values per acre were higher than elsewhere and water rentals came on top of the normal annual charges. The result was a very heavy burden of costs which created grave difficulty. The success of the various irrigation schemes was in direct proportion to the necessity of water for successful farming. Most successful of all was the old Alberta Railway and Irrigation tract near Lethbridge which C.P.R. had taken over in 1912. Some 80 per cent of the area served by canals was under water contracts by about 1920. Water here was essential. A sugar factory had been set up and the extensive beet acreage to support that plant did well under irrigation. This tract may be accounted a clear success. The Eastern Irrigation District was distinctly less successful. Water was first supplied in 1914. By 1924, out of 400,000 irrigable acres, 124,000 has been sold. While 93,000 of them were irrigated in 1922, the figure dropped to 43,000 in 1923 when rains were heavy and in 1924-26 ran between 73,000 and 84,000. It was a very low proportion of the total irrigable area to carry the costs of the scheme. The root of the difficulty was that irrigation is a much more laborious way of making a living than is extensive grain farming. There was resistance to it on that ground. If one is to endure that labour there should be a high-value crop to compensate; but the general economic environment would not support truck crop production, and grain and alfalfa had not a sufficiently large additional valueproduct per acre to cover the additional cost of water and extra labour. The Company continued to make strenuous efforts to attract new settlers. Likely settlers were put on the land on a lease basis with payments on a crop-share basis. If they succeeded, the payments were credited toward the price of the land on an eventual sale. 137

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Indeed in some cases, an advance of $1,000 against equipment, feed and seed was made to specially selected settlers without any down payment on the land. But it was an uphill battle against a fundamentally unfavourable economic environment. The Company began adjusting outstanding contracts downward as early as 1927.'5 A substantial number of settlers were heavily in arrears on their land payments and were also behind in their payments for water. Readjustment of their obligations was the alternative to abandonment of the lands. The last year of bearable conditions on the Prairies was 1928. In the following years prices of agricultural commodities broke much more sharply than did other prices. When prices began to fall, rainfall dropped to a level lower than anything known in over forty years. The combination of these two was nearly calamitous for the whole West and increased the losses of this district to an unbearable degree. In some years the excess of cash expenditure over receipts ran over $450,000.16 It was too great a burden to be carried in a period of general depression when the railway was itself marginally profitable. The answer was heroic in its simplicity. The settlers organized themselves as the Eastern Irrigation District and in 1935 the Company transferred to that body the irrigation works plus 1,233,813 acres and also promised $300,000 in cash over the next two years toward operating expenses. To pay people to accept what had cost so much to create was not easy; but it was cheap at the price. Had the Company held on, it would have faced major annual losses until well into the war. The Western Irrigation District covered an area in which average rainfall was highest and which therefore had the least need for irrigation. It was, therefore, under the greatest handicap. The whole work was substantially complete by 1920; but in most years, crops could be grown without irrigation and most farmers were not ready to pay for water which they might not need. What was more important, they were not ready so to prepare their fields that they could turn in water on short notice if it should prove necessary. This district had a total of 220,000 irrigable acres. In 1919, 25,191 acres were actually irrigated; in the middle twenties the figure ranged between 3,000 and 19,000 acres.° In fact, therefore, the distinction between irrigated and non-irrigated lands was effectively wiped out and the whole 138

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structure was put in an impossible position. The canals could not be maintained out of the water rates on the small area actually supplied. The solution here also was to turn over the whole property to the settlers, organized as a corporation, the Western Irrigation District, and to make a cash payment of $538,600 as well. What to do with the irrigation belt was only one aspect of the problems faced by the Company as a result of the great decline in prices and the failure of rainfall in the 1930's. So far as it was able it reached out to ease the burden of those who had bought land from it. The concessions made began with a voluntary and unconditional remission of one year's interest on the total amount owing under land contracts. If the purchaser paid one year's taxes and delivered to the Company one-third of the crop, it remitted a second year's interest. Additional credits on a dollar for dollar basis could be earned by payments in cash or by delivery of crops." As the depression deepened, the conditions were made more lenient. In 1933 and subsequent years the interest remission was granted if one-quarter of the crop was delivered to the Company instead of one-third; in addition it was only necessary for the farmer to enter into the covenant to deliver a share of the crop harvested. If his crop was a failure as a result of hail, frost or drought, the farmer still obtained the remission of a year's interest. Between 1932-42 interest and other concessions granted to contract holders amounted to some $20 million. It was a period of enormous difficulty. What the Company did was minor in relation to the total burden. Many land contracts were cancelled despite these attempts to help; but these concessions helped hundreds of farmers to hang on until, at long last, conditions improved. The winding up of direct participation in irrigation marks the end of an era in the Company's history. There are still lands and land contracts to administer, but the great era of settlement is now over. A population is in place and the role of the railway in attracting settlers and placing them upon the land is finished. The future place of land in the life of the Company is going to be determined by its canny reservation of sub-surface right in all land alienated since about 1905, so that it shared in the gains which came after oil was discovered at Leduc in 1947. But one cannot let this story end without a summing up and assessment of what C.P.R. did in the settle139

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ment of the Prairie West and of what the land grants did toward encouraging railway construction. The latter, as the easier question. will be taken first. In 1881 the hope of the government and of the Company was that the main line grant would be a major source of cash for the building of the line. The land did not sell that well. The sale of land grant bonds did bring in about $10 million during the construction period, but that was all. The real effect came not in the raising of cash but in the effect on expectations. The idea of an immense patrimony which would ultimately yield great, indeed almost overwhelming, profits was of the very first importance. That was one of the hopes which spurred on the projectors to undertake the work. It helped to sell stock in the enterprise. It buoyed up the hopes of security holders in the darkest days. 1884-85 and 1893-95. They thought: "Right now there may be difficulty; but when our ship comes in and land sales occur in rising volume at rising prices, then the golden flow of profits will make up for all the anxious waiting." In the end, of course, the great big pot of gold at the end of the rainbow just was not there at all; but by the time that was known, the hope that it would be there had done its work. There were two periods in the Company's history when active land sales would have been godsends, 1884-96 and 1931-39. In each, railway earnings were low and any bolstering force would have been unutterably welcome. In each, the lands were a cash drain rather than a support. The gains from land came mostly in the years 1897-1913 when railway earnings were also high. The reasons it turned out so are clear enough. The lands were administered with an eye not only to cash profits. They were used as part of a co-ordinated policy to build up settlement and generate traffic with land profits, if any, as a minor advantage to be picked up along the way. In those terms, what was done makes sense; but the results are much less glowing than the public estimation of them. When one turns from a consideration of what the lands did for the Company to what the Company's land policy did for the settlement of the Canadian West, one comes to a much rosier picture. Within the last generation two students have made a serious study of this question: Professor James B. Hedges of Brown University, whose Building the Canadian West: The Land and Colonization Policies of the Canadian Pacific Railway is the most exhaustive and detailed study; and the late Professor Chester Martin of the University of 140

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Toronto, whose Dominion Lands Policy covers the operation of the grants to the railways as part of the general topic. Each of them concludes that the Company behaved in exemplary fashion. For Professor Hedges, C.P.R. was the great solid backbone in the development of the West. Speaking of the early years, 1882-96 he says: The Land Department first found itself confronted with this embarrassing problem of arrears when the collapse of the land boom of 1882 was followed by a series of poor crops. This disaster weighed heavily upon those pioneers who were in the process of establishing themselves as prairie farmers. Hundreds of settlers deserted their farms during those years, but the Land Department persuaded a goodly number to remain and to look forward to better times. Every conceivable effort was made to keep on the land the settler who showed promise of making good. No concession was too great if it meant the difference between success and failure. Nuclei of settlement must be established on the prairie at all cost. In many cases where the settler's ambition was greater than his purse. he was allowed to relinquish a portion of his acreage, and to apply the payments already made to the land which he retained. But it was not merely short crops that plunged the settler into debt. More than once in the period before 1896 depressed prices for farm products rendered the farmer incapable of meeting his payments to the company. By carrying over the purchasers' accounts, by rearranging contracts, by cancelling interest, and by reducing prices which the farmers had contracted to pay for the lands, the railway kept on the land many who were trying to carve out homes for themselves. When the price of wheat declined to 37 cents per bushel the Company accepted large quantities of it at 50 cents per bushel. When settlers were unable to pay their municipal taxes it advanced sums of money for that purpose, thereby aiding materially in the maintenance of municipal farms during a period of crisis.' What Canadian Pacific began in this early period, when its own financial necessities were very great, it continued in later years when it was financially successful and, therefore, able to follow policies which were immediately costly but of long-run value with less strain upon itself. It was a nation-building effort aimed, not at land profits, but at settling a productive population with a minimum of speculation and with direct profit from land sales treated as the less important factor. This was also the judgment of Professor Martin who said: 141

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While the administration of C.P.R. lands by the Company lies beyond the scope of this outline, much of it is scarcely more than a commentary upon this radical change of policy toward free entry on government land. To a degree approached perhaps by no other land agency, it came to integrate itself with the free-homestead and immigration policies of the day and to subserve the interests of the nation in land settlement." At a later point Professor Martin went on to document the extent to which land profits were subordinated by the C.P.R. to other considerations. The sales of Hudson's Bay lands and of school lands offer, he says, a reasonable basis for comparison with the actions of the Company. Indeed since the Company was able to select its lands and did so with care whereas the other two each received random selections of two sections in each township, one should expect C.P.R. lands to return a higher average selling price. Yet the school lands were sold to-average $9.79 per acre in Manitoba, $14.40 per acre in Alberta and $16.85 per acre in Saskatchewan. The Hudson's Bay lands averaged $12.10 per acre. It is a remarkable circumstance, therefore, that from 1893 to 1930. C.P.R. lands, located under the most favourable system of "indemnity selection- ever devised, and comprising no acreage whatever that was not "fairly fit for settlement", were sold at an average gross sales price of less than $9.60 per acre. Excluding irrigation lands which averaged over $40 per acre, the average gross sales price of C.P.R. agricultural lands was given before the Saskatchewan Commission as $7.63 per acre - a total acreage of 23,416,221 acres at a gross sales price of $178,625,110. Even with irrigation lands included, the average gross sales price was $8.55 per acre, and the average net sales price, after deducting cancellations and revestments, $7.37 per acre. It is obvious that many considerations other than cash proceeds entered into C.P.R. policy in the use which they made of their princely land grants." This was a remarkable performance, and one of which the Company, and all Canadians, can be justly proud. Canadian Pacific had been put into a position of unparalleled influence and power, and it had behaved wisely, temperately, and in the national interest.

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CHAPTER 15

eomineo

h

ere are many different ways in which large companies accumulate subsidiaries. Sometimes it is done as part of a long-range plan for diversification. Sometimes it is a method of controlling sources of supply or of getting assured markets for finished products. Sometimes, as with Canadian Pacific, it bears all the marks of being a happy accident. Nobody could possibly have foreseen what would eventually develop; but, over the years. one man after another did what seemed wise in the light of the facts as they appeared at the time. Above all else, the Company refused to distribute all the earnings in any year and used the amount reserved to finance further growth. In the fullness of time, careful management and good fortune converted a relatively modest subsidiary into a powerful company, internationally recognized as a leader in its field. That is the position which Cominco now holds, and it is fascinating to trace its development from its beginnings as being a minor appendage of C.P.R. in one small area of that Company's activities, to its present position as a giant in its own right, with nearly complete autonomy. The story begins with the Crow's Nest Pass branch.' Before it got through to Nelson, F. Augustus Heinze was already well established with the smelter at Trail, with railways to Rossland and Robson in place and with a charter to build west to Penticton. He refused to sell the railways alone but would sell the railways and the smelter as a package. The Canadian Pacific wanted Heinze out of the country, and for 143

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very good reasons. He had shown enormous destructive power in Montana. He had laid the foundations for repeating the performance in British Columbia. If he was now ready to get out without showing all the harm he could do, they were willing to help him by buying his railway and smelter. They wanted the railway and they could use the smelter to encourage mining development. The all-inclusive price on the latter was $205,980.16, $200,000 of which was for the physical property and the balance for materials and supplies on hand. Only ten items came to $100.00 or more. The 16 cents covered 4 lbs. of rosin at 4 cents per lb. It was therefore not a very impressive property at the time of acquisition. The Canadian Pacific now had a smelter, as much by accident as by design. True, it was west of the initial terminus of the Crow Line at Nelson but that was not too important. If it showed any potential a line hungry for traffic could well afford to extend to serve it. Van Home's first move was to hire Walter Hull Aldridge as manager of the smelter. It was a wise choice. In Aldridge he had found a man of high intelligence, courage, and real qualities of leadership, who performed brilliantly during his association with the property. When he left in 1911, he left behind him a group of managers who carried on without a break. It was the ultimate tribute to his management skills. The first years of the smelter under the new management were neither easy nor prosperous. They started just as the great rush to the Yukon began. The miners in the area left for the new field in droves and, as a result, the supply of ore fell off and became irregular. Furthermore the mining techniques of the time were not adequate to support a high continuous flow of ore. It was before the days of the modern diamond drill so that development was expensive and especially so in a faulted ore body. Finally, the copper-gold ore of the Rossland camp began to run out. It was far from exhausted, but the early flush years were over. Someday it would have to be replaced by ore from other sources, for no smelter is comfortable unless it can see a twenty-year supply ahead of it. It was time to develop other strings for one's bow. Fortunately other areas were beginning to show promise, notably the Slocan and East Kootenay areas. Aldridge moved to take advantage of this, first by putting in a lead furnace, and second, by making one of the first applications in all the world of the new Betts Process for the electrolytic refining of lead. It was a tremendous technical 144

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breakthrough, for it produced a purer product at a lower cost than the processes using heat, which it displaced. If one wants to date the very beginning of the modern Cominco, it is here in the transition from a gold-copper base to a wider range of metals, and in a receptiveness to new inventions. Here was a first step toward technical excellence and away from a plodding use of techniques known and used elsewhere. The year was 1901. The second forward step came in 1905. Aldridge had come to the conclusion that the smelter, standing alone, was not really viable. It could never be sure of its ore supplies. Lacking continuity in the flow of ore, its costs were high. Because costs were high, it was subject to complaint from the mines which felt themselves cramped by the high treatment charges. There was nothing particularly new in this. The running conflict between mines and smelters had been constant all over the Western United States from the time mining began there. But the Trail smelter had a special handicap. Most of its ore came from three large mines under common ownership. If they ever decided to break away, the smelter would be left high and dry. C.P.R. had either to get into the mining business in a manner substantial enough to guarantee a continuous supply of ore, or it had to get out of the smelting business. As it was, the smelter was big enough to be a source of trouble; but at its best it could not earn significant profits. Controlling interests in the three big mines had been owned by the Gooderham and Blackstock families of Toronto. Two of these mines, the Centre Star and the War Eagle Consolidated, were situated in Rossland; one, the St. Eugene at Moyie, in the East Kootenay district. When Mr. Gooderham died, the first two were not in good condition. Development work had fallen behind. Profits were not good and the prospects were uncertain. Aldridge, as an agent for Canadian Pacific, got an option on the Gooderham-Blackstock interests in all three mines and in the Rossland Power Company, for a total purchase price of $825,000. The next step was to combine these three mines and the Canadian Pacific smelter into a new company. This was accomplished through the incorporation of a company named Canadian Consolidated Mines Limited, under a Dominion charter in January 1906. In mid-February the name was changed to Consolidated Mining and Smelting Company of Canada, Limited, and that name was retained until 1966 when it was shortened to Cominco Ltd.2 145

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It is interesting to note that in return for the smelter and for a contribution of $100,000 of working capital Canadian Pacific received only 16 per cent of the capital stock of the new company. In the eyes of the impartial assessors who had been called in to value the several properties, the mines were the major elements of value, and the smelter was the minor. When the exchange was complete, Canadian Pacific wound up with 54.3 per cent of the total number of shares—most of them as a result of the purchase of the Gooderham-Blackstock shares in the mines.3 This was the second decisive step. It may not have been clear at the time, even to the participants themselves; but Canadian Pacific was no longer an investor on a short-term basis in a smelter in order to build up traffic for its railroad. It was now, willy-nilly, committed to an enterprise which had a life of its own. A mining-smelting-refining complex has to keep trying to replace the ores and concentrates it processed, whether by purchase or by exploration. If it does not, it dies. By forming this new company Canadian Pacific had moved into an area where growth with all its problems as well as its rewards (and penalties) was unavoidable. It just could not stand still any longer. The relationship between the Canadian Pacific and Cominco was to prove an ideal marriage. For the Canadian Pacific the ultimate return on its investment was to prove very handsome. For Cominco the fact that the C.P.R. was there as a majority shareholder, a lender of last resort even if rarely or never called upon. was to prove an immense stabilizing force, especially in the early years. A total of nineteen smelters have operated at one time or another in British Columbia. Cominco at Trail alone survives.' It has no special natural advantage. What it did have were advantages which sprang from the qualities of its ownership and management. The financial policy was sound. Dividends were cut off from November 1907 to October 1912 in order to build up strength by the reservation of earnings.5 Cominco reached out to acquire additional mines long in advance of need. Because it had money it was able to pursue technical improvements. of which the development of differential flotation was the outstanding example. In retrospect, the purchase of the Sullivan mine was the great turning point in Cominco's history. It was like having a whole jewelry store drop into one's lap, but at the time it was one of the least attractive of a number of properties taken up to provide ore for the 146

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smelter. It was not a new property. It had been discovered in 1892 and was known to contain finely divided lead and zinc minerals in association with pyrrhotite. Under the pyro-metallurgy of the time, the zinc was an impurity in the lead which was nearly impossible to separate out; and the lead was nearly as difficult a component of ores high in zinc. Between 1892 and 1907 three separate groups tried to work it. All failed. At that point the Federal Mining and Smelting Company took over the creditors' claims and organized the Fort Steele Mining and Smelting Company to hold and work the property. Federal Mining and Smelting was a highly prosperous property in the Coeur d'Alene area of Idaho with earnings which were as high as $2.7 million in the year 1906 and which never fell below $1.1 million between 1905 and 1909. What is more important, it was a subsidiary of American Smelting and Refining Company, the Guggenheim Company, with a worldwide reputation for a combination of technical skills, intelligence, and sheer raw courage in meeting the challenge of a difficult property. In the end it retired, defeated. The surface property was sold for what it would bring. The only expense left was taxes in order to retain ownership. It was at this point that Cominco came into the picture. Two of its men were sent to examine the property, R. H. Stewart, Manager of Mines and S. G. Blaylock. Superintendent of the St. Eugene. They decided that it was interesting enough to hold even if its immediate profit prospects were not too rosy. They also thought that a different policy might make it possible to operate profitably. They recommended a search for those parts of the ore body which were high in lead and a further hand sorting of the ore after it had been raised. Cominco first took a lease of this property with an option to purchase, and then, when it was able to return a profit under the new policy, bought it. It was by no means out of the woods, but at least it had a property which had some promise and was able to support itself as long as metal prices were favourable. Under development, the size of the ore body grew out of all recognition. By 1914 it was the largest lead mine in Canada. By 1918-20 it was one of the great lead-zinc properties in the world. Cominco's next major move was into zinc. During the First World War a most urgent demand for zinc developed and the Shell Cornmittee (later reorganized as the Imperial Munitions Board) asked Cominco to undertake its production. A new plant was put into 147

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production in March 1916. Previously, all zinc had gone to the slag heap as an unrecoverable component. Not only that, but a penalty was imposed if zinc was present in the ore. With an electrolytic zinc plant to operate, Cominco became so much the largest customer for power that it dominated its supplier, West Kootenay Power and Light Company. The best way to guarantee that its rising power requirements would be met was to make West Kootenay a subsidiary, and Cominco did so by buying its common stock. The final decisive step was taken in 1917. In the spring of that year R. W. Diamond was hired as a researcher and put to work on the application of differential flotation to complex lead and zinc ores, such as those of the Sullivan mine. Mr. Diamond, who graduated from the University of Toronto in 1913, had gone to work in the American copper industry. His experience had been first in Butte and later in Utah. He had been working in flotation since 1914. By March 1920, he had attained the first successful differential flotation of lead and zinc in the test mill. Finely ground ore in water was treated with one reagent and then subjected to air agitation. The lead accumulated in the froth and was skimmed off. A second reagent was introduced and the air applied again. This time the zinc floated off. A success in the test mill is merely one step toward application. The next three years were taken up with a succession of tests, and changes, and refinements; by 1923 the new process was incorporated in a new plant at Kimberley and was ready to treat 3,000 tons of ore per day. That plant opened a new phase in the company's history. Indeed it would be hard to overstate the change which this revolutionary technique produced in its fortunes. Previously Cominco had been, at best, a medium cost unit in the industry. In the depression of 192021 it had been, for months on end, compelled not only to exercise the most rigid economy, but to put all bills that could be postponed into the "hold" file. Within the industry, it was reported that the Board of Directors took up most of one meeting discussing whether they should lay out $5,000 on the purchase of shovels. Everybody admitted that most of the shovels currently in use were so worn that the cost of continuing to use them exceeded the cost of replacing them. The sticking point was that if that $5,000 was spent, it was gone. The company might need that sum and just not be able to lay its hands on it. In the end, they did not spend it. 148

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Cominco had been a company which could make money when metal prices were favourable and which was in trouble when they were not. Once the metals in the Sullivan ores were segregated by differential flotation; those days were over. It not only became a progressively larger operation in sheer tonnage handled, it went down close to the bottom of the industry cost structure. It could now live on metal prices which would bankrupt most of its competitors. It was no longer compelled to hunt for little pockets of ore high in lead and silver; it could take out the whole ore body, and process every bit of it. Nor was this all. The old slag heaps had a fairly high metal content which had been of no present value. Now they could be reprocessed and most of the metal recovered profitably. These developments changed Cominco out of all recognition. It had been a moderately interesting local company. Prior to the 1920's survival was never assured, and growth was bought at the price of dividends foregone. The development of the Sullivan from an interesting prospect into a massive ore body and of the differential flotation process to treat all of it converted the Company into a great mining venture with an assured long life and an annual income measured in the millions of dollars. Now, there was income enough for generous dividends and for growth too. The problem was how to employ this new strength intelligently. In the early twenties the answer was fairly simple. Its own properties could absorb a great deal of money. The Sullivan as a great mine could be refitted to give low costs on a long life. The Sullivan mill was built to process 3.000 tons per day. It was extended until it had an ultimate capacity of 11.000 tons. The new volume of concentrates coming out of the Sullivan at Kimberley compelled a great expansion of the refinery at Trail. Expansion at Trail compelled major expansion of West Kootenay Power and Light to supply the necessary electric power. When one looks at a big company going through a transformation of this kind, one is inevitably reminded of the farmer who bought more land to grow more corn to feed more cattle to buy more land. The scale may be different but the problem is identical, except that the farmer is not really compelled to buy more land. In Cominco's case expansion and diversification were necessary and were a first consequence of increased prosperity. 149

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More metal production at Trail meant more sulphur sent up the stack. The damage to vegetation in the immediate vicinity was serious. Also, Trail is only seven miles from the U.S. boundary. The winds tend to follow the river valley and smoke damage claims began to develop across the line in the State of Washington. A claim of this kind loses nothing in the telling and it was ultimately established that actual damage in Washington was a small fraction of that claimed. However the legal cost of defending itself, the uncertainty existing until a decision was reached, and the probability that other attempts would be made to collect damages all led to a decision to work actively toward the direct use of sulphur. In 1926 it was decided to go into the fertilizer business as the one most likely to consume large quantities of sulphur. A phosphate property was turned up in Montana. Extensive agronomic research was carried out in Western Canada which was expected to be the largest market. A large plant was built at Trail and now the company was in the fertilizer business. To a minor extent, this was an automatic response to external pressures, but it was also an indication of the extent to which the Company was becoming research-oriented. The choice of the fertilizer business as a consumer of sulphur and its products was dictated by research, and it reinforced the tendency to use research not only to solve problems but to search for problems which had not yet been recognized as such. The fertilizer plant came into operation in 1931. It could not have come at a worse time. All prices fell; those of the products committed to international trade fell first and fastest. Lead and zinc went down to levels which had not been known since the 1890's. Wheat fell drastically and with it went most of the hopes of building a fertilizer market in Canada. Any early development of such a market depended on having buoyant conditions in which farmers who never had used fertilizers would be induced to try them as a means of increasing yields per acre. In the depression, they did not have the money to try even if they had had the will; and the course of prices was such as to discourage the effort anyhow. The development of a Canadian market had to wait until the return of more normal conditions led to a revival of confidence; that meant until after the last war. A second consequence of Cominco's new prosperity and higher volume of output was a higher level of exploration and development 150

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outlays. That meant, inevitably, the immediate outlay of money in rather substantial amounts, and a delay in returns. One uses the best geological knowledge available to keep from hunting where economic minerals clearly are not; but that leaves an uncomfortably large area where they might be, but probably are not. It is easy enough to turn a property down sight unseen; it is harder to spend enough on each one examined to come to an intelligent decision without running into an aggregate outlay which exceeds any possible return from those ultimately developed. But under the existing state of knowledge, the mining company which spends on exploration is playing very long odds indeed. Out of a thousand properties examined there may be ten on which it seems reasonable to spend between $25,000 and $50,000 in current money for diamond drilling to determine whether the surface showing is just that, or carries through to depth. Only one in ten of these is worth carrying beyond that point so that the odds against finding a good property are now lengthening. But even after more money is committed, say in the order of $500,000, only one in four is likely to make a mine, and not every mine is likely to make enough profit to repay the full capital outlay on itself. For various reasons, one cannot make an exact statement of odds, as the facts are not available. Only one point needs to be added, that the odds against turning up a property like the Sullivan are probably in the order of several millions to one. In those terms, the exploration efforts of the late 1920's show up not too badly. It was in 1927-28 that the area in which Pine Point Mines now lies was first worked on by Cominco. It was 1964 before the first ore was shipped, so that the yield on the investment was very long in coming; but at least the exploration people could point to a major ore body which was worth holding for a long pull. In the 1930's the general economic situation made the search for base metals positively quixotic. Their prices were so low that only the most extraordinary property could possibly pay out the cost of its development. Gold properties, on the other hand, were favoured by a 70 per cent increase in price, the certainty of an assured market, and a drop in the cost of development. The best property discovered in this period was the Con mine, a gold property, which was found in 1935 and brought into production in 1938. The major change in Cominco from the period before the last war to the present is a subtle difference in outlook rather than in the 151

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constitution of its assets. Before the last war it was a great mining company which had gradually extended into fertilizers and into electric power because that was indicated by the nature of its development and by the pressures upon it. In the fifties and sixties it gradually became a company which was interested in exploiting its special skills in mineral processing, in fertilizers, and in heavy chemicals. It was one of the forces which moved the big associations of lead and zinc producers to initiate major long-term research efforts to find ways of extending the uses of these metals. The purchase of National Hardware Specialties in 1959 put the Company for the first time squarely into the production of intermediate and end products rather than solely of raw materials. The Company was therefore in all phases of the business. It was still predominantly a producer of metal (and fertilizer), but it was also a converter into finished products, and, directly as well as through the lead and zinc associations, it was financing research into new uses for both lead and zinc. The same spirit was shown in the development of markets for indium, which is principally used in electronic items such as transistors. Indeed, the Company is into the market for extra high purity metals for electronic use with production of aluminum, antimony, arsenic, bismuth, cadmium, gold, indium, lead, silver, tin, tellurium, thallium and zinc, 99.999 per cent pure. It also produces indium antimonide and indium arsenide as compound semiconductors and bismuth telluride as a thermoelectric material. The gradual accumulation of iron sulphide tailings from the Sullivan concentrator has given the Company a blacklog of approximately 15 million tons of recoverable iron, the largest iron ore reserve in Western Canada. With the development of the market for iron and steel products it was a matter of time only until the Company was in the iron and steel business. The decision to go ahead was taken in 1959 with the first furnace being brought in at Kimberly in 1961. A second and larger furnace was brought in in 1964, giving a total capacity of 110,000 tons of pig iron. In 1964, also, Western Canada Steel, Limited of Vancouver was acquired with a capacity of 100.000 tons. In 1966 Western Canada Steel in turn acquired Western Rolling Mills of Calgary with a capacity of 50,000 tons. Primary steel making capacity has now been installed at Kimberley and came into operation in 1966 so that the Company is now an integrated steel producer with a total capacity of 250,000 tons. 152

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Cominco is in the process of developing its own potash property in Saskatchewan which rounds out its production of all three fertilizer components—potash, phosphorous, and nitrogen. As part of the same move toward diversification and toward taking advantage of opportunities as they arise, Cominco is now engaged in three operations outside Canada; in two of them as a minority shareholder. It holds 40 per cent of the shares in a zinc smelter in India and 45 per cent of the shares in a lead smelter in Japan. In the United States its interests are larger, but for the most part, are 100 per cent owned. The subsidiary there now bears the name Cominco American Inc. It has four main activities. It mines the phosphate rock which is processed into fertilizer at Trail and Kimberley. It acts as the sales agent for fertilizer and also has a fertilizer plant in Nebraska. It manufactures parts for electronic goods from specially purified metals and also sells the metals in bulk. Finally, it has a half interest in a lead property in Missouri, which is under development. Production is scheduled for 1968. Cominco American will be the operator. Anyone who looks at the current figures-1966 sales of $225 million and earnings after taxes of over $49 million—is entitled to ask how Cominco can have grown from its small beginning at $5.3 million of sales and a net profit of $485 thousand in 1907. Even after full allowance for changes in prices, it seems an impossible amount of change for one organization. Yet as one looks back over it from year to year the dominant impression is not of its impossibility but of something approaching inevitability. Once the C.P.R. took over the smelter in 1898—and it had to buy the whole package or fail to get the railway which it principally wanted—each step followed for the soundest of reasons. First came the movement into lead because the supplies of that metal in the tributary area were increasing; then the purchase of the mines in Rossland and at Moyie because they could be made profitable by better management and could also guarantee the supply of ore to the smelter; then the purchase of the Sullivan as a source of silver-lead ore; then the development of differential flotation to work the Sullivan successfully and reduce its unit costs; then the production of fertilizers to prevent the loss of sulphur up the stack. Each step in the development followed so logically out of what went before that it would have been wrong to call a halt at any point. This is a never-ending process. The increasing range of metal 153

Canadian Pacific

output—bismuth, cadmium, indium—came because the electrolytic processes for the refining of lead and zinc automatically concentrated them in the slimes. They could never have been recovered directly because they were minor elements in the ore; but when they appeared in much greater concentration in the refinery slimes, something could be done with them. The production of tin concentrate was desirable only because of the volume of ore treated at the Sullivan. The move into iron and steel production in the last few years is not a sudden decision. Many necessary things were not present when this move was first considered, not least a broader economic development in the probable market territory. But nearly fifty years ago Cominco began to segregate the pyrrhotites in the tailings from the Sullivan mill so that they would be ready when it was possible to use them. The iron and steel plant is the answer to those long-range hopes. In this light, the modern development in the international field is identical in principle with the domestic growth in earlier years. Corninco has highly developed skills in metal processing. It had well-developed markets for lead and zinc in Japan as early as the 1920's. With the growth of that country, it could either participate in the development of a local smelter or gradually be shut out of the market. If it was to produce high purity metals for use in electronics, it made sense to do so inside the American tariff wall where the principal market was. If it was to produce the metals, then why not sell them in pre-formed shapes as well as in bulk? It would help to widen the market and it would certainly lead to a closer connection with customers, so guaranteeing a more certain market. The early work in fertilizers had concentrated on the nitrogenphosphate types because the phosphates were available in Montana, not too far from Trail. But when potash became available in Saskatchewan, Cominco had to include them also. Without a balanced line to offer its customers it would have been in an inferior position to producers who could sell the full range. Looked at in perspective, Cominco is merely a second statement of what was said about C.P.R. The basic problem set before each (and, by implication, before every other company which aims to survive) is to respond to the opportunities and to the penalties provided by the price system. Some courses of action prove to be desirable 154

Cominco

and are rewarded by profits. It is not only that there is an incentive to expand them, the profits provide part of the investment base for that expansion. Other courses of action either break even or make a loss. They are cut back. In respect to mining and metallurgy, Canada is now one of the highly developed countries which exports technical skills. Nobody planned it that way; but over the last eighty years the growing consumption of metals and the nature of Canadian resources combined to build up that position. Canadians either responded to the situation or they retreated into an economic and cultural backwater. But a nation which elects to enter the main stream of civilization in this fashion must also recognize that it has become part of an international division of labour. It cannot retreat into self-sufficiency. It has become part of the great world and therefore has given up part of its control over what happens to it. As part of a dynamic society with a high level of capital investment, its businesses have to recognize that the rate of obsolescence in technical ideas, and in the capital equipment which embody them, is very high. Any organization has to run in order to stand still; the good ones are those who run still faster. Cominco's growth and diversification of interests are, in themselves, nothing unusual. This is the nearly inevitable consequence of continued success over a long period. It can be duplicated a hundred times in the histories of other successful companies. And it is out of such successes that the amelioration of working conditions and the rising standards of consumption which distinguish the modern world are built.

155

CHAPTER 16

other investments

C

anadian Pacific has never been a tidy little business. In its earliest years it could not be simply a railway. Until the country had built up around it, it could hardly hope to live on its earnings from transportation alone. These had to be supplemented in every way possible. Contrary to the practice of most American railways, it developed and operated its own sleeping and parlour car services. On international runs it insisted on equalization of mileage with the Pullman Company. It established its own express business for the same reason. A railway is unthinkable without its own communication system. Canadian Pacific saw that a public telegraph system could be worked as an adjunct to the railway's own system more economically than as an independent business and set up Canadian Pacific Telegraphs to do just that. It built and operated terminal warehouses in order to encourage traffic that might otherwise elude it. The same spirit sent the Company into the steamship business. In 1884, it had vessels operating upon the Great Lakes. In 1886 it began a service between Canada and Japan using chartered vessels. They were shortly followed by its own ships; for many years the "All Red" Canadian Pacific route across Canada and then Canadian Pacific ships was one of the preferred routes to the Far East, competing with the steamer route through the Suez Canal. The same ships fed high-value silk and tea shipments to the railway to be carried across the continent—the silk in special trains, complete with armed guards—on schedules faster than the fast passenger trains. In the early nineties ships were put upon the B.C. Lakes in order 157

Canadian Pacific

to stretch the Company's reach for traffic. In 1901 it moved into the British Columbia coastal trade with the purchase of a fleet of fourteen vessels. The final move was the development of an Atlantic fleet so that it offered an unbroken service from the shores of Europe to Yokohama and Hong Kong. The initial entry into the hotel business was made in 1886 in order to economize in railway expenses. The grades on the westerly side of the Rockies and through the Selkirks were, in the early years. too heavy to make dining cars economical for meal service, so four combination hotels and eating houses were established. From there it was a short step to building hotels which would encourage traffic; finally there was a great chain of C.P.R. hotels from coast to coast. Each new period brings new problems and fresh opportunities. When the Company saw that there was a significant volume of traffic which could not be held on the rails, it moved into the trucking business. It then tried to get the advantage of truck flexibility in terminal services and low rail costs between terminals by developing "piggy-back" services for the rail carriage of trailers between cities. Solely as a railway it would lose out; as a transportation company it had a chance to live. The same spirit carried the Company into the operation of aircraft. The prospects could not help but be dim until it was allowed into the transcontinental carriage of passengers; but a company so heavily committed as was C.P.R. to the rail and steamship passenger business had to keep a toehold in a field as dynamic as this. Who could tell, in the early 1940's, whether or not air traffic would seriously pinch both rail and steamship passenger traffic within twenty years? Initially this was not an attitude which was welcomed in Ottawa. Under the then theory, Trans-Canada Airlines (now Air Canada) was to be the chosen instrument for Canada's participation in the air industry and the major domestic routes and all international routes were to be reserved for it. Canadian Pacific's aviation participation at the time was limited to feeder and northern routes. In 1940, at the request of the British Government, Canadian Pacific organized the North Atlantic Ferry Service for the delivery of bombers by air to Britain. In 1942 it formed Canadian Pacific Airlines (CPA) as a merger of 10 small local carriers and for the remainder of the war it was heavily involved in the war effort, notably in the operation of the route to Alaska and in servicing the Canol pipeline project. CPA also operated, on a non-profit basis, six Air Observer 158

Other Investments

Schools and five overhaul plants under the British Commonwealth Air Training Plan. During the Korean campaign it made 703 round trips between Vancouver and Tokyo on behalf of the Department of National Defence. In post-war civil aviation, CPA began a remarkable development of international services while gradually phasing out small local feeder operations east of British Columbia and the Yukon. In 1955 it withdrew from local services in Ontario and Quebec in favour of Trans-Canada and was given in exchange the Toronto-Mexico City run. In 1959 it withdrew from the Mackenzie District, between Edmonton and the Arctic Ocean, and its place was taken by Pacific Western Airlines. But in British Columbia and the Yukon it has again increased its commitments and is now in process of equipping itself with seven Boeing 737-200's in order to bring this service to a still higher level. But if part of the movement was one of withdrawal from some sections of the domestic service, the other part was one of expansion of long-range service, international and domestic. In July 1949 CPA began a service to Australia, and in September to Tokyo and Hong Kong. In October 1953 it began a service from Vancouver to Mexico City and Lima. Three years later it was permitted to extend to Buenos Aires and in the next year to Santiago as well. In June 1955 it began to fly the polar route from Vancouver to Amsterdam. With stops at Edmonton and Calgary it was able to offer a most desirable service to Europe from the three western provinces. In May 1957 it began to fly from Toronto and Montreal to Lisbon, and shortly was permitted to extend to Madrid. In 1960 that route was extended to Rome. In November 1965 it began to fly from Toronto and Montreal to Amsterdam and on to Rome. In January 1967 it started operations on a route from Vancouver to San Francisco. CPA was first allowed into the transcontinental domestic market in 1958 with one flight a day. In 1967 it was allowed to extend this to two flights, with permission to work up to a 25 per cent share in the transcontinental business by 1970 and thereafter to remain at that level. In sum then, CPA is now a great international airline with routes radiating from western and eastern Canada to the Orient, to Hawaii and Australasia, to Mexico and South America, and to Amsterdam and Southern Europe. Its route miles are distributed as follows: 159

Canadian Pacific

Canadian transcontinental other International Total

2,444 4,438 50,464 57,346

In that extensive route system, the domestic transcontinental route is an important means of linking Canada with four continents. Twenty-five years was a long time to wait; but it made the ultimate government recognition of CPA as its chosen instrument in the international areas allocated to it all the sweeter when it came. Of course, in the background stood the two great investments outside the transportation field altogether: Cominco; and the lands which are now primarily mineral rights under areas whose surface rights were sold off many years ago. To be diversified is probably desirable in itself. When income arises from a number of different sources, it is probable that the combined income will be more even than that from any one source. But is it not also possible that that very regularity may remove a necessary stimulus? Having a number of businesses run in mediocre fashion because the directing heads of the business just can not keep track of all the areas of activity which they are supposed to control is not very good organization. Diversification merely helps to conceal its worst effects. Would it not be better to set up profit centres with one executive group responsible to top management for each one? Each group would be able to draw upon the central organization for staff services, such as finance, accounting and industrial relations, but they would ask for advice and not for direction; they could reject that advice if they so decided. They would have full responsibility and would be judged by the results they could produce: independence of detailed control was merely the other face of that responsibility. Canadian Pacific Investments Limited (hereafter called Investments) was incorporated in July 1962 as part of program to apply this thinking to the Company's other operations. It was to hold the non-transportation assets. By the end of the year Canadian Pacific Oil and Gas Limited and Pacific Logging Company Limited had been transferred to it. In 1963 the Company's interest in Cominco had been transferred to Investments and two new subsidiaries had been created, Canadian Pacific Hotels Limited and Marathon Realty Company Limited. 160

Other Investments

The Hotels Company was designed to manage under contract hotel properties owned by others, to own and operate hotels which had previously been directly operated by the Company, and to operate a new "reserve-a-room" service for its own hotels, for those managed by it, and for any others which wished to subscribe to the service. Marathon Realty was designed to bring expert management to the non-transportation real estate previously directly owned. For obvious reasons, real estate is a difficult field in which to operate. Each parcel is, in some respects, unique. Unless responsibility is concentrated in real estate specialists, there is a powerful tendency to let sleeping dogs lie. A property sold today may stick out like a sore thumb as a lost opportunity two years hence. But failure ever to sell may equally mean the accumulation of a horribly burdensome tax liability. This is a business which calls for special skills. Some agricultural land may be made much more productive if it is turned to different use. Raw land on the edge of a city may blossom forth as an industrial park under the imaginative eye of a development company which is willing to put up seed money to get it started. A dormant piece of urban property acquired to protect an expansion which did not materialize, and whose taxes now exceed its income, may become an area of urban renewal and produce a substantial income for the owner. In 1965, Canadian Pacific Securities Limited was created to raise capital funds for the subsidiaries of Investments. On November 1, 1967, Canadian Pacific Investments Limited issued 5,000,000 convertible preferred shares at $20 per share for a total of $100,000,000. These shares were listed November 8 on the Montreal, Toronto and Vancouver Stock Exchanges. Finally, there are many management groups in this country, and some of them have investment opportunities which are worth sharing. Investments therefore took a position in their securities looking toward income to be earned and not for control. At the end of 1966, these portfolio investments were divided as follows (Annual Report, 1966, pp. 55-56, $000 omitted): Bonds, debentures, etc. Preferred stocks Common stocks

$13,731 17,386 162,509

$193,626' A change of this kind brings with it a sharpening of perception. It 161

Canadian Pacific

is easy enough to say that the economic problem of every great society is the allocation of scarce means among alternative ends; but when the allocation occurs inside one particular corporation the process becomes much clearer. How should Investments decide the allocation of new capital as it becomes available? Why should it go into hotels instead of into a new sawmill in British Columbia or into oil and gas production in the Prairies, or into the development of an industrial park outside Winnipeg, or Toronto, or Montreal? The process of sorting out capital projects which might otherwise proceed unnoticed in the offices of investment banking houses now takes place inside the owning corporation. It must therefore develop a completely self-conscious logical technique for decision between conflicting claims; that technique must be understood by the several managers and be applied by them inside each individual unit; if not, there is a risk of failure of morale on the part of those managers whose requests are turned down. Management under such a structure is not only much sharper in its perceptions, it is also compelled to be more self-critical. It is not enough to make more money; management must also decide whether the corporate strategy followed has been as fruitful as a different one might have been. That happened in relation to oil and gas and to the handling of timberlands on Vancouver Island. The modern period in the oil and gas business began in 1947 with the discovery of oil at Leduc. In the next decade the Company acted chiefly as an owner of mineral rights. It gave leases to oil companies and received in return rents, reservation fees, and production royalties. By 1957, net income came to $8 million. But was a policy which tended to leave the initiative to others the best long-run policy? The conclusion was that it was not. In 1958 the Company set up Canadian Pacific Oil and Gas Limited to hold its mineral rights and to pursue an active policy in exploration and production. This meant, of course, that it would have to commit funds for rights in the lands of others in order to assemble compact blocks for development. There were risks; but there was also the hope of substantially larger profits than could be won by a passive policy. The new policy was pursued actively. By 1963 Canadian Pacific Oil and Gas carried out the largest drilling program of any oil company in Alberta. In 1964 it acquired a half interest in Bow River Pipe Lines Limited, a 267-mile line in Southern Alberta. By the end of 1965, the latter had a throughput of 10,000 barrels per day. Also in 162

Other Investments

1964 C.P. Oil and Gas set up a subsidiary in the United Kingdom to participate, along with two other companies, in the exploration for oil and gas in some 800,000 acres in the North Sea off Great Britain. Programs of this kind do not yield their fruits immediately. Much time and thought, and a great deal of capital, are expended before the full results show; but the results to date have justified the more dynamic policy followed since 1958. Much the same can be said of the more active policy in relation to timberlands in British Columbia. The land on Vancouver Island came into the Company's control when it bought the capital stock of the Esquimalt and Nanaimo Railway Company in 1905. At that time this railway still had about 1,440.000 acres left out of an original land grant of 2,110,000 acres. In the following years land was sold from time to time and by the end of 1961 its non-railway lands had been reduced to 366.000 acres. The first step in a more positive policy was for Pacific Logging Company, a subsidiary, to acquire, in 1962, a substantial interest in Sooke Forest Products Limited which operated a lumber and shingle mill on Vancouver Island. In 1963 a further step was taken with the acquisition, by Pacific Logging, of a 49 per cent interest in T.W. MacKenzie Logging Limited, one of the most efficient logging operators on the Island. Main and branch logging roads were constructed, 157 miles in 1964, and 124 miles with sixteen bridges in 1965, and the Company, through its subsidiary, was an active rather than a passive participant in the development of the island. The next step in this policy was for Pacific Logging to purchase the assets of the Passmore Lumber Company Limited in the Slocan Valley in the interior of British Columbia. After the company took possession, a new sawmill was erected at Slocan which in its first year of operation turned out 35 million feet of lumber. In the longer term this may be the base for a pulp mill development at some later date. In moving toward its policy of treating timber limits as perpetually self-renewing assets, Pacific Logging carried out replanting of some of its cutover lands on Vancouver Island; it is also experimenting with forest fertilization in co-operation with Cominco, and has established seed orchards to provide permanent sources of tree seed. 163

Canadian Pacific

When one begins to question the existing way of doing things and creates organizations to exploit economic opportunities as they appear, it is very hard to say where the process will end. But one thing is certain, Canadian Pacific is no longer a railway company with embarrassing riches of outside assets; it is a commercial company which is striving to make all its assets of whatever sort or wherever located justify themselves by producing revenue.

164

summing up

hiss has been a story of the interaction between a growing nation and a corporation organized to link its several parts. At its beginnings, the Canadian Pacific was clearly a premature enterprise which could only come into existence as a viable entity if it had a great deal of public help. Before its main line was completed, the Company needed a great deal more help than initially expected or than the government of the day found easy to give. But once in existence. the Company managed to survive its early years and then went on to a growth in mileage and in revenues which gave it an immense power in the Canadian community. Inevitably, so strong a position raised countervailing forces. Other railways were subsidized so that they might grow to offer competition to C.P.R. When motor cars and hard surface highways came along, they too were fostered and developed by government. Later still, airplanes gave long-distance travel a new dimension of speed and comfort; and they too benefited greatly from the fostering hand of government, in Canada by the lavish construction of airports built at public expense, and abroad by governmental encouragement of larger and faster planes. The history of C.P.R. since 1920 has been that of a company which has managed to survive in an acutely unfavourable environment. The difficulties in the transportation field have compelled the Company to give a great deal more time and thought to developing the earning power of its non-rail assets; in the end it has been successful. 165

Canadian Pacific

Now, a new day is dawning. The Canadian public is finally convinced that it has more to gain from vigorous railroads than it has from closely controlled railroads. The massive revision of the Railway Act which has just been completed is the embodiment in the law of a renewed faith in the capacity of competition to subdue economic interests to the service of the common good. For the first time since 1920, one may therefore look on Canadian Pacific as a transportation company which is likely to get a fair break and to be allowed reasonable earnings if it can so tailor its efforts as to win traffic in competition with other carriers. What will actually happen is for time to reveal; but at least there is more than a fighting chance that C.P.R.'s best days lie ahead. There is the hope. The next step is the effort to make it come true.

166

list of railways mentioned in the text

T

he principal sources for this list of railways are Robert Dorman, A Statutory History of the Steam and Electric Railways of Canada, 1836-1937 (Ottawa: The King's Printer, 1938); two articles by M.L Bladen, "Construction of Railways in Canada to the year 1885,"

Contributions to Canadian Economics, V (1932), 43-60 and "Construction of Railways in Canada from 1885 to 1931," ibid., VII (1934), 61-107; and Poor's Manual of Railroads (New York: H.V. and H.W. Poor, Annual). While this list covers all the companies mentioned in the text, it merely scratches the surface of the total number chartered in Canada. Anyone reading Dorman will be astounded by the number of railways chartered, the number of routes assigned and by the frequency of bills providing subsidies in land or in cash or providing for loans when additional money for construction could not be raised privately, not to speak of the number of bills which had to be introduced to renew charters which had expired before construction was finished (and, in many cases, before it had even been begun).

ALBERTA RAILWAY AND COAL COMPANY This narrow-gauge railway, incorporated in 1884, ran from Dunmore, just east of Medicine Hat, to Lethbridge to connect the mines at Dunmore with Lethbridge. In 1892 it was given power to build through the Crow's Nest Pass to Hope, B.C. Its properties were leased to the C.P.R. on June 1, 1893. 167

Canadian Pacific

ALBERTA RAILWAY AND IRRIGATION COMPANY This company was created in 1904 as an amalgamation of the Alberta Railway and Coal Company, the St. Mary's River Railway Company and the Canadian North West Irrigation Company. Its railway lines ran from Lethbridge to Coutts and from Stirling to Ca rdston.

BRITISH COLUMBIA SOUTHERN RAILWAY COMPANY This company was incorporated in 1888 as the Crow's Nest and Kootenay Lake Railway Company. The change of name came in 1891. This was the charter under which the British Columbia portion of the Crow's Nest Branch from Lethbridge to Nelson was built. This charter was acquired by Canadian Pacific in 1897. No construction took place till after it took control. CALGARY AND EDMONTON RAILWAY COMPANY It was incorporated in 1890 to build from Calgary to Edmonton with power to extend southerly to the U.S. border and northerly to Peace River, and to lease its properties to the Canadian Pacific Railway. The initial construction occurred in 1891-2 and ran from MacLeod Junction through Calgary to Strathcona (on the south side of the river opposite Edmonton and now a part of the city). The lease to the Canadian Pacific took effect as from July 1. 1903. CANADA CENTRAL RAILWAY COMPANY The initial charter of this company was issued in 1856. It was an amalgamation of five previous charters. The completed line ran from Brockville and Ottawa to Callander (now Bonfield). which was the nominal starting point of the Canadian Pacific main line. It was absorbed into the C.P.R. in 1881. CANADA PACIFIC RAILWAY COMPANY This company was incorporated in 1872 as the corporate vehicle for Sir Hugh Allan and his associates.

168

List of Railways Mentioned in the Text

CANADIAN NORTHERN RAILWAY COMPANY This was the primary corporate vehicle for the Canadian railway interests of Mackenzie and Mann. It should, however, be understood that until 1914 most of the shares of the railway companies making up the Canadian Northern System were in the Mackenzie and Mann portfolio and that fact was the ultimate guarantee of coherence. In 1914, as one of the incidents to a large loan from the federal government, this company was made the top holding company in fact as well as in name.

CENTRAL PACIFIC RAILROAD (see under Union Pacific)

CENTRAL VERMONT RAILWAY COMPANY The lines which finally came together under this name were initially very loosely controlled. They were regarded as having a substantial value as part of a through route from Boston, a city of much greater importance in the nineteenth century than in the mid-twentieth, to the U.S. North Pacific Coast. The Northern Pacific Railroad was to be the largest single part of this route. In 1891 these lines were brought together in the Central Vermont Railroad Company. That company failed in March 1896 and E.C. Smith and C.M. Hays (of the Grand Trunk) were appointed receivers. It was succeeded by the Central Vermont Railway Company which was chartered in November 1898 and assumed possession of the properties on May 1, 1899. Grand Trunk owned over 70 per cent of the stock of the new company and made itself responsible for interest on the bonds up to 30 per cent of gross receipts on traffic interchanged between the two lines. From this date onwards it is, effectively, a subsidiary of the Grand Trunk and, later, of its successor, the Canadian National Railways.

CHICAGO MILWAUKEE AND ST. PAUL RAILWAY COMPANY This company was one of the leading railroads in the northwestern United States throughout the period 1870-1914. When Van 169

Canadian Pacific

Horne came from it to manage the C.P.R. in 1881 he was leaving a well-managed line with a developed earning power for a property which had yet to establish a solid managerial corps; and, of course, as a new line, C.P.R. had no earnings record. COLUMBIA AND KOOTENAY RAILWAY AND NAVIGATION COMPANY This company was chartered in 1889 and leased by the C.P.A. in 1890. The line ran from Nelson on Kootenay Lake to Robson on Arrow Lake (the Columbia River). It was 27 miles long. COLUMBIA AND WESTERN RAILWAY COMPANY This company was chartered in 1896 to build lines around Trail and west to Penticton. F. Augustus Heinze was the promoter. He sold out to C.P.R. in 1898, having built from Trail to Rossland and from Rossland to Robson.

CROW'S NEST BRANCH OF THE CANADIAN PACIFIC RAILWAY This branch ran from Lethbridge, Alberta to Nelson, B.C. Construction began in 1897 under the charter of the Alberta Railway and Coal Company in Alberta and under that of the British Columbia Southern in British Columbia. The section from Kootenay Landing to Procter where construction of a rail line was both difficult and very expensive was served by car ferry until 1930 when Canadian Pacific constructed a railway line along the shore of Kootenay Lake. CROW'S NEST AND KOOTENAY LAKE RAILWAY COMPANY This was incorporated in 1888. The name changed to British Columbia Southern Railway Company in 1891. For its later history see under that name. DOMINION ATLANTIC RAILWAY COMPANY This company was incorporated in 1893 as a successor to two lines, the Windsor and Annapolis and the Yarmouth and Annapolis. 170

List of Railways Mentioned in the Text

The first charter granted to a constituent part was dated 1854. Its lines stretched from Yarmouth to Windsor Junction and Truro. Nova Scotia, and it had running rights into Halifax. The Canadian Pacific purchased its stock in June 1911 and took a 999-year lease of the property, effective January 1, 1912. DULUTH SOUTH SHORE AND ATLANTIC RAILWAY COMPANY This company was incorporated in Michigan and Wisconsin in March 1887 as a consolidation of four other companies. Its main line runs along the south shore of Lake Superior from Sault Ste Marie, Michigan, to Superior, Wisconsin and was completed in 1892. Canadian Pacific took an interest in it for the same defensive reasons that explained its participation in the Minneapolis, St. Paul and Sault Ste Marie. DULUTH AND WINNIPEG RAILROAD COMPANY This company was chartered in 1878 to build the 250 miles from Duluth to the Canadian boundary. One hundred miles were completed by April 1892. It went into default in July 1893 and a receiver was appointed in October 1894. A foreclosure sale was ordered for March 28, 1896 but was several times postponed and finally took place on July 25. 1896. As stated in the text, this company's lands in the Mesabi range ultimately became immensely valuable. ESQUIMALT AND NANAIM 0 RAILWAY COMPANY This company was incorporated in 1883. but provision for a land grant to it had been made by the Province of British Columbia as early as 1875. Initial construction was from Victoria to Nanaimo, about 72 miles. The company was controlled by the Dunsmuirs who also owned the collieries. The line and the balance of the land grant was purchased by C.P.R. in 1905. GRAND TRUNK PACIFIC RAILWAY COMPANY This company was incorporated in 1903 as a wholly owned sub171

Canadian Pacific

sidiary of the Grand Trunk Railway of Canada (q.v.). It built from Winnipeg through Edmonton to Prince Rupert. It was built at great expense to very high physical standards, but failed to develop a branch line system to support its main line. From Winnipeg easterly the federal government built the National Transcontinental through Cochrane and Quebec to Moncton. It was to be operated under lease by the Grand Trunk Pacific but was never taken up by that company.

GRAND TRUNK RAILWAY COMPANY OF CANADA This was the first great railway enterprise in Canada. When completed by about 1860 it stretched from Sarnia in the west (with a branch from Port Huron, Michigan to Detroit) through Stratford, Guelph, Toronto, Kingston and Montreal to Riviera du Loup and Portland, Maine. Its subsequent growth was extensive, most of it by lease or by merger. Among the principal railways absorbed were: a) the Buffalo and Lake Huron Railway Company which ran from Goderich to Buffalo (completed in 1858); b) the Great Western Railway Company whose initial lines built in the early 1850's ran from Niagara Falls and Toronto through Hamilton and London to Windsor. A second line from Fort Erie to Glencoe was built in the early 1870's. It began as a connection between American lines in Michigan and those at the Niagara frontier; c) the Northern Railway of Canada which built initially from Toronto through Barrie to Collingwood (completed in 1855) and was later extended from Barrie northerly to North Bay (reached in 1886); d) the Canada Atlantic Railway Company which developed a line from the Vermont and New York state borders through Valleyfield and Ottawa to Parry Sound between 1879 and 1896; and e) the Midland Railway of Canada which was built up as a local system principally north and east of Toronto. Generally speaking, these acquisitions were defensive in nature 172

List of Railways Mentioned in the Text

rather than the result of positive policy. The Great Western, the Midland and the Northern Railways were taken over when the Canadian Pacific was looking for traffic in Ontario; the Canada Atlantic was taken to forestall the Canadian Northern. On the whole they did more to increase the debt than to improve the parent company's earnings. GREAT NORTH WEST CENTRAL RAILWAY COMPANY This company was incorporated in 1880 under another name, but its line from Chater (near Brandon) to Hamiota was not built until 1891. It was leased by the C.P.R. in 1900. GREAT NORTHERN RAILWAY COMPANY This company, the successor to the St. Paul Minneapolis and Manitoba (q.v.), was organized in 1889 and began to operate on February 1, 1890. It is the most northerly of the transcontinentals in the United States. the first which was not subsidised by government, and it reached the Pacific coast in 1893. This was James J. Hill's line. INTERCO LON IAL RAILWAY This railway was built from Truro, Nova Scotia to Riviere du Loup, Quebec, by the federal government as one of the obligations assumed at Confederation. Together with the provincial railways of Nova Scotia it gave a through route to Halifax. In 1879 it was extended westward to Levis and in 1897 to Montreal. These lines remain crown property but are entrusted for operation. to Canadian National Railways.

INTEROCEAN IC RAILWAY COMPANY OF CANADA This was the company incorporated in 1872 by Toronto interests to bid for the right to construct the railway to the Pacific coast. INTERPROVINCIAL AND JAMES BAY RAILWAY COMPANY This company was incorporated in 1901 to build from a point on 173

Canadian Pacific

the Lake Temiscamingue Colonization Railway to the Riviere Des Quinze along the east side of the lake. LAKE MANITOBA RAILWAY AND CANAL COMPANY This company was first chartered in 1889. Construction began in 1896 and operation began by the end of the year, over the Manitoba and Northwestern from Portage La Prairie to Gladstone under running rights and from Gladstone to Dauphin on its own lines. Extensions continued in the following years. In 1899 this company was amalgamated with the Winnipeg Great Northern Railway Company (q.v.) as the Canadian Northern Railway Company.

LAKE TEM ISCAM INGUE COLONIZATION RAILWAY COMPANY This company was chartered in 1886 to build from Mattawa on the Canadian Pacific main line to Lake Kipewa. The line was opened in June of 1896. Control of this line was acquired by the C.P.R. in 1891. See also Interprovincial and James Bay Railway Company.

MANITOBA AND NORTHWESTERN RAILWAY COMPANY OF CANADA This company was first chartered in 1880 under another name. It built from Portage La Prairie to Minnedosa (79 miles) in 1883, and a further 101 miles before it was leased by the C.P.R. in 1900.

MANITOBA AND SOUTHEASTERN RAILWAY This company was chartered by the Dominion in 1889 to build from Winnipeg to the International Boundary between ranges 8 and 16 east of the principal meridian. The first 45 miles from St. Boniface to Marchand were completed at the end of November, 1898; the next 106 miles in 1900. At the end of 1901 this line became part of the Canadian Northern's through route to Port Arthur. All of the construction was carried out after the charter came under the control of Mackenzie and Mann.

174

List of Railways Mentioned in the Text

MANITOBA SOUTHWESTERN COLONIZATION RAILWAY COMPANY This company was incorporated in 1879 and C.P.R. leased the railway in 1884. Its lines were completed in 1886-87. They ran from Winnipeg to Glenboro, from Manitou to Deloraine and from Elm Creek to Carman. They were leased to and operated by Canadian Pacific.

MINNEAPOLIS ST. PAUL AND SAUCT STE MARIE RAILWAY COMPANY (The Soo Line) This company was incorporated in 1888 in Minnesota and North Dakota. Its chief importance for Canada is that, with its eastern terminus at SaUlt Ste Marie, Michigan it was a perpetual threat to Canadian Pacific unless controlled by it. Canadian Pacific has maintained a stock-holding in it and its successors since the early 1890's. Initially this was done as a defense against an attempt by Grand Trunk to short-circuit C.P.R.'s main line across Northern Ontario. NATIONAL TRANSCONTINENTAL RAILWAY (see under Grand Trunk Pacific)

NELSON AND FORT SHEPPARD RAILWAY COMPANY This company was incorporated by the Province of British Columbia in 1891 to build between the two points named. It was an extension into Canada of the Spokane Falls and Northern Railway Company and ended up as a subsidiary of the Great Northern Railway. NEW YORK CENTRAL RAILROAD COMPANY This is the second largest railway system in the United States. It runs from New York City to Chicago and St. Louis. The Canada Southern line from Buffalo and Niagara Falls to Detroit is a part of it.

175

Canadian Pacific

NORTHERN COLONIZATION RAILWAY COMPANY This company was incorporated in 1899 to build from Labelle through Mont Laurier to Lake Temiscaminque. It was leased by C.P.R. in 1905. NORTHERN PACIFIC AND MANITOBA RAILWAY COMPANY This company was incorporated in 1889. It was a subsidiary of the Northern Pacific Railroad Company of the United States. Its lines ran from Pembina through Morris to Winnipeg, from Winnipeg to Portage La Prairie, from Morris to Brandon and from Hartney Junction to Hartney, in all about 350 miles. When the Northern Pacific railroad properties- were ready to emerge from receivership the successor company did not wish to take this company on as a subsidiary. The result was a lease to the province of Manitoba and an assignment of that lease, with an option to purchase, to Canadian Northern Railway Company. NORTHERN PACIFIC RAILROAD COMPANY This company was chartered in 1864 but construction did not begin until 1870. It was completed from Lake Superior to the Pacific Coast in 1883. It went into receivership in 1893.

NORTHERN RAILWAY COMPANY OF CANADA (see under Grand Trunk) ONTARIO AND QUEBEC RAILWAY COMPANY The initial charter for this company is dated 1871, with powers to build from Toronto through Peterborough, Madoc and Carleton Place to Ottawa. Reincorporation took place in 1881 and in 1883 power was given to build directly from Smiths Falls to Montreal. In the same year it leased other roads running from Toronto to Owen Sound and Windsor and from Montreal to Megantic. The whole property was leased to Canadian Pacific in 1884. Initially this was the corporate vehicle under which C.P.R. got access to southern Ontario. 176

List of Railways Mentioned in the Text

PRINCE EDWARD ISLAND RAILWAY When this province joined the Dominion in 1873 all its railways, built and proposed, became the property of the Dominion of Canada.

QU'APPELLE LONG LAKE AND SASKATCHEWAN RAILROAD AND STEAMBOAT COMPANY This company was incorporated in 1883 to build from Regina northerly. Its first 25 miles were completed in 1886. It was completed to Prince Albert in 1890. It was for many years a sub-marginal property. Canadian Pacific operated it for the account of the owners, by agreement up to 1896 and thereafter from year to year. In 1906 it was purchased by Canadian Northern Railway Company. QUEBEC CENTRAL RAILWAY COMPANY This company was first incorporated, under another name, in 1869. Its lines, which were built over an extended period, ran from Levis to Sherbrooke and Megantic and to Lac Frontiere. An agreement to lease the properties to Canadian Pacific was made in 1911 and became operative at the beginning of 1913.

ST. LAWRENCE AND OTTAWA RAILWAY COMPANY This line was originally chartered as the Bytown and Prescott Railway Company in 1850. The line ran from Prescott to Ottawa and was leased by Canadian Pacific in 1884.

ST. MAURICE VALLEY RAILWAY COMPANY This company was incorporated in 1904. Its line from Three Rivers to Shawinigan Falls was completed in 1908, and an extension to Grandmere was completed in 1910. In the latter year it was leased to C.P.R. ST. PAUL MINNEAPOLIS AND MANITOBA RAILWAY COMPANY This company was incorporated in May 1879 and purchased at foreclosure the several lines of the St. Paul and Pacific and their 177

Canadian Pacific

northern extensions. In January 1890 it leased its property to the Great Northern Railway (q.v.). This is the property whose shares provided the chief foundation for the fortunes of Stephen, Smith, and Angus and without which they might not have attempted, and certainly would not have been able, to build the Canadian Pacific main line. ST. PAUL AND PACIFIC The nucleus around which the Great Northern Railway was formed. It was absorbed by the St. Paul Minneapolis and Manitoba in 1879, and the latter by the Great Northern in 1890.

SASKATCHEWAN AND WESTERN RAILWAY COMPANY This company was incorporated in 1886. The following year it was leased to the Manitoba and North Western (q.v.), which in turn was later leased to C.P.R.

THE SOO LINE (see under Minneapolis St. Paul and Sault Ste Marie Railway Company)

THE SOURIS BRANCH The lines of the Manitoba and Southwestern Colonization Railway (q.v.) were leased by C.P.R. in 1884 and after 1886 the major extensions south of the main line and west of Winnipeg were made directly by C.P.R. as the Souris branch. In 1891 the lines had reached Nesbitt, 27 miles west of Glenboro, and Oxbow, 115 miles west of Kemnay (on the main line, just west of Brandon). In 1892 a further 110 miles were built to reach Souris, Estevan, Napinka and Reston. In the next year, the 160 mile line from North Portal to Pasqua (on the main line, east of Moose Jaw) was completed. Construction continued in this area up until 1914, the largest single segment in this period being the 113 mile line from Arcola to Regina which was built in 1905. Total construction under this title came to 684 miles.

178

List of Railways Mentioned in the Text

SPOKANE FALLS AND NORTHERN RAILWAY Initially this was the parent company of the Nelson and Fort Sheppard (q.v.). It was absorbed by the Great Northern. UNION PACIFIC The Union Pacific and the Central Pacific together constituted the first transcontinental railway in North America. The Union Pacific ran from Council Bluffs, Iowa to Ogden, Utah; the Central Pacific from Ogden to the Pacific.

WINNIPEG AND GREAT NORTHERN RAILWAY COMPANY This company was first incorporated in 1880 as the Winnipeg and Hudson's Bay Railway Company to build from Winnipeg to Port Nelson on Hudson Bay with powers to operate steamers, to build elevators, etc. In 1884 it was voted a land grant of 8,480,000 acres. The provincial government offered a guarantee of its bonds in 1887 and in the following year made a direct advance of funds. In 1891 the Company got a transport contract from the federal government for $40,000 per year for 20 years. In 1895-97 this was changed to provide for its application to the Lake Manitoba Railway and Canal Company. Moody reports (Manual of Investments, 1899, p. 897) that on June 30, 1898 the company had a floating debt of $600,000 bearing 6 per cent interest, that the Province of Manitoba had advanced $256,000 and that paid up capital stock was $747,600 out of a total authorized of $15,000,000. The same source said that 40 miles of road had been completed to St. Laurent in September 1887 but that it had not been opened for traffic eleven years later. The Act amalgamating this company and the Lake Manitoba Railway and Canal Company to form the Canadian Northern Railway speaks as if the 40 miles of line were then operable, but they do not appear in the railway statistics and Mrs. Bladen shows them as having been completed in 1905 (Contributions to Canadian Economics, VII, 88). The amalgamation was approved by order-in-council of January 13, 1899. 179

notes

NOTES TO CHAPTER 1 1. The recognition of the importance of the division of labour is the foundation of modern economics. The classic statement of its importance is in Adam Smith's An Inquiry into the Nature and Causes of the Wealth of Nations. In modern language that title reads "An Inquiry into the Means for Increasing the National Income." For those who do not find pleasure in Smith, The Making of Economic Society by Robert L Heilbroner (New York: Prentice-Hall. 1962) is recommended. The argument is the same. but the language and the illustrations are current. 2. See. however, R. W. Fogel. Railroads and American Economic Growth (Baltimore: Johns Hopkins Press, 1964) for a demonstration that the development of a great part of the United States could have proceeded with canals almost as well as with railways. 3. A. S. Morton, History of the Canadian West to 1870-71, (London: Nelson, 1939) p. 749. 4. Quoted in James Ford Rhodes, History of the United States, 1850-1877, VI, 354-5. See also Frederick Merk, Manifest Destiny and Mission in American History: A Reinterpretation (New York: Knopf, 1963), pp. 8.49-50. 56, 68.230-31. 5. Ibid., p. 342. The Fenians were giving Sumner great difficulties in Massachusetts at this time. One can therefore understand his desire to remove the British flag from the North American continent. Still, he was proposing a rather large and permanent change in political geography in order to ease his immediate political situation. 6. See E. P. Oberholrzer, Jay Cooke: Financier of the Civil War (Philadelphia: G. W. Jacobs and Co., 1907), II. 349. See also the letter of C. J. Brydges. Manager of the Grand Trunk, to Sir John A. Macdonald of January 25, 1870 which reports on a long conversation with J. Gregory Smith. Governor of Vermont and President of the Vermont Central and of the Northern Pacific in Correspondence of Sir John Macdonald (Toronto: Oxford University Press, 1921). pp. 123-24. 7. Ibid., pp. 124-25. 8. See C. C. J. Bond. "H.B.C. in the Ottawa Valley." The Beaver (Spring 1966). pp. 4-21.

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NOTES TO CHAPTER 2 1. Statutes of Canada, 1872, p. LXXVI I I. 2. Margaret Ormsby, British Columbia: A History (Toronto: Macmillan. 1958). pp. 247-49, and sources there noted. 3. A.S. Morton. A History of the Canadian West to 1870-71, pp. 790-91. 4. 35 Vict. c. 73. 5. 35 Vict. c. 72. 6. It died a-borning and has no connection with the subject of this biography which was chartered in 1881. 7. The name of this firm varies over the years but the Glyn name is always prominent. For a history of it see Roger Fulford. Glyn's 1753-1953 (London: Macmillan. 1953). This firm and Baring Brothers were Canada's bankers from the 1830's until 1893. For a short note on Baring Brothers, see R. J. Truptil, British Banks and the London Money Market (London: Cape. 1936), pp. 138-40. 8. In the election in mid-summer 1872 Sir John A. Macdonald had drawn heavily on Allan for campaign funds. There was no suggestion that he or any of his Cabinet had profited personally by these contributions, but when these became common knowledge there was a great public uproar. Political parties are at the heart of parliamentary government. It takes money to fight elections. But in Canada as elsewhere. the general public which refuses to support the party of its choice with many small donations can very easily work itself up into a lather of moral indignation when it finds that the parties take money where they can get it. Once the election was over it is probable that Macdonald's conduct toward the company would have been quite unaffected by the size of Allan's contributions. However, the fact remains that parties cannot exist without money: though no one must either give it or receive it. So long as these proprieties are observed, the party putting on the most expensive campaign has a noticable edge over its opponents. 9. See Brydges to Sir John A. Macdonald, of March 11, 1872. Macdonald Papers, Arch. Can. Vol. 123, #50499 and Allan to Macdonald, Ibid., Vol. 125. #51526. 10. He won the next election and resumed office October 17. 1878.

NOTES TO CHAPTER 3 1. House of Commons Debates, May 7, 1872. Vol. 416 and May 21. 1872. Vol. 734. See also Dale C. Thomson. Alexander Mackenzie: Clear Grit (Toronto: Macmillan. 1960), p. 125. 2. For a fuller account of the pulling and hauling that went on within and between the province and the government see G. P. de T. Glazebrook, A History of Transportation in Canada (Toronto: Ryerson. 1938), pp. 254-57. See also Margaret Ormsby. Chap. 10 "The Spoilt Child of Confederation," in British Columbia: A History. 3. His report is dated February 8. 1877.

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Notes

4. For details on the contract see Sessional Paper #43f of 1879. pp. 6-16. For the timing of construction see Ormsby, pp. 279-288. 5. Ibid., pp. 41-2. 6. Report of the CP.R. Royal Commission, III. 495-96.

NOTES TO CHAPTER 4 1. Cf. Glazebrook, A History of Transportation in Canada, p. 264. 2. See D. G. Creighton. John A. Macdonald, II. p. 293 ff. 3. While this contract was held in Onderdonk's name he was acting as a member of a powerful financial group of whom Levi P. Morton of Morton Bliss 8 Co. of New York was one. Therefore, if organized at all, this was likely to be a respectable group. 4. Arch. Can. Macdonald Papers, Vol. 267. #121047. 5. This offer was submitted to Macdonald on August 16. Arch. Can. Macdonald Papers, Vol. 127. #52396. As speculative plans go this one had much to commend it. From the standpoint of the investor in the bonds. a 12 year guarantee of interest had a present worth, at 4 per cent. of $37.83 per $100 par value. This cut down the risk very sharply. Secondly. if the lands sold well the bonds would be rapidly retired leaving the holders of the bonus shares in possession of a property nearly if not totally unencumbered. Even if all the bonds were exchanged against land there would still be six million acres left over as a reserve against excess construction casts and/or to pay interest after the guarantee period had expired. If, on the other hand, $65 million was not enough to build the railway (which later experience would indicate to have been the case), then nothing would be possible except the sale of second mortgage bonds, or failure.

NOTES TO CHAPER 5 1. Arch. Can. Macdonald Papers, Vol. 268. # 121831 of September 27. 1880. 2. Ibid., Vol. 268. #121854. 3. /bid., Vol. 127 #52638. However, the official date in the schedule to the Act, 49 Vict. Chapter 1, is October 21. 1880 so that the corrections must have been very minor indeed. 4. These are the words of section 3 of the Act. In the Agreement which appears

183

Notes

as a schedule it is stated in slightly different words "And the Company shall thereafter and forever efficiently maintain, work, and run the Canadian Pacific Railway" (Clause 7). 5. No full biography of Rose is available: the nearest approach thereto is Morden H. Long. "Sir John Rose and the Informal Beginnings of the Canadian High Cornmissioner ship," Canadian Historical Review. XII (1931), 23-43. For American opinion on his diplomatic skills see James Ford Rhodes History of The United States, 1850-1877, op. cit. VI. Chap. )(XXVIII: John Bassett Moore. History and Digest of The International Arbitrations to Which the United States Has Been a Party (Washington: 1898), Chap. 14-16: see also Lord Morley, Life of Gladstone (London: 1911), 11, 305. 6. Levi Parsons Morton. 1824-1920, became head of a wholesale house in New York in 1857. He failed in 1861 when southern debts became worthless. He reorganized and paid off all creditors in full. In 1863 he organized the financial house of Morton Bliss and Company. It rose very rapidly in financial power and was, with Drexel Morgan and Company, one of the two leading houses after the failure of Jay Cooke and Company. He was active in politics from 1876 to 1897 serving as Governor of the State of New York. as Vice-President of the United States and as Minister to France. See Dictionary of American Biography, XIII. 258-59 and sauces there noted. 7. See Rhodes. loc. cit. and Long. p. 30 n. 8. See the brilliant recent study. R. W. Fogel. The Union Pacific Railroad: A Case in Premature Enterprise (Baltimore: Johns Hopkins Press, 1960). 9. A parallel case in which Canadian practice was determined by past American mistakes is in the matter of advances to the United Kingdom during the last war. One cannot understand what was done in the years 1939-1945 unless one realizes that a major Canadian objective was to avoid a prolonged wrangle over "war debts" after the war was over. The experience of the Unified States after the first war conditioned Canadian performance during the second. 10. Most of the details of his early life are drawn from Heather Gilbert, Awakening Continent: The Life of Lord Mountstephen (Aberdeen: University Press, 1965), Chap. I. 11. Cf. Ibid., pp. 32-52 and J. G. Pyle, Life of James J. Hill (New York: 1917). 12. See Gilbert. p. 70 and letters there noted. 13. Dictionary of American Biography, X. 334-35. 14. Cf. Gilbert, pp. 70-71.

NOTES TO CHAPTER 6 1. Namely the Atchison. Topeka and Santa Fe; Chicago Milwaukee and St. Paul: Chicago and North Western: Northern Pacific: and St. Paul Minneapolis and Manitoba (later the Great Northern).

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2. Northcote's wife was Stephen's adopted daughter. 3. Walter Vaughan. The Life and Work of Sir William Van Home (New York: The Century Co., 1920) is the best source on his life, and a fascinating book in its own right. 4. Ibid., p. 89. 5. The lenders were Charles Unger & Company $2,500,000 F.W. Gilley Jr. & Company 400,000 The Bank of Montreal 812,240 $3,712,240 Unger and Company had 50.000 shares of C.P.R. as security: the other two had St. Paul Minneapolis and Manitoba bonds and stock only. The Unger loan was for two months with the option of renewing half of it for 30 days, the Gilley was for four months, the Bank of Montreal loan was a call loan. These were perfectly straightforward short-term loans. The security was not selfliquidating, but the excess value of the collateral was adequate. For example, at the lowest price registered in the market in 1884 there was still an equity of over 22 per cent in the securities pledged against the loan from the Bank of Montreal. 6. This took the form of $2.853.912 on February 1. 1884. to be secured by the deposit of $3.920.000 of land grant bonds and of $4,527,000 to be payable within five years and to be secured by the pledge of: i) all sums earned as postal subsidy and as payment for transport service to the government. ii) a further deposit of $1,830,000 of land grand bonds. iii) the $5.000.000 of land grant bonds which were originally pledged with the government to guarantee completion and operation thereafter for ten years, and, iv) the deposit of the unissued 350,000 shares of stock. 7. Stephen to Macdonald. December 15, 1883. Arch. Can. Macdonald Papers, Vol. 268. #122029. 8. Arch. Can. Macdonald Papers, Vol. 268 (1) #122080. 9. Campbell. McLelan and Bowell were all opposed to it and McLelan threatened resignation. McLelan formally tendered his when Macdonald took the matter to the caucus, but did not insist that it be accepted. See Creighton, 406. 415-16 and Vaughan. p. 127. 10. Vaughan. pp. 119-20. 11. Vaughan says flatly that the time from Ottawa to Winnipeg was four days (p. 122). Creighton has the movement "from III the main cities of the east" starting on Monday, March 30. the arrival "of the first units from the east" in Winnipeg on the night of April 4, and the movement of the first column out of Qu' Appelle less than a week later. (V. 11. 419). In the text this latter and more conservative statement has been adopted. 12. Stephen to Macdonald, April 16, 1885, Arch. Can. Macdonald Papers, Vol. 268, #122104. 13. Vaughan, op. cit. p. 131.

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NOTES TO CHAPTER 7 1. C.P.R. Annual Report for 1885. 2. The states covered are Iowa. Minnesota, Nebraska. South Dakota. North Dakota, Wyoming and Montana. See Poor's Manual of Investments, 1896. pp. XIIXIX; ibid. 1904, pp. XII-XV; and ibid.1912. pp. CXL-CXLVII for the complete series of reports on this basis covering the years 1883-1912 inclusive. The corresponding average for the eight Pacific states—Washington, Oregon. California, Nevada, Arizona. Utah and Idaho—was $5,813 or 2.47 times the Canadian Pacific figure. These two groups were most directly comparable of the eight in which the U.S. data were organized. 3. A lease gives the lessee control of the property with no capital outlay. This was its particular attraction for C.P.R. at this time. 4. This statement relies upon unsupported estimates of the average length of haul upon the connecting line. However, in each case it was estimated that the average length of haul was more than half the length of the line and the ratios still came within the range shown. It is of course highly probable in every case except that of the Qu'Appelle. Long Lake and Saskatchewan that the average haul was below half the length of line. If that is so, then the true ratios are in excess of those shown in the text 5. When Mackenzie and Mann bought the Manitoba and Southeastern charter and built the first 45 miles of line. 90 per cent of its traffic was in cordwood: We were able to place our cars in the Winnipeg C.P.R. yards. The C.P.R. was kind to us as the mighty knows how to be kind to the meagre. We had to buy more second hand equipment for the eastern adventure but as to flat cars for the cordwood. our conductor. Percival, had a brave habit of borrowing such as he could collect. in the C.P.R.'s yard, without asking anybody's leave. The late Sir William Whyte frequently laughed with us over this manifestation of Percival's trust in the C.P.R. which Sir William used to observe from his window in the old station overlooking the yards. D.B. Hanna, Trains of Recollection (Toronto: Macmillan, 1924), pp. 142-43. 6. C.P.R. Annual Report to Shareholders, 1883. 7. Vaughan, pp. 171-72. 8. Ibid., p. 226. 9. Ibid., p. 252 ff. On this whole matter, see also J.G. Pyle, The Life of James J. Hill, 1, 464, and 11. 218 ff.. for what has the appearance of being a rather heavily laundered version of these events from the standpoint of Mr. Hill. 10. Vaughan, p. 241.

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Notes

NOTES TO CHAPTER 8 1. Lance H. Whittaker, ed., Rossland: The Golden City (Rossland: Rossland Miner, Ltd., 1949), pp. 13. 39. 2. Statutes of British Columbia, 51 Vict. Chap. 44. 3. Ibid., 53 Vict. Chap. 40. 4. These Orders-in-Council were dated December 16, 1892: February 17. 1893: June 19, 1894 and January 25, 1895. 5. The lease was effective on June 1, 1893. See Statutes of Canada, 56 Vict. Chap. 38. Poor's Manual of Investments, 1896. p. 997 states that the actual takeover was on November 27, 1893. 6. For the charter see Statutes of British Columbia, 54 Vict. Chap. 58. The land subsidy is in ibid., 55 Vict. Chap. 38. For the declaration and the ratification of the agreement with the Spokane Falls and Northern Railway see Statutes of Canada, 56 Vict. Chap. 37. 7. Statutes of British Columbia, 59 Vict. Chap. 54. The title was Columbia and Western Railway Company. 8. Whittaker. pp. 40-41, gives the following account of the introduction of Jack Egan. the City Editor of the Rossland Miner in this period, to Mr. Shaughnessy (later Lord Shaughnessy) of the C.P.R. during a visit to Rossland by the latter. Shaughnessy thought he was not getting fair reporting in the paper, and said so. "Yes, Mr. Shaughnessy, but it is just like this." explained Egan. "If you hired a painter to paint your house white he would paint it white, and if you hired him to paint it black he would paint it black. I was hired to paint you black." 9. And inevitably, the political importance of the applicant seemed to be an important element in the final decision. 10. Statutes of Canada, 60-61 Vict. Chap. 5. 11. From the information now available it would appear as if $85.000 of this payment went into the treasury of the Crow's Nest Pass Coal Company, and was in fact the sole cash contribution at its formation. See B. T. A. Bell. The Canadian Mining Manual, 1898, p. 50 ff. 12. Records of Canadian Pacific Railway.

NOTES TO CHAPTER 9 1. Year to Dec. 31. 1896: to June 30 in 1913. The change in period came in 1900. The Company report is for the six months ended June 30 so that only broken data are available for that year. 2. W.A. Mackintosh. Economic Problems of the Prairie Provinces (Toronto: Macmillan, 1935). pp. 8-12. 284-85.

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3. In this respect Canadian Pacific differed sharply from the railroads of the United States in which debt as a proportion of railway capital tended to move upward rather substantially in the same period as is shown by the table which follows. Proportionate shares Grand total funded preferred common railway capital debt stock stock ($000,000 omitted) 49.1% 39.4 11.5% $11.491 1900 52.5 10.0 37.5 13.805 1905 56.0 7.6 36.4 18.417 1910 57.1 6.8 36.1 20.247 1914 see Interstate Commerce Commission. Statistics of Railways in the United States, 1900, pp. 52-3; ibid., 1914. pp. 31-2. 4. See, for example, the size of the costs put upon the Chicago Milwaukee and St. Paul in its initial difficulties in the receivership of 1925-1927. The total fees in this action were estimated at $5-6.5 million. See Max Lowenthal. The Investor Pays (New York: Knopf. 1933). Chapter XXI. An estimate has to be used here because the amount was not disclosed. It fell into bankruptcy again in 1935 and the whole process had to be repeated. The second reorganization was completed in 1945. See Moody's Manual of Investment, 1926. p. 1098 ff, ibid., 1945. p. 336 ff. and ibid., 1964, p. 177 ff.

NOTES TO CHAPTER 10 1. See, for example, D. Philip Locklin, Economics of Transportation (Chicago: Business Publications, Inc.. 1938). Chapter 11. 2. House of Commons Debates Aug 1. 1917, p. 4011. See also p. 4015. 3. W. R. Plewman, Adam Beck and the Ontario Hydro (Toronto: Ryerson Press. 1947). p. 124.

NOTES TO CHAPTER 11 1. Canada Year Book, 1926. p. 254. 2. The Dominion Bureau of Statistics estimated that in 1928 grain and grain products provided about 60 per cent of all revenue ton-miles of Canadian railways; Statistics of Steam Railways of Canada, 1928 (Ottawa: The King's Printer, 1930). p. 6. This was a high year, but it would put the then average figure at about 45-50 per cent.

188

Notes

Sampling studies of carload trafic originating and terminating within Canada did not begin until 1949. The statutory-rated grain traffic was not segregated until 1951 and random sampling was not introduced until 1954. By this time it is probable that the percentage of grain to total traffic was lower than in the 1920's. but even so the unweighted arithmetic mean of statutory-rated revenue ton-miles to total revenue ton-miles for the twelve years 1954-65 inclusive was 32.9 per cent. 3. In each case, the statement was as direct as a subordinate body could make it without drawing a rebuke from the Cabinet or from Parliament. The following extract from the 1923 Report, p. 9, may be taken as typical: "Railway freight rates in Canada are and have been for many years the lowest in the world. The average freight receipt per ton per mile for Canadian Railways in 1914 was 0.742g. War time increases forced this unit of earning up to a point approximately 75% over the pre-War level. The series of reductions which began January 1st, 1921, have substantially reduced this average so that in 1923 it stood at 0.980. or 32% above the pre-War level. In contrast to this, average prices of labor, material and supplies prevailing in 1923 were somewhat in excess of 90% over the pre-War scale. "The Canadian National Railway System is the property of the people of Canada. and it is for the people, through their duly elected parliamentary representatives and the Board of Railway Commissioners, to determine what the freight and passenger rate policy of the Dominion in its relation to the Canadian National Railway System shall be; but there is no way by which freight and passenger rates can be continually reduced and net earnings at the same time increased; and, moreover, restricted net earnings must inevitably mean additional taxes to provide for annual deficits. THE ADMINISTRATION OF THE CANADIAN NATIONAL RAILWAYS SYSTEM IS THE TRUSTEE OF THE PEOPLE'S PROPERTY. THAT ADMINISTRATION CANNOT AND HAS NO DESIRE TO DICTATE POLICIES. BUT IT WOULD BE LACKING IN THE FULFILLMENT OF ITS PUBLIC DUTIES IF IT DID NOT MAKE THESE FACTS CLEAR TO THE PEOPLE OF CANADA." {The emphasis is in the original.) If. in the end. Sir Henry Thornton broke out in an orgy of capital expenditure after 1926, he was entitled to a certain measure of sympathy. He did so only after public pressures made it effectively impossible to run Canadian National without going into the red. 4. The amounts in each of these years were ($000 omitted): Canadian National Canadian Pacific 1923 $14.519 $36.788 1931 22.482 59.132 $7,963 increase $22.344 See D.B.S. Canadian National Railways, 1923-1949, Table 1 and D.B.S.. Canadian Pacific Railway, 1923-1949. Table 2. 5. Report of the Royal Commission on Transportation, Mr. Justice Duff. Chairman. (Ottawa: The King's Printer. 1932). Chapter V. 6. Statutes of Canada, 23-24 Geo. V. Chap. 33. 7. Speech to the Canadian Club of Winnipeg. February 8, 1933 (privately printed). p. 9.

189

Notes

8. "On behalf of the Board. I would like to state that after inspection of the main arteries of the System, we find that the work undertaken has been well performed, and that the expenditures have been well applied. While the demands for capital expenditure on a System of such extent in a growing country, as the former Board stated, are never ending, yet it may now be said that the three groups of lines, until recently the Canadian National Railways, enter the consolidation in excellent physical condition and operating at a high mark of efficiency as regards actual performance or movement of traffic and other factors controllable by management. Apart from certain well-known cases of duplication the lines are well located and in exceptional position to successfully perform the transportation demands of the country. The problem as far as the lines covered by the report is concerned, is how sufficient traffic may be developed to carry the overhead and maintenance expenses. As far as transportation costs go. an economical performance is being made. Under these circumstances, the margin for improvement with the present light volume of traffic is largely dependent on circumstances beyond the control of the management. "On some of the older sections there are still improvements that should be undertaken, but in the main the lines are modern in character and were built or have been brought up to standards which are ahead of actual traffic requirements, except under stress of seasonal movements. "The success of the National System in respect to these three groups is not entirely to be obtained by methods generally applied to Railways which are not producing returns, viz—improving the physical condition and operating methods—it is a matter of building up the country to support the Railways." Annual Report of the Canadian National Railways, 1922, p. 10.

NOTES TO CHAPTER 12 1. Mr. Oskar Lange of the Department of Economics. the University of Chicago, opened his article "Is the American Economy Contracting?" American Economic Review, XXIX (1939), 503-13—with the words: "The view is widely held that the American economy has lost its momentum of expansion and reached a stage of more or less permanent stagnation." His views aroused no opposition. He was merely stating what many were thinking. See also the Supplement to the American Economic Review, March 1939. The whole of the annual meeting of the Association in December 1938 was given over to aspects of this topic, while Alvin Harry Hansen in his presidential address spoke on "Progress and Declining Population." See also Willford I. King "Are we Suffering from Economic Maturity?" in Journal of Political Economy, XLVII, 609-22. who took a relatively optimistic view and evoked a pessimistic reply from Gerhard Colm, in ibid., XLVIII, 114-18. 2. In 1943, Canadian National charged the year's income with 819,069,000 to set up a reserve for pension obligations which had not been covered in the years 1935-42 inclusive. In relation to the year 1943 it was a perfectly aboveboard attempt to reduce the stated profits for those who looked only at the footings of the

190

Notes

account and not at the "expenses" which went into its construction. The words used were"revenue appropriated for pension reserve."

Annual Report of the Canadian National Railways, 1943. pp. 4. 9-10.

NOTES TO CHAPTER 13 1. In 1949. 1951, and 1952 (there was no survey in 1950) class-rated traffic provided 19-21 per cent of the sample revenue in the waybill analyses. In 1963-65 it has been below 5 per cent and is still trending downward. Class rates are the rates applicable to all traffic unless a lower rate has been published. Goods are assigned to classes and the class rate for that good for the given distance is applied. Commodity rates are designed to meet competition of various kinds. They are quoted for carloads only, from named origins to named destinations. See Board of Transport Commissioners, Waybill Analysis (Ottawa: The Queen's Printer, Annual). 2. Revenues per ton-mile on class-rated railway traffic as reported in the above source are below the average truck revenues per ton-mile as reported in D.B.S. Motor Transport Traffic by Commodities. Cat. No. 53-004. 3. John Lorne McDougall. "The Relative Level of Crow's Nest Grain Rates in 1899 and 1965," Canadian Journal of Economics and Political Science, XXXII (1966), 46-54. 4. See supra, Chapter 11 n. 2. Note that these percentages cover carload traffic originating and terminating in Canada. See Waybi I I Analysis for details. There are no published data covering international traffic.

NOTES TO CHAPTER 14

1. Statutes of Canada, 37 Vict. Chap. 14. 2. Nouse of Commons Debates, 1879, p. 1895. 3. Statutes of Canada, 35 Vict. Chap. 71 and 49 Vict. Chap. 1. 4. J.B. Hedges. Building The Canadian West (New York: Macmillan. 1939). p.80 suggests that the Company did not begin to push its own lands until 1888. 5. Ibid., p. 126 ff. 6. Ibid., p. 23. 7. Ibid., p. 126 ff. and sources there noted. 8. Mackintosh, pp. 8-12. 283-85. 9. See for example the letter quoted by Hedges, p. 142. "They go after their purchaser. pay railway fares, accompany them to the land, personally conduct them

191

Notes

over it and stay with them, eat, sleep and drink with them if necessary, until a sale is made or they fail in the attempt." 10. Ibid., pp. 154-55. 11. /bid., chapter VII. 12. Ibid., p. 213. 13. Quoted in Hedges. pp. 213-14. 14. Ibid., p. 214. 15. Ibid., p. 300. 16. Ibid., p. 303. 17. Ibid., p. 309. 18. Ibid., p. 318.

19. Ibid., pp. 398-9. 20. Martin, p. 267. 21. Ibid., pp. 309-10, 311. For other references in like vein see Hedges, pp. 93. 125. 134. 139-40.293 and 345.

NOTES TO CHAPTER 15

1. Supra, Chapter 8. 2. Cominco was a shortened form of the Company's title first used in the 1940's.

3. Records of the Canadian Pacific Railway. 4. S.S. Fowler. "Early Smelters in British Columbia," The British Columbia His-

torical Quarterly, 1 1 1 (1939), 183-201. It should not be inferred that the competition for ore was only with other smelters in the area. In 1900 the St. Eugene mine in the East Kootenay district shipped ore to the Guggenheim smelter in Antofagasta, Chile; in 1901 to Antwerp and Hamburg. Canadian Mining Review, XIX (1900), 281 and the Moyle Leader, July 6 (1901). We are indebted to Mr. W.E. Ireland. Provincial Archivist of British Columbia for these details. 5. Cominco acquired the Sullivan mine in 1910. Foregoing dividends from 1907-1912 did not guarantee that it would hit- the jack-pot in this tremendous fashion. If it did, we should all save so furiously that we would forget to eat. But if Cominco had not been building up its financial strength, could it have mustered the courage to back such a long shot as the Sullivan then appeared?

NOTES TO CHAPTER 16 1. Annual Report, 1966. pp. 55-56

192

index

Abandonment of railway branches, resistance to, 118 Abbott. J.J.C.: counsel to C.P.R. on contract. 40; with Stephen in appeal for further help, 62 Acworth, W.M.. replaces Sir George Paish on Royal Commission on Transportation. 97 Alberta Railway and Coal Company, 167, 76 Alberta Railway and Irrigation Company. 168; land grant to. 127 Aldridge. Walter Hull. first manager of Trail smelter. 144 Allan, Sir Hugh, proposal to build Pacific Railway. 20. 22-24 Amalgamation of C.N.R. and C.P.R. rejected by Royal Commission, 105 American Smelting and Refining Company, controls Federal Mining and Smelting, 147 Angus. R.B.: manager. St. Paul Minneapolis and Manitoba. 46; member of C.P.R. syndicate. 46; resigns from Bank of Montreal, 46

Bank of Montreal. lends at short term on St. Paul Minneapolis and Mani-

toba securities, 45. 185 Baring Brothers: approached by Sir Hugh Allan. 23; buys C.P.R. first mortgage bonds, 53-54 Beatty, E.W., President in 1918. 103 Blaylock. S.G., recommends purchase of Sullivan mine. 147 Board of Transport Commissioners. procedural limitations, 95. 116 Bond. C.C.J., H.B.C. in the Ottawa Valley. 5-6, 181 Bond guarantees: dangers of. 4; test of government policy of. 96-97 Bow River Pipe Lines Ltd.. 162 Brassey, Lord, interested in building the Pacific Railway, 32 British Columbia. brought into Confederation by promise of a railway. 1415; terms of entry into Confederation, 19 British Columbia Southern Railway Company, 168; chartered as Crow's Nest and Kootenay Lake Railway Co.. 75; province gives land grant and asks federal government for cash subsidy. 75; C.P.R. purchases its charter, 79-80; land grant to. 80. 127 Brydges. C.J.. manager of G.T.R., 14 Buffalo and Lake Huron Railway, 172

193

Canadian Pacific

Calgary and Edmonton Railway Company. 168; land grant to, 127 Canada Atlantic Railway. 172 Canada Central Railway Company, 168; merged into C.P.R.. 51 The Canada Company. interested in building the Pacific Railway. 32 Canada Cotton Manufacturing Company, and George Stephen. 45 Canada Pacific Railway Company. 168 Canada Rolling Stock Company, and George Stephen. 45 Canadian Locomotive and Engine Company, and George Stephen. 45 Canadian National Railways: formation of, 5: its handicaps, 99; heavy capital investment in under Hanna, 1012, 106, 189-90; effects of government ownership on. 102 ff.; level of freight rates at 1923. 102-3. 189; earnings in Second World War. 11012; new capital investment in, 12122 Canadian North West. possibility of settlement questioned. 56 Canadian Northern Railway Company, 169; implications for C.P.R.. 3; competitor of C.P.R. after 1901. 34: financed by government guarantees. 4: bond guarantee for line to Port Arthur. 87-89 Canadian Pacific Hotels Ltd.. 160-61 Canadian Pacific Oil and Gas. 160 Canadian Pacific Railway (1873). financial plan. 23 Canadian Pacific Railway Company: national identity. 1; premature enterprise, political in origin, 1, 12; provisions of charter and agreement, 40-41; abandons Yellowhead Pass route, 51; concentration of early stockholdings, 51; initial sales of land grant bonds, 53: land boom ends and sales slump. 53; sale of additional land grant bonds and of stock. 53-54: guaranteed dividend on common stock, 55-56; asks for government help, 56-58: terms of

194

government help. 58; further financial difficulties. 59-60; sale of first mortgage bonds. 63: comparison with Great Northern and Northern Pacific at 1886. 67: help given tributary roads. 68; fear of extension of Grand Trunk to Sault Ste Marie. 6869; agreement with Crow's Nest Pass Coal Company, 80-81; growth in capacity. 84; financial plan, 1896-1914, 86; perpetual debenture stock. 86: response to rising costs and changing demand, 11820; need for higher earnings on other assets, 121-22; earnings on other assets, 122; land subsidy offers for Pacific Railway, 125-26: grant of Vancouver townsite to. 127; its Department of Natural Resources, 134; in steamship business, 157.58; in trucking business, 158; in airlines, 158-60; in hotel business, 158, 160-61; formation of C.P. Investments. 160 C.P.R. and Cominco, a symbiotic relationship, 146 Canadian Pacific. lands: irrigated lands, 6. 133 ff.; subsidies, a comparison with U.S.. 128; compelled to promote sale of government land. 128: special position of C.P.R. in. 12829; policies re. 129; initial prices and conditions of sale, 129-30; no net sale 1883-1896. 130: proceeds to 1896. 130; cooperation given in relation to all land sales, 133; irrigation of. 133 ff.; arrangement for sale of irrigated lands. 134; ready-made farms on, 134-35; eastern irrigation district, 134. 137-38; western irrigation district. 134. 138-39; crop payment plans for. 135; demonstration farms on. 135; on easy terms, 135; readjustment of land contracts beginning in 1927, 138; readjustment of contracts in the depression, 138 ff.; reservation of sub-surface

Index

rights, 139; expectations of land profits, importance of. 140 Canadian Pacific Securities Ltd.. 161 Central Pacific Railroad Company, (see under Union Pacific) 179 Central Vermont Railway Company, 169 Chicago Milwaukee and St. Paul Railway, 169; cost of reorganization. 188 Columbia and Kootenay Railway and Navigation Company, 77. 170; land grant to. 127 Columbia and Western Railways Company, 170; land grant to, 127 Cominco American. 153 Cominco Ltd.: effect on C.P.R.. 5-6; inception. 6; Betts process introduced (electrolytic refining of lead). 144-45; chartered. 145; early financial policy and reasons for success. 146, 192; leases, then buys Sullivan mine, 146-47; first producer of electrolytic zinc in Canada. 147-48; acquires West Kootenay Power and Light Company. 148; effect of differential flotation of lead and zinc on. 148; fertilizer properties and production, 150; Con mine discovered, 151; acquires National Hardware Specialties. 152; acquires Western Canada Steel Ltd., 152; acquires Western Rolling Mills Ltd. through subsidiary, 152; expands into iron and steel business, 152: produces high-purity metals, 152; foreign interests of. 153; produces minor metals, 153-54; problems and opportunities, 154-55 Compulsory cooperation, recommended by Royal Commission, 105-6 Cooke, Jay. (see also Jay Cooke and Company) thought a Canadian transcontinental should be eliminated, 14 Craft unionism, effect on employee attitudes, 118-19 Craigellachie, the last spike, 63 Crow's Nest Agreement rates: summar-

ised. 79, 120; probable reasons for. 81-82 Crow's Nest Branch of Canadian Pacific Railway, 73. 170 Crow's Nest grain rates: agitation for restoration of, 102-3; effects on rates on other commodities, 117; equity under price inflation, 117. 189 Crow's Nest and Kootenay Lake Railway Company, (see B.C. Southern Railway Company) 168 Crow's Nest Line: description of, 73. 170; finances, 79 Crow's Nest Pass Coal Company. agreement with C.P.R.. 80-81 Crow's Nest route, politico-military reasons for not considering it for the main line, 69

Diamond. R.W.. success in differential flotation of lead and zinc. 148 Differential flotation of lead and zinc, by Cominco. 148 Dominion Atlantic Railway Company. 170-71 Drayton, Sir Henry, appointed to Royal Commission on Transportation. 9798 Drexel Morgan and Company. 184 Duluth South Shore and Atlantic Railway Company. 171; control taken by C.P.R.. 69 Duluth and Winnipeg Railroad Company. 171; control taken by C.P.R.. 69: lands form basis of Great Northern iron ore properties, 69 Dunmore, Earl of, represents Puleston Brown and Co. in Ottawa, 32

East Kootenay, ore supply for C.P.R. smelter from. 144

195

Canadian Pacific

Esquimalt and Nanaimo Railway Company, 171; land grant to. 127

Federal Mining and Smelting Company. fails to work the Sullivan mine profitably, 147 Fish. Hamilton. Secretary of State for United States. 13. 42 Fleming. Sandford. chief engineer of Pacific Railway. 26 Fogel, R.W.: on railroads and economic growth. 181; author, The Union Pacific Railroad: A Case in Premature Enterprise, 184 Forest fertilization. 163 Fort Steele Mining and Smelting Company. holds Sullivan mine for a time, 147 Freight rates, relative decline after 1914 in. 95

Gilbert. Heather, biographer of George Stephen, 184 Gilley. F.W. and Company, lends at short term on St. P. M & M securities. 185 Glazebrook, G.P. de T., author, A History of Transportation in Canada,182 Glyn's, 23 Gooderh am and Blackstock families. sell Centre Star. War Eagle Consolidated and St. Eugene mines to C.P.R., 145 Grain traffic, share of total railway traffic, 102, 117 Grand Trunk Pacific Railway Company, 171; financed by government guarantee. 4; obligations assumed by, 90 Grand Trunk Railway: incorporates G.T.P. and becomes a transcontinental. 3-4; is pulled down by failure of G.T.P., 5; not willing to build Pa-

196

cific Railway. 20; opposes a Pacific Railway in Canada and in London, 20; tries to switch Pacific Railway route south of Lake Superior, 21; works to block Sir Hugh Allan. 24; opposes C.P.R. in Canada and in London. 51. 56; wants full access to Canadian West. 90 Grand Trunk Railway Company of Canada. 171-72 Grant. U.S.. (President of United States. 1869-1877). hopes to take over Canada, 13 Great North West Central Railway Company, 173; land grant to. 127 Great Northern Iron Ore properties. 69 Great Northern Railway Company. 173; successor to St. Paul Minneapolis and Manitoba. 46; potential competitor for use of Crow's Nest Pass. 76; gets access to southern interior of B.C. through Spokane Falls and Northern and Nelson and Fort Sheppard. 77 Great Western Railway Company of Canada. 12. 172

Hanna, D.B.: encourages C.P.R.'s help to connecting roads. 68. 188; replaced as head of Canadian National Railways. 101; qualities as an operating officer. 101-2 Hanson Brothers: agents of C.P.R. in purchase of B.C. Southern charter, 80 Hedges, Prof. J.B.. judgment on C.P.R.'s land policies, 140-41 Hai nze. F. Augustus: establishes smelter at Trail and builds narrowgauge line to Rossland. 77; sells out to C.P.R., 81-82; withdraws from active business in Canada, 143-44 Hill, James J. partner in Red River Transportation Co., 45; in syndicate to buy St. Paul and Pacific. 46; nom-

Index

inates Van Home as general manager for C.P.R., 52; retires from C.P.R. syndicate. 54 Hincks. Sir Francis. suggests talks with Northern Pacific representatives. 22 Hudson's Bay Company: posts on upper Ottawa supplied from James Bay. 15-16, 183; lands purchased from. 127,134

Intercolonial Railway, 173; becomes part of Canadian National Railways. 5: basic to entry of N.S. and N.B. into Confederation, 14; manner of operation. 30 Interest charges: increases for both railways. 1923-1931, 104 Interoceanic Railway Company of Canada, 173; chartered. 22 Interprovincial and James Bay Railway Company. 173-74; land grant to. 127

Jay Cooke and Company, 34; fails, 24

Kennedy, J.S., retires from C.P.R. syndicate, 54 Kennedy. J.S. and Company: subscribes to first issue of C.P.R. stock. 51: sells stock for C.P.R.. 54-55 Keynes, J.M., 114 Kimberley. location of Sullivan mine. 148 King, Willford I.. 190 King, W.L. MacKenzie. chooses Thornton to head C.N.R.. 101 Kittson, Norman W.: buys H.B.C. interest in Red River Transportation Co.. 45; St. Paul agent for H.B.C.. 45; Kohn Reinach et Cie: member of the

Stephen syndicate. 40; subscribes to C.P.R. stock, 47 Kootenay Coal Company, (see Crow's Nest Pass Coal Company) 80 Kootenay Landing, railway reaches. 79

Lake Manitoba Railway and Canal Company. 174; built on land grant and bond guarantee. 87 Lake Temiscamingue Colonization Railway. 176 Land companies, based in U.S., begin selling Canadian land. 132 Land grants, John A. MacDonald hopes they will build the Pacific Railway, 14 Lange. Oskar. 190 Long. Morden H., re Sir John Rose. 184 Lowenthal, Max. author. The Investor Pays, 188

Manitoba agreement. rate reductions. 88-89 Manitoba and Northwestern Railway Company of Canada, 174: land grant to, 127 Manitoba and Southeastern Railway Company. 174; acquired by MacKenzie and Mann, 88 Manitoba Southwestern Colonization Railway Company, 176; leased to C.P.R.. 54; land grant, 127; land sales, 134 Marathon Realty Company Ltd.. 16263 Martin. Prof. Chester. judgment on C.P.R.'s land policy, 141-42 Merk, Frederick. author. Manifest Destiny and Mission in American History: A Reinterpretation, 181 Midland Railway of Canada, 172 Minneapolis St. Paul and Sault Ste Marie. (the Soo Line) 175

197

Canadian Pacific

Montreal Rolling Mills. George Stephen invests in. 45 Moore, John Bassett. 184 Morton Bliss and Company. 42: did not subscribe to C.P.R. stock. 47 Morton, Levi P., member, Morton Bliss and Co., 184 Morton Rose and Company. 42; largest subscribers to first issue of C.P.R. stock, 51

Macdonald, John A.: decision to subsidise C.P.R., 2; considers Pacific Railway a necessity, 12; refuses to meet Northern Pacific delegation, 22; and campaign contributions, 23. 182; restored to power, 31: association with Sir John Rose, 41-43; probable influence of Union Pacific's difficulties on, 43: disastrous early life of G.T.R. as influence on. 44; congratulations from Fleming, Van Home and Stephen. 63-64 Mackenzie. Alexander. and the Pacific Railway. 24. 25-26 T.W. Mackenzie Logging Ltd., 163 Mackintosh, W.A., author, Economic Problems of the Prairie Provinces, 187 Macpherson. D.L.: and the Pacific Railway, 20; refuses to join Allan syndicate. 22 McIntyre, Duncan: represents Stephen syndicate in Ottawa. 32; manager of Canada Central Railway, 46; retires from C.P.R. syndicate. 54

National Hardware Specialties, acquired by Cominco. 152 National Transcontinental Railway. 171-72. 175: built by government. to be leased by G.T.P.. 3-4

198

Nelson and Fort Sheppard Railway Company. 175: an extension into Canada of the Spokane Falls and Northern, 77 New York Central Railroad Company. 175 North West Mounted Police, 2 Northern Colonization Railway Company, 176; land grant to, 127 Northern Pacific and Manitoba Railway Company, 3, 176: leased by Province of Manitoba and sub-leased to Canadian Northern, 88 Northern Pacific Railroad Company, 176: hopes to make a Canadian transcontinental unnecessary. 14; interest in Canada's Pacific Railway, 21 ff. Northern Railway of Canada. 172 Northwest Company, amalgamation with H.B.C. ends Montreal's connection with the North West, 15-16

Oberholtzer. E.P.. author, Jay Cooke: Financier of the Civil War, 181 Onderdonk, Andrew. interested in building Pacific Railway, 32-33 Ontario and Quebec Railway Company. 176: leased to C.P.R., 54 Ormsby, Margaret. author, British Columbia: A History, 182

Pacific Logging Company, 160.163 Pacific Railway: British Columbia presses for immediate construction. 25-26: 100 million acre land grant proposed, 31; attitude of G.T.R. to, 32.36 Pacific scandal, 23-24: and political morality. 182 Paish, Sir George, appointed to Royal Commission on Transportation. 97 Passmore Lumber Company Ltd.. 163

Index

Pembroke. the last settlement before Winnipeg, 16 Pine Point. first explored by Cominco, 151 Pope. John Henry, member of delegation from Cabinet to London. 33 Prince Edward Island. its railways and railway policy. 15 Prince Edward Island Railway, 177 Puleston Brown and Company. and the Pacific Railway. 32. 35-36

Qu'Appelle. rail head for army in second Riel Rebellion, 61 Qu'Appelle Long Lake and Saskatchewan Railway, 177 Quebec Central Railway Company, 177; land grant to. 127

Railway policy, the options at 1916-17, 4-5 Railways: lines in existence at 1867. 11-12: importance in 19th century, 11.181 Rhodes. James Ford, author, History of the United States, 1850-1877. 181 Rose, Charles, present at drafting of agreement with Stephen syndicate. 37 Rose. Sir John: consulted on initial agreement with the Stephen syndicate, 37: short biography. 41-43 Rothschild's. 23 Royal Commission proposed by Beatty and Thornton. 105 Royal Commission Report, wastes of government construction. 29-30 Royal Commission on Transportation, 1916-17, appointment of. 97

St. Lawrence and Ottawa Railway Company. 177

St. Maurice Valley Railway Company. 177; land grant to, 127 St. Paul Minneapolis and Manitoba Railway Company, 177-78; successor to St. Paul and Pacific. 46; land policies, a precedent for C.P.R., 130 St. Paul and Pacific, 178; chartered, 45; bond default, 45: earning power restored, 45 Saskatchewan and Western Railway Company. 178; land grant to, 127 Second Riel Rebellion, effect on C.P.R., 61 Second World War, effect on C.P.R., 110-11 Seniority effect on employee attitudes. 118-19 Slocan, ore supply for C.P.R. smelter from, 144 Smith. Adam. 181 Smith. A.H., appointed Chairman of Royal Commission on Transportation. 97 Smith. Donald A.. in syndicate to buy St. Paul and Pacific. 45 Smith, J. Gregory. President of Vermont Central and of Northern Pacific. 181 Societe Generale. and the Puleston Brown syndicate. 36-37; invited into the Stephen syndicate, 40 Soo Line. (see under Minneapolis St. Paul and Sault Ste Marie) 175; appeals to C.P.R. for assistance. 68-69 Sooke Forest Products Limited. 165 Souris Branch of Canadian Pacific Railway. 178: land grant to. 126,127 Spokane Falls and Northern Railway. 77.179 Statutory grain rates, effects of after 1946, 117 Stephen. George: President and major stockholder, 5; in negotiation with government. 39-40; dominant in syndicate. 44; Director and President of the Bank of Montreal. 45; in syndicate to buy St. Paul and Pacific. 45: specializes in finance. 52; asks for help from government. 57-58;

199

Canadian Pacific

asks for more help from government. 60-62; financial policy. 66-67; arbiter between Hill and Van Home on the Duluth and Winnipeg. 69: advises sale of C.P.R. stock. 70 Stephen syndicate, initial offer to build Pacific Railway. 33 Stewart, R.N., recommends purchase of Sullivan mine. 147 Sullivan mine. acquired by Cominco. 146-47 Sumner, Charles (Chairman, U.S. Senate Committee on Foreign Relations) claim for cession of Canada. 13; and the Fenians, 181

Thomson. Dale C., author. Alexander Mackenzie: Clear Grit. 182 Thornton, Sir Henry: President of Canadian National Railways, 103; problems of running C.N.R. under government ownership. 102-3, 189 Tod, J. Kennedy. succeeds J.S. Kennedy as banker. 47 Trail smelter, reasons for success, 146 Trans-Canada Airlines, given exclusive rights to transcontinental service. 158 Trutch, J.W., a negotiator for B.C. on entry into Canada, 19 Tupper, Sir Charles, member of Cabinet delegation to London. 33 Tyler, Sir Henry: President of G.T.R.. refuses to consider building line north of Lake Superior. 36

200

Unger. Charles and Company, lends at short term on C.P.R. stock. 185 Union Pacific. 179: relations with U.S. government, 43; as a premature enterprise, 184 Union Pacific-Central Pacific. first rail route to Pacific coast. 41

Van Home, W.C.: nominated as General Manager of C.P.R. by J.J. Hill, 52; becomes General Manager of C.P.R., 52; costs of winter operation, 66

Waddington. Alfred, and the Pacific Railway. 20-21 West Kootenay Power and Light Company. becomes subsidiary of Cominco. 148 Western Canada Steel Ltd.. acquired by Cominco, 152 Western Rolling Mills Ltd., acquired by Cominco. 152 Wheat. Red Fife. 131 Wheat prices, decline and recovery. 7071, 131 Whyte. Sir William. 186 Winnipeg and Great Northern Railway Company. 179: acquired by Mackenzie and Mann. 88; amalgamated with Lake Manitoba Company to form Canadian Northern, 88