©2001 Chinook Multimedia Inc. Page 1 of 12 Economic Perspective on the Building of the Canadian Pacific Railway Livio Di Matteo ©2001 Chinook Multimedia Inc. All rights reserved. Unauthorized duplication or distribution is strictly prohibited. Introduction The nineteenth-century national policies of the Canadian government, a triad of land, railway, and commercial policies, aimed at making the Canadian West an investment frontier of Central Canada. Through the policy of land grants in the West, the Dominion government sought to settle the region with farmers, who would serve as a market for the manufactured goods of an Eastern and Central Canadian industry that in turn would be protected by the national policy tariffs. The crucial link between the two policies was the building of a transcontinental railway that would create a national economic space along an east-west axis. The building of the Canadian Pacific Railway (CPR), then, was the key ingredient in early Canadian political and economic development as well as "a landmark in the spread of Western civilization over the northern half of North America." [1] The completion of the CPR in 1885 was more than an impressive transcontinental engineering achievement; it was also a significant joint economic undertaking by the public and the private sectors. Crucial to the success of the CPR as a nation-building device was the choice of route through the Canadian shield as well as the contribution of substantial government financial aid. In the absence of government assistance, the CPR would probably not have been constructed by private interests when it was, although whether government assistance to the CPR was too generous is still a matter of debate. Opinion as to whether the subsidies were necessary depends on whether one views the investment decision from an ex post or ex ante perspective, from after the railway was built or before. [2] Chronology Of The CPR Railways were the transportation innovation that drove nineteenth century industrial progress; they reached their zenith with transcontinental lines such as the CPR. The basic chronology of the construction of the CPR is well established in the historical literature. In 1871, the province of British Columbia was admitted to the Canadian federation. As part of the terms of entry, the Canadian government undertook to commence construction on a railway from Central Canada to the Pacific within two years and to complete the project within ten years. In 1872, the Conservative government of Prime Minister John A. Macdonald awarded the contract to build the railway to the Canadian Pacific Railway Company, of which Sir Hugh Allan was President. In April of 1872, Sanford Fleming, the chief project engineer, settled on a northerly route for the Canadian Pacific Railway that would take it through http://www.chinookmultimedia.com/poccd/registered/subscription/papers/case_studies/di... 9/14/2009 ©2001 Chinook Multimedia Inc. Page 2 of 12 the Yellowhead Pass and then down to Burrard Inlet. The project fell apart in 1873 when the Pacific Scandal revealed that Sir Hugh Allan, prior to his company being awarded the railway contract, had subsidized the Macdonald Conservatives in the 1872 election campaign. The Macdonald government resigned, and the Liberals under Alexander Mackenzie were elected to power in the January 1874 election. The Mackenzie government began construction of the line on its own in small, incremental, and cautious steps. By 1877, a line from Fort William (now Thunder Bay) to Winnipeg had been completed as well as the section from Kamloops to Port Moody in British Columbia. The main difference between the policies of the Conservative and Liberal governments, when it came to railway construction, was the speed with which each was willing to pursue the project. The Liberals, on the whole, were much more cautious, being prepared to wait rather than accept a time limit for completion. [3] In 1878, the Macdonald Conservatives were returned to power with the completion of the CPR as a central plank of the national policies. The slow rate of progress on the transcontinental railway helped make the case for again having a private company assume the project. In 1880, the government awarded the contract and charter for the transcontinental railway to the Canadian Pacific Railway Syndicate under interests led by fur trader, financier, and diplomat Donald Alexander Smith, transportation official and railway magnate James Jerome Hill, and banker and cousin to Donald Smith, George Stephen. The dynamic William C. Van Horne was hired as the project manager. The CPR charter dealt with constructing a line from Callander (near North Bay), Ontario, to the Pacific coast but the CPR was allowed to operate in Central and Eastern Canada as well. During the spring of 1882, the syndicate completed the line from Fort William, Ontario, to Selkirk, Manitoba, and the line reached Regina by summer's end. As well, in 1882, an alternate and more southerly pass, the Roger's Pass, was discovered through the Selkirk Mountains by surveyor Albert Bowman Rogers. The new route of the railway, which had been altered to go through the southerly Palliser's Triangle subject to the alternate pass to the Yellowhead being 100 miles or more from the U.S. boundary, was successfully implemented. In 1885, the line around the rugged Lake Superior north shore connecting Fort William to Callander was completed; its usefulness was demonstrated when it was used to dispatch troops to quell the North-West Rebellion in Saskatchewan. The transcontinental rail line was finished with the driving of the Last Spike at Craigellachie, British Columbia, on 7 November 1885. The first through passenger train left Montreal on 28 June 1886 and arrived at Port Moody, British Columbia, on 4 July 1886. The CPR continued to expand in Eastern and Central Canada in the 1880s through further construction and acquisition and its mileage grew from 4,338 miles in 1885 to 7,000 miles by 1899. The construction of a short line through Maine by the CPR in 1890 linked Montreal, Quebec, to Saint John, New Brunswick, gave the CPR a coast-to-coast capability, and in the process further undermined its competition-the circuitous Intercolonial Railway which ran from Rivière-du-Loup, Quebec, to Truro, Nova Scotia. The rolling stock of the CPR also grew tremendously between 1886 and 1899. The number of freight and cattle cars increased from 8,235 to 19,005; the number of first and second class passenger cars rose from 209 to 627, and the number of locomotives nearly doubled from 372 to 690. [4] The volume of freight carried by the CPR and the number of passengers tripled between 1886 and 1899, while the grain carried quadrupled across the same period. As the West was settled, the growing grain trade also resulted in the CPR erecting elevators at collection points on the Prairies as well as terminal elevators at the Lakehead, which cleaned, treated, and stored grain before loading it on lake vessels for export to world markets. By 1900, the CPR had built five terminal elevators at the Lakehead with a combined capacity of 7.5 million bushels. http://www.chinookmultimedia.com/poccd/registered/subscription/papers/case_studies/di... 9/14/2009 ©2001 Chinook Multimedia Inc. Page 3 of 12 Selecting the Route The final route of the CPR was a matter of much contention. In Central Canada, the geographic obstacle of the Canadian Shield, with its muskeg and rock, stood greatly to increase the cost of the project. Indeed, James J. Hill resigned his directorship with the CPR in 1883 in part to protest the building of the main line along the north shore of Lake Superior. Meanwhile, in the West, the choice of route was between a southerly course that would take the railway through the arid Palliser's Triangle and a more northerly course through Saskatchewan, Edmonton, the Yellowhead Pass, and then down to Kamloops and Port Moody. The decision had important economic consequences, as the more northerly route was seen as possibly adding to the railway line's cost and distance while the more southerly route would add a significant quantity of agricultural land to the railway's service area. Fleming had proposed the more northerly route. It would pass through an area of arable land known as the "fertile belt" in comparison to the dry region covering much of southern Saskatchewan known as Palliser's Triangle. However, during the early 1880s, CPR botanist John Macoun argued that the arid Palliser's Triangle was composed of clay soil that would actually hold more moisture if broken by the plough-making the area suitable for agricultural settlement and, therefore, for the route for the CPR. This optimistic assessment provided an additional justification for the southerly route and added thousands more acres to the potential land for settlement. The droughts of the1920s and 1930s would show the folly of agricultural settlement in Palliser's Triangle. The discovery of the more southerly Roger's Pass indeed cemented the choice of the southern route while the more northerly route eventually became the route of the Canadian National Railways. The CPR generally preferred the most southerly route, possibly fearing that, in the long run, competing railways could be built to the south of its main line. As well, there was the concern that the grains available at the time might not be as safe a crop in the more northerly latitudes. Given the expense of building through the Canadian Shield, a number of proposals for the line from Ontario to the West had been made. Most of these proposals involved going through the United States and coming up through Minneapolis and Red River to Winnipeg. Indeed, a rival offer put forth by the Grand Trunk in the 1870s suggested using the Grand Trunk line from Quebec City to Sarnia, American railways from Sarnia to Winnipeg, and only building a line from Winnipeg to the Pacific.