Canada in the European Age, 1453-1919 9780773575462

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CANADA in the

EUROPEAN AGE 1453-1919

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CANADA in the

EUROPEAN AGE 1453-1919

R.T. NAYLOR Second Edition

McGill-Queen's University Press Montreal & Kingston • London • Ithaca

McGill-Queen's University Press 2006 ISBN-13: 978-0-7735-3090-4 ISBN-10: 0-7735-3090-8 (cloth) ISBN-13: 978-0-7735-3091-1 ISBN-10: 0-7735-3091-6 (paper) Legal deposit second quarter 2006 Bibliotheque nationale du Quebec Printed in Canada on acid-free paper that is 100% ancient forest free (100% post-consumer recycled), processed chlorine free First publication 1987 by New Star Books This book was originally published with the help of a grant from Social Science Federation of Canada, using funds provided by the Social Sciences and Humanities Research Council of Canada. McGill-Queen's University Press acknowledges the support of the Canada Council for the Arts for our publishing program. We also acknowledge the financial support of the Government of Canada through the Book Publishing Industry Development Program (BPIDP) for our publishing activities. Library and Archives Canada Cataloguing in Publication Naylor, R.T., 1945Canada in the European age, 1453-1919 / R.T. Naylor. — 2nd ed. Includes bibliographical references and index. ISBN-13: 978-0-7735-3090-4 ISBN-10: 0-7735-3090-8 (bnd) ISBN-13: 978-0-7735-3091-1 ISBN-10: 0-7735-3091-6 (pbk) 1. Canada-Economic conditions—To 1763. 2. Canada-Economic conditions—1763-1867. 3. Canada-Economic conditions—1867-1918. 4. Canada-Foreign economic relations—Europe. 5. Europe-Foreign economic relations—Canada. 6. Canada-Foreign economic relations—United States. 7. United States-Foreign economic relations— Canada. I. Title. FC163.N39 2006

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C2005-907434-5

To the memory ofJ.C. Weldon

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Contents

Introduction to the 2006 Edition Bruce G. Trigger Acknowledgments xix Preface to the First Edition xxi PART ONE

1 2 3 4

THE AGE OF B U L L I O N I S M

The Discoveries 3 The Foundations of English Bullionism The Foundations of French Bullionism The Aftermath of the Discoveries 40 PART TWO

5 6 7 8 9 10

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20 30

THE AGE OF M E R C A N T I L I S M

The Origins of the English Plantation System 51 The Origins of the French Plantation System 65 Competition for Empire, 1663-1713 77 France in America, 1713-1763 96 Competition for Empire, 1713-1763 108 The Triumph and Collapse of British Mercantilism PART T H R E E

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THE AGE OF I N D U S T R Y

11 The Industrial Revolution and the Colonial System 147 12 Competition for Empire, 1793-1832 154 13 The Atlantic Seaboard: From Mercantilism to Industrial Capitalism 167 14 The Contest for the Continental Interior, 1763-1821 186 15 Emigration and Colonization, 1763-1841 197 16 Finance and Politics in Canada, 1793-1841 212

CONTENTS PART FOUR

THE AGE OF STEAM AND STEEL

17 The Triumph of Steam and Gold 237 18 Commercial Reorientation and Structural Change in the Economy of United Canada 252 19 The Dawn of the Railway Age in British North America 263 20 The Railroad to Confederation: Canadian Expansion 280 21 The Railroad to Confederation: The Maritime Response 297 22 Reconquest of the Northwest 314 23 The Rise of the Pacific Economy 327 24 Fur Trade and Pacific Empire 343 25 From Company Colony to Company Province 354 PART FIVE

26 27 28 29 30 31 32 33 34 35

THE AGE OF H I G H I M P E R I A L I S M

Imperialist Rivalries, 1873-1914 367 A Railway from Europe to China 378 The Contest for the Continental Interior, 1873-1914 Canada and the Cross of Gold 417 Industrial Development and Continental Integration Transcontinental Empire 450 Canadian Expansion Overseas 469 The Approach of War 488 The Canadian Economy in the Great War 503 The Aftermath of War 522

Notes and Sources 532 Bibliography 562 Index 604

396 433

Introduction to the 2006 Edition

THOMAS NAYLOR'S Canada in the European Age (1987) is a major landmark in the creation of a new understanding of Canadian history during the second half of the twentieth century; it remains important for understanding Canada's economic development within a world context. It is also a book that has aroused passionate responses. Voltaire is reported to have remarked that history is nothing but a pack of tricks that the living play on the dead - but it might more appropriately be described as a pack of tricks that historians play on the living. From its beginnings in ancient Greece into the twentieth century, history remained largely a chronicle of the thoughts and deeds of political leaders. Often it was indistinguishable from biography, although longer-term narratives were composed to reinforce political regimes and increasingly during the eighteenth and nineteenth centuries to rouse support for emerging nation states. The writing of history was frequently controlled by patronage, censorship, and political coercion, making it a form of propaganda. All too often one of its most important messages was Horace's dictum that it is "sweet and seemly to die for one's fatherland." Such an approach has encouraged an exceptionalist bias in the writing of history, which puts the main focus on those features that distinguish one country from another and define each as a special entity. No one can deny that every country has its own unique history, but an -emphasis on difference deflects attention from those features that different countries have in common and hence impedes the development of a comprehensive understanding of how specific societies have developed. Most importantly, such a view fails to take account of the important influences that specific societies have exerted on one another. J.L. Granatstein (Who Killed Canadian History? [1998]) and some other Canadian historians regard as tragic the waning of this patriotic sort of history, which Granatstein labels "national history." They

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maintain that unless such history is taught in the schools Canada's very existence as a nation is threatened. For them history is a vital form of propaganda. Yet it seems to me that their ideas do not take account of the realities of the teaching of history. Even as a child growing up in a politically partisan family in southwestern Ontario in the 1940s, it was obvious to me that there were at least two versions of Canadian national history: a Liberal one and a Tory one. Later I discovered that professional historians were producing histories of Canada that specifically catered to these two clienteles, and still later I encountered histories composed from a social democratic (CCF) and a communist perspective. I also came to realize that school texts were written with an eye to winning approval from provincial educational authorities, since adoption of these works for use in schools meant profits for their authors. Reading about Canadian history gave me an understanding of the role that subjective biases play in the interpretation of social science data that has guided my academic life ever since. When I was studying anthropology as an undergraduate at the University of Toronto in the late 1950s, a staff-student seminar was asked to consider how anthropological knowledge of Canada's indigenous peoples might be used to improve the teaching of history in Ontario. I brashly expressed the opinion that as anthropologists we might better discuss how and why history was being taught in Ontario schools than join naively in the production of more propaganda. The head of the department, Thomas Mcllwraith, who was chairing the seminar, turned to the next item on his list as if he had not heard me and, duly intimidated by this elderly authority figure, no one else responded publicly to my proposal. After the seminar one of the young professors, who until then I had imagined to be highly conservative in his views, came up to me and said privately that of course I was right and I should stick to my opinions. In the 1980s one of my daughters checked the narrative of Wolfe's conquest of Quebec in her Quebec high-school history text against accounts in other histories and discovered a major discrepancy between the size of military forces reported to be available on each side. At that point she too learned that "national" history was a form of propaganda, in this case to the extent that what was wished for had triumphed over factual accuracy. For party-political reasons national history has never been as monolithic in Canada as the Granatsteinians wish it to be, nor have students been as mindlessly influenced by it as these same educators imagine them to be. On the contrary, for a long time the propaganda built into school histories has encouraged the development of critical doubts about such accounts, at least among some students.

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By the early twentieth century, development of the social sciences had already encouraged the creation of a new type of history in which the chief emphasis was no longer on describing and celebrating the actions of political leaders but on tracing economic, social, and cultural change. This sort of history had precedents in the study of legal and constitutional developments that had fascinated a small number of historians and antiquarians since the sixteenth century. The primary focus of this new alternative history was on understanding changes in institutions and ways of life. The role of prominent individuals in bringing about change was not ignored but the beliefs and behaviour of ordinary people now became a major focus of study. That in turn led to detailed examination of the parts played by different social classes, ethnic minorities, occupations, and women as well as men in historical processes. Early examples in Canada of such history were the studies by the economic historian Harold Innis of The Fur Trade in Canada (1930,1956) and The Cod Fisheries (1940) and Alfred Bailey's The Conflict of European and Eastern Algonkian Cultures, 1504-1700 (1937), a pioneering examination of the results of early contacts between Europeans and indigenous peoples in eastern Canada. After World War II, economic history gave rise to various specializations: agrarian history, industrial history, commercial history, entrepreneurial history, and, often in a more radical vein, labour and union history. It is frequently assumed that these new sorts of history are complementary to traditional political or national history but have little effect on it. This is not so. When, in the 1960s, I began my examination of relations between the French and the Wendat (Huron) people of Ontario in the seventeenth century, I naively assumed that I was extending the study of Canadian history into a relatively unexplored field. I also assumed that the investigation of early French activities and settlement in Canada, which was then a very active field, had already determined almost everything that was important and possible to know about these processes and foresaw no possibility that my own research would produce any new understandings of this subject. Yet the more I learned about the activities of the Wendats and other indigenous peoples in eastern Canada during the sixteenth and early seventeenth centuries, the more obvious it became that the current understanding of early New France was based on records produced mainly by government officials and priests. These records failed to take sufficient account of the activities of fur traders and their assistants, who were crucial agents in French relations with indigenous peoples as well as the main creators of wealth that made possible the early growth and survival of New France. In Natives and Newcomers (1985), I used what I had

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learned about Canadian history from an aboriginal point of view to challenge accepted interpretations of the early history of New France. By then it had become clear to me that any new understanding of the history of Canada might require revision of what had already been concluded about that history. National history was not the core of Canadian history and institutional and minority histories its peripheries: instead all were parts of a seamless, interdependent network. The threat posed by the new historiographies to conventional understandings of Canada's past may explain the mistrust and hostility that some traditional historians have expressed about them. Louise Dechene's landmark Habitants et marchands de Montreal au XVIF siecle (1974), a social history based on the innovative use of notarial records instead of the clerical and administrative reports that had previously been employed to study Quebec history, was published by a distinguished press in France after it failed to receive a needed publication subsidy in Canada. One assessor of the manuscript of my study of the early Wendat encounter with the French, The Children ofAataentsic (1976), suggested that it could greatly be reduced in length by omitting sections dealing exclusively with Wendat history and culture. The same reader also objected that I spent five pages analyzing the death of a single Wendat convert, even though I had made it clear that the original accounts of this event shed much crucial light on how the Wendat viewed the French and their cultural practices. Probably for similar reasons, the manuscript of Canada in the European Age elicited evaluations ranging from rapturous applause to vehement condemnation. These differences of opinion and the disputes to which they gave rise meant that it took ten years to secure a publication grant for the book from the Social Sciences Federation of Canada. Negative assessors opposed the work on many grounds. It was denounced as a Marxist tract and denigrated as being full of factual errors and conceptually flawed. The claim that it was Marxist clearly indicated that at least one assessor knew nothing about Marxism; and all large-scale syntheses contain factual errors as well as specific errors in interpretation, no matter how hard authors try to eliminate them. Naylor may not have got the Khedival succession in nineteenth-century Egypt correct, but this mistake hardly undermined his analysis of Canadian economic history. He had to struggle tenaciously to ensure that his book was published with its basic message intact. What must have been especially unpalatable to hard-core national historians was Naylor's international approach to Canadian history. Harold Innis's staples theory, while integrating

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Canada into a broader world economy, nevertheless retained the popular vision of Canada as a country physically and historically distinct from Britain, the United States, and anywhere else. Innis was an exceptionalist as well as a nationalist. Naylor, by contrast, portrayed Canada as a country that from the beginning of European penetration had been caught up in extensive international political and economic networks that powerfully shaped its development. For instance, from early times Dutch and Russian entrepreneurs had been involved in the felting of beaver fur for Paris hatters. Naylor also examined in detail the close relations between economics and politics. Throughout Canadian history, governments have served as sources of patronage, first for individuals and later for ever larger and more predatory corporate welfare bums. Businesses operating in Canada, as elsewhere, while subject to varying degrees of government regulation as well as subsidization, have, whenever they can get away with it, operated on the principle that free enterprise means freedom from paying taxes, but not from receiving government support. Politicians more often than not know that their careers can be made or broken by economic forces and generally learn how to cooperate symbolically with businessmen. Naylor also revealed that some of our national heroes expressed opinions different from those we normally associate with them - such as John A. Macdonald's claim that "if we had to make the choice between independence and annexation, I would rather that we should have annexation and join with the United States at once ... Canada must belong either to the British system or the American one" (p. 373). Even more threatening, Naylor's book was written in an accessible, infectious, and provocative style. Many readers who were offended by what Naylor had to say were probably even more outraged by the way Naylor backed up his claims with irritating and unexpected factual evidence and by his colourful and provocative language. Moralizing was refreshingly absent from the book, replaced by razor-sharp irony, a favourite weapon of attack employed by rationalists since the Enlightenment. Naylor's book was as attractive and subversive as the libretto for a Gilbert and Sullivan operetta, but it differed from Gilbert's works in not having an implausible happy ending. From the point of view of determined national historians, Canada in the European Age was a dangerous book. Naylor was born in Woodstock, Ontario, in 1945. He attended Woodstock Collegiate Institute, which was also the alma mater of Harold Innis, and then studied honours economics and political science at the University of Toronto, where his favourite teacher was

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the great political theorist C.B. Macpherson, author of The Real World of Democracy (1965). Naylor next attended the London School of Economics and Cambridge University. What he saw and experienced in the course of a Land Rover trip to India and back following his first year as a doctoral student led him to resolve that henceforth he would focus on empirical and socially relevant economic research relating to history and institutions. His doctoral thesis was an analysis of foreign investment patterns. Naylor was hired by McGill University to teach Canadian economic history, a subject that the economics department had neglected for some time. Canada in the European Age grew out of this teaching. In 1975 Naylor had published The History of Canadian Business, a two-volume study of the conflict of commercialism and industrialism between 1867 and 1914. In Canada in the European Age he broadened his frame of reference to cover the whole of Canadian economic history from prehistoric times to 1919. He ended in 1919 as he believed that year marked the change from the European Age of world domination to an era of global rivalry between the United States and the Soviet Union. As well, by 1919 the era of commodity production in Canada had given way to an era of industrial production. Naylor characterized Canada in the European Age as a work of synthesis and the reinterpretation of earlier research done by many economists and historians. His synthesis, however, was guided by an analytical framework of his own creating that offered a new reading of Canadian economic history that was and remains highly stimulating. Central to this framework was the concept of the "accumulation of capital," the process of building up a stock of productive forces that can be used to pursue monetary gain, social prestige, and political power. Naylor interpreted this process as an assault by entrepreneurs on the physical environment, the social fabric, and competitors. Also fundamental to Naylor's approach was his conviction that this process must be understood from an international perspective, which, prior to 1919, included not only Europe as the centre of imperial expansion but also what Europeans were doing elsewhere that impinged on Canada. In order to situate Canada's economic development in the larger framework of an evolving international economy, Naylor paid careful attention to the changing roles played by states, markets, and individual actors; the evolving international division of labour; the pressures of empire-building, economic imperialism and national development; and the effect of tensions within metropole countries on the shape of their internal development and international relations. While Naylor found much that was useful in Innis's concept of staples, he treated this concept as limited in scope

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and inadequately contextualized. He also rejected Marx's simplistic view of class struggle, arguing that class relations were less significant from a social and historical point of view than were imperial relations or those between creditors and debtors. Joseph Schumpeter and Karl Polanyi are among those economists whom Naylor identifies as having significantly influenced his thinking. I can personally attest to the great effort Naylor put into learning about Canada's indigenous peoples. As a result, his is the first economic history in which indigenous people appear as threedimensional human beings, rather than as stereotypes of "economic man" wearing feathers, and are portrayed as active participants in bringing about social change. Naylor does not shrink, however, from documenting how, in the long run, contact had an unfavourable effect on most indigenous peoples as Canada evolved into a white-settler country. Economists have praised the lucidity of Naylor's explanations, the extraordinary amount of data he collected, and his ability to call into question explanations that had long gone unchallenged. He demonstrates, for example, that the construction of the Canadian Pacific Railway, which had long been interpreted as a home-grown act of Canadian nation building, was favoured by British officials as a communications link by which goods and British soldiers could, when necessary, be transported back and forth between Britain and the Far East. And anyone wondering how long Canadian government officials have been siphoning large sums of public money to political parties through contracts with private companies should examine Naylor's detailed accounts of this process in the late nineteenth century when, he asserts, such practices were "in keeping with the normal standards of Canadian political conduct" (422). Still more importantly, Naylor's account of Canada's economic history is richly contextualized and multidimensional. I can remember my maternal grandfather, the youngest child of a large Waterloo County farm family, recalling that one day in the summer of 1896, when he was a young boy, he accompanied his father, brothers, and their Scottish neighbours who were working to repair local roads rather than paying their taxes in cash. During the day word was received that the Liberals had won the national election and Wilfrid Laurier would be the next prime minister of Canada. There was a great shout of jubilation, everyone declared that good times lay just ahead, and the work party downed tools and headed off to the nearest tavern to celebrate. In the school texts of my youth, Macdonald's National Policy, with its high tariffs, was presented as the salvation of Canada and it was implied that anyone who had opposed it did not know what was good for Canada or himself. Naylor, by contrast,

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makes it clear why some groups supported the National Policy and the Conservative Party but also why my grandfather's family and their neighbours believed it to be in their own interest to oppose both. Naylor's approach is not only different from that of partisan political history but clearly better because it is more comprehensive and inclusive in its coverage of what happened in the past. In that respect it more fully realizes the historian Leopold von Ranke's ideal of showing the past as it really was and comes closer to being a truly national history of Canada than do works that equate partisan propaganda with patriotism. Canada in the European Age received mixed reviews. Some commentators praised its originality and lauded it as a contribution to the study not only of Canadian but also of world history. Some hoped that Naylor would produce another volume that would trace the history of the Canadian economy down to the present. On the other hand, The Canadian Historical Review, Canada's premier professional historical journal, noted its appearance with one of the shortest and most dismissive reviews ever to appear on its pages. Many economists judged Naylor's book to be too innovative and perhaps too well written for adoption as a text book. Naylor has gone on to become a world-renowned specialist in criminal economic activities, such as black markets, international illegal finance, and the underground economy. He studies arms trafficking, gold smuggling, money laundering, and terrorist financing, seeking to sort out what is really going on from a proliferation of myths and misrepresentations. He serves as both a consultant to and a critic of tax authorities, law enforcement bodies, and international organizations. His many publications on these subjects, including Hot Money and the Politics of Debt (1986), Patriots and Profiteers: On Economic Warfare, Embargo-Busting and State Sponsored Crime (1999), and Wages of Crime: Black Markets, Illegal Finance, and the Underworld Economy (2002), are characterized by the same clarity and originality as is Canada and the European Age. Although Naylor tells me that as time passes he grows angrier with the state of the world, his writing continues to manifest a sense of irony of Voltairean proportions. Canada in the European Age and Naylor's other works stand for something very important in academia. The current hegemonic forces that are seeking to control the world are demanding, in order to be able to carry out their mission of defending America and democracy from the threat of international terrorism, an unprecedented acceptance of their world view and their political and economic priorities. As during the McCarthy era, criticism and dissent

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are being equated with disloyalty. Some of the supporters and apologists of the new order are even seeking to suppress irony, claiming it is inappropriate given the gravity of the external threats confronting all decent people. Under these circumstances, the sheep must not even joke about the motives of the fierce but kindly canids (dogs? wolves?) who are striving to look after them. In contast, one of the most important duties of humanists and social scientists who are employed in public and private universities should be to question all forms of dogma; to explore the motives, implications, and obfuscations of public policy; and to propose new ways of understanding and dealing with current problems. Naylor, with his challenging insights, clear and accessible prose, and active public presence, provides a model of how conscientious academics ought to be serving the societies (rather than the governments) that support them. This is not an easy role and it is one that easily can create enemies both inside and outside academia. But it is a way of behaving that deserves respect, encouragement, and protection by all those whose concerns extend beyond the most short-term, personal selfinterest. Bruce G. Trigger November 2005

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Acknowledgments

RESEARCHING AND WRITING Canada in the European Age spanned the best part of a decade; wrestling with the Social Sciences Federation of Canada to secure a publications grant took another five years. Hence the author built up an enormous number of debts to colleagues, to scholars, to librarians, to computer operators, to people in the publishing industry, and, not least, to the members of the Academic Freedom and Tenure Committee of the Canadian Association of University Teachers. It would be impossible to acknowledge all of them here, not least because the names of seven different assessors picked at various points by the SSFC to review the manuscript are supposed to be anonymous. Subject to these constraints, thanks to Bob Campbell, Wallace Clement, Bev Colquhoun, Paul Davenport, Louise Dechene, Danny Drache, Allen Fenichel, Peter George, Peter Gourevitch, James Hiller, Ed Horka, John Hutcheson, Arthur Kroker, Harold Kursk, Mike Leibowitz, Catherine Ludgate, Doug McCalla, John McCallum, James Mallory, Rolf Maurer, Margie Mendell, Carmen Miller, Leo Panitch, Paul Phillips, Steve Randall, Abe Rotstein, Mario Seccareccia, Errol Sharpe, John Thompson, Bruce Trigger, Larry Turewitz, Mel Watkins, Harold Wright, and Brian Young. Obviously none of them bear any responsibility for any errors or debatable interpretations that are likely inevitable in a work that covers so much ground.

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Preface to the First Edition

THE ECONOMIC INTERRELATIONS between various parts of the world have been explored in countless texts; all manner of treatises have been produced on European expansion abroad; and many pertinent facets of Canadian history and political economy have been documented abundantly. But the job of putting the three elements together, of viewing the historical development of economic institutions and social relations in Canada in the context of the global spread of Eurocentric empires, has been tackled only marginally. It is in the hope of making a contribution in that direction that Canada in the European Age was written. This book is a narrative of events, great and small, tragic and comic, well-known and obscure, that make up the raw material of the five centuries of history it covers. It subscribes to a certain view of human society. It treats history as the unfolding of economic systems over time. It treats the history of European expansionism as a process by which social relations became increasingly commercialized, as a process by which the "market mechanism" flowed across geographic space at the same time it percolated through social space. It treats the history of contact between societies as a contest of unequals in which the weaker is all too often obliterated. It therefore treats the history of European penetration into "new" parts of the globe as an amalgam of destructive and constructive forces, the two being inextricably interrelated. Central to the story is the process euphemistically known as the "accumulation of capital", the building up of a stock of productive resources in such a form as to enable them to be mobilized for the pursuit of pecuniary gain. It is therefore a story of the assault by "entrepreneurs" on the physical environment, on the social fabric, and on their competitors, domestic and foreign. It is a story too of power, its accumulation and use for personal ends. For, contrary to the mythology of liberal societies, the "market mechanism" which in theory (though rarely in fact, and even in those rare instances only

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temporarily) diffuses and depersonalizes power, is in its most advanced form a very recent and still very imperfect instrument for the mobilization of resources for economic pursuits. The alternative to the market and diffused power is personal exchange relationships and concentrated political power. These themes are inextricably interrelated. As the European imperial powers penetrated new areas of the globe, the accumulation of wealth by European adventurers abroad went hand in hand with the spread of commercial, market-oriented activity into societies and social strata where it had been previously rare or nonexistent. And as the market system of organizing economic activity spread, it did so not by virtue of the laws of nature, but by the laws of human society. Commercialization of social relations was at heart a political process. So too was the accumulation of wealth by the emigre European entrepreneurs and enterprises in the colonies. In almost every part of the globe in the initial stages of European penetration, be it the Americas in the late fifteenth and early sixteenth century, India in the late eighteenth to mid nineteenth, or China throughout the mid to late nineteenth centuries, wealth was accumulated at least partially through overt plundering by European conquistadors with the more or less open endorsement and encouragement of their sponsoring states. In a more advanced stage, accumulation often worked through the imposition of tribute payments on a subject population, or the more sophisticated but essentially equivalent forms of taxes imposed on unwilling colonial populations, of indemnities, and of forced loans. And the very process of extending market exchange relations into areas not formerly part of a Eurocentric commercial network was often a unilateral decision - one that generated new markets which could be exploited by the imposition of terms of trade that bore no relationship to the relative costs of producing the goods being traded. Once the adverse terms of trade had been imposed on the colonial producers, both aboriginal and white settlers, they could be maintained by the instruments of political including military - domination. The colonies were ripe fields for the exercise of the talents of emigre entrepreneurs. For colonial societies were typified by a pronounced lack of inhibition in the range of economic behaviour they would tolerate. Codes of business conduct, scarcely edifying even in the European societies that sponsored colonization, were much looser in the colonies. This reflected the relative fluidity of the colonial social order compared to the European metropole. Within European states, upward movements in social status were rendered

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difficult by the existence of social mores and institutions that rationalized and protected the socioeconomic status quo. For the aspirant to a higher position on the metropolitan social ladder, a frontier of European penetration overseas provided the means by which one could circumvent the barriers to upward social mobility. When a transfer of wealth and of social status occurred within the metropole, it was perceived as benefitting one at the expense of another, but wealth and class privileges accumulated abroad represented a net addition to the social system, and hence could be assimilated without serious disruption to the existing order. While a metropole-based nouveau riche class was often a threat to the established order and its emergence might have revolutionary consequences, a colonial nouveau riche class was not. For Christopher Columbus and Count Frontenac, for Lord Strathcona and Cecil Rhodes, there was a common motivating factor. As social conditions stabilized and rigidified in the older colonies, as the initial European acquisitions generated their own social and economic elite, the field of action of the emigre adventurers from the metropoles simply moved elsewhere. Throughout the entire European Age, there was a steady expansion of the frontier of European influence across the globe. For the European imperial powers as a whole, as distinct from a particular group of entrepreneurs and adventurers who spearheaded the conquest and colonization process, the role of colonies in their development was diverse, and tended to vary over time and space. Colonies produced strategic materials, be they luxuries, essential foodstuffs or industrial raw materials. They functioned as markets for metropolitan products, as fields for the investment of metropolitan capital, as dumping grounds for surplus population. They were a source of private profit and public gain: providing precious metals for the public treasuries, commercial profits to the overseas trading companies, rentier income for the overseas investors. Some colonial possessions were acquired not as economic assets per se, but as strategic ones to help defend the trade routes of others. The economic motivation for colonization was always present in one form or another, and generally, though not always, dominant, albeit that its precise manifestation varied with the degree and direction of economic development of the metropole and with the relative amount of political power certain interested business groups in the metropole could wield. A public presence was much in evidence in the colonization process. Metropolitan entrepreneurs went to work behind the protective shield of military and diplomatic power. Indeed, these entrepreneurs often were that military and economic power, for

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they generally comprised the backbone of the colonial administration. Political and military power was directed to the task of enhancing their private interests, and the plunder of the public purse was frequently the first step to personal wealth. But above all else the link to the state was essential because the state was the instrument by which commercial relations could be extended into new territory. Most of the historical time, and social and geographic space, embraced by the European Age involved contact with societies that were non-industrial and indeed often non-commercial as well. Hence the dialectics of relations between groups of actors, and between economic classes, were for the most part quite distinct from the conflict of labour and capital that dominates the more modern scene. The central element determining economic - and therefore political power was not the "ownership of the means of production". Indeed the very concept of "private property", with its implicit carte blanche for utilization of natural resources, labour power and financial capital according to the whims of the owner, was a relatively modern concept: for many of the metropolitan societies for much of the period covered, the concept was only in its infancy or at best its adolescence, and in many of the non-European societies it was not even conceived. In fact the slow and uneven process by which private property relations spread throughout an ever broader range of human relations is precisely what much of the story of the European Age is about. For much of the period treated here, the closest approximation to "free market" activity lay not in the allocation of the elements essential for the production of commodities, but only in the process of exchange of the commodities themselves. Even in this limited sphere the "market" was long hemmed in by an array of public restrictions imposed on behalf of and at the behest of certain privileged groups that would be threatened by the socioeconomic fluidity the market system portended. The ability to control the flow of commodities, and of the credit that accompanied these commodity movements, was essential to the process of accumulation of wealth. The key to wealth and power lay not so much in the ownership of the means of production as in control over the means of circulation of commodities and capital, and the instruments for control of commerce and credit were fundamentally political. The state, both in its metropolitan and its colonial guises, in its military as well as its civil manifestations, was responsible for creating and extending the field of commercial activity. The state was capable of moulding the flow of commodities in desired directions. The state was a key instrument in the mobilization of capital which

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could then be put to work at the behest of the entrepreneurial class, financing the operation and expansion of the frontier of commercial activity. And the state had the ultimate authority over the financial system on which trade credit, and therefore trade itself, ultimately rested. Thus at least partial control of the state apparatus was crucial to the entrepreneurial class. In a fully fledged, freely functioning liberal industrial economy (if one ever existed), the commercial and financial sectors of the economy exist as subsidiary service elements for the industrial core; but in the pre-industrial world, and particularly during a historical age marked by the continuous creation of new fields of commercial activity, the main levers of economic power lay in the hands of those who controlled the movement of goods and trade credit. Even after the metropolitan economies completed the transition to industrialism, in their colonial appendages, where pre-industrial conditions continued to prevail, the role of the commercial and financial sectors, with their interrelations with the state, remained central. While the above generalizations apply to the history of European overseas expansion in general, they also apply to Canadian economic and social development in particular. Although the idea of Canadian exceptional ism is deep-rooted in the national mythology, Canadian history is far from being the parish history it is often presented as being. Although Canada (Newfoundland excepted) usually had a rather marginal role to play in the evolution of imperial systems, the reverse is not true - the ebb and flow of imperial history played a determining role in Canada's pattern of socioeconomiceconomic evolution. Its exploration, exploitation and development has been profoundly affected by events occurring around the globe. Canadian history in general is part of the story of the conquest of America, and the fate of the Beothuk, Huron, Blackfoot and Kwakiutl people is not qualitatively different from that of the Aztec, the Maya or the Arawak. Newfoundland's history is tightly bound up with that of the West Indies, the cornerstone of European mercantilism. British Columbia's history belongs to that of a Pacific economy called into being by the same set of forces that fired the opening shots in the Opium Wars in China. The decision of a British cabinet in the middle of the nineteenth century to block Russian imperial expansion at the mouth of the Black Sea was likely more important for the course of Canadian economic development in the 1850's (and perhaps well beyond) than any decisions taken by Canadian entrepreneurs in that decade. The building of the Canadian Pacific Railway, long touted as a romantic tale of autonomous nation-building, was more an imperial event linked to the progress and protection of British imperialism in India and

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China - a compelling vision of the 1880s was for a railway, built by Canadian public money, to haul grain from India to British markets through Canada's empty prairies. The examples are almost beyond number, and this book is intended to help the process of making them known. R. T. Naylor 1987

I The Age of Bullionism

Gold is a wonderful thing. Whoever possesses it, is lord of all he wants. By means of gold one can even get souls into Paradise. Christopher Columbus, 1503

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1 The Discoveries

SURVEYING A SCENE OF SOCIAL and economic turmoil in medieval Europe, a scene in which the land hunger and declining cash resources of the nobility contrasted sharply with their rising aspirations, Pope Urban II was quick to grasp the root of the problem, and therefore the path to restoration of social harmony. He declared to the contestants: This land in which you dwell, closed in on all sides by seas and by mountains, confines your too abundant population; the land is stripped of its riches and scarcely feeds those who cultivate it. That is why you tear yourselves apart and devour one another, why you fight and slaughter each other. Therefore calm your hatreds and march off to the Holy Sepulchre. It was an invocation of perhaps greater significance than the Pope himself realized. For when three centuries later western European monarchies began laying the foundations in the West for empires that would eventually span the globe, they drew heavily on the lessons of their earlier experiences attempting to follow Pope Urban's advice in the East. Indeed it was the check to that European imperialist drive into the Eastern Mediterranean that eventually forced western European kings and adventurers, soldiers, priests and impecunious traders to turn their eyes on the potential wealth across the Atlantic and beyond.

The Crusades Pope Urban H's prescription for social peace and economic renewal in western Europe reflected the division of political, cultural and commercial power between West and East, and the desire of the West to 3

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rectifV an adverse balance. To the East, Byzantium had inherited from Rome the commercial and cultural crown of the Christian world, while the balance against the West was subsequently tipped even further by the Arab conquests. The rise of the Arab dynasties, the shift of the centre of economic gravity of the Christian world to Byzantium, and barbarian assaults on Europe from east and north combined to assure the continued post-Roman decline of western European commerce, industry and cultural attainment. The indigenous wealth of the eastern empires, their control of the luxury trades from India, China and beyond, their monopoly control over the sources of gold and silver, and their scientific, commercial and cultural achievements stood in stark contrast to the stagnation of western Europe. The military and economic conquest of the East became — and long remained — the dominant strategic objective of aspiring western European powers. There had been two major exceptions to the rule of stagnation of European commerce in the Middle Ages. On the northern periphery, the Scandinavian tribes mixed brigandage and extortion with trade and settlement. Apart from short-lived ventures in the Canaries and Sicily, they managed to conquer and settle Normandy and from there, England. They also ventured across the Atlantic to Iceland, Greenland and northern North America. On the southern periphery, the exception was provided by certain Italian cities in which commerce and finance thrived free from the feudal restrictions on usury and trade that the Catholic Church imposed elsewhere in Europe. The Italian cities were the principal commercial intermediaries in the flow of trade between Europe and the Levant. Venice was linked to Egypt and its trade from the Far East flowed along the Red Sea-trans-Egyptian route, while Genoa, the principal commercial rival to Venice, traded mainly via Constantinople and the Black Sea. On the crest of a late medieval revival of commercial activity came efforts by western Europe to launch overseas wars of conquest and colonization. The purpose of the Crusades was to roll back the limits of Arab influence, starting in Arab Spain and spreading to the Middle East, and to control the major trade routes. The alliance of Norman knights with Italian cities, blessed materially and spiritually by the Church of Rome, set offin pursuit of these goals. The Church invested in the wars in the hope that the Conquest of the Holy Land would bolster its waning prestige inside Europe. The Norman nobility, which formed the backbone of the crusading army, faced with acute pressure on the land inside Europe, sought new lands and new fiefdoms in the East. The Italian merchant elite, which financed the bulk of the Crusades and provided the necessary naval power, sought

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the destruction of Arab and Christian Byzantine commercial domination of the Orient. The Crusades wrote a vital chapter in European commercial history. By whetting the appetites of western Europe's aristocracy for eastern luxuries, they gave a new urgency to East-West trade. Some of the commodities were already known and coveted (luxury fabrics and spices, for instance); what was different now was the scale and continuity of demand. Other products were relatively new to European tastes, particularly sugar, which revolutionized the European diet and left a trail of bloodshed like few other commodities in history. A second commodity that could rival sugar in that regard was gold. Gold from sub-Saharan Africa provided much of the commercial lifeblood of the Arab West. Gold began moving in greater abundance to Europe to grace its noble tables, decorate its cathedrals, fructify its public treasuries, quicken its commerce, and keep the fires of expansionism alive even after the main body of Crusades in the East had been defeated. The very scale of the Crusades produced repercussions inside Europe. The result was an enormous stimulus to the shipping business, to the manufacture of iron and woolen products, and to the encouragement of the growth of military and naval power, and the adaptation of Arab navigational and military techniques. The technological outgrowths of the Crusades, based on the borrowing of Oriental knowledge, would be vital to subsequent European expansion to the west, while the military developments facilitated the centralization of political power inside European states that was an essential prerequisite to that expansion. Finally, the Crusades weakened and facilitated the overthrow of both the Byzantine and Arab empires. Within the increasingly fractured Arab world, power in Egypt and Syria passed to the Mamelukes, the Turkish and Circassian military caste, while the Mongols from central Asia decimated the eastern areas. And in Byzantium, more and more territories fell under the control of the Ottoman Turks, who had fled the ravages of Genghis Khan in Persia and settled in Byzantine Asia Minor. Around the middle of the fourteenth century commercial expansion within Europe largely ceased for about a century. The impetus from the Crusades had run its course. The Norman forces had been expelled from the Levant; and civil war, harvest failures and great plagues ravaged Europe, particularly in England and France, who were locked in the Hundred Years' War. Meanwhile, the Ottoman Turks continued to press the European powers beyond the Levant and into southern Europe herself. The events of the era were particularly disastrous for the northern

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axis. The disruption of external trade led to a drain of gold and silver that deranged internal trade and finance just at a time when the state required gold and silver to buy modern arms and support modern navies and armies. This forced the governments of western Europe to take drastic action to limit the export of precious metals and to find new sources of supply. In southern Europe, Italy found her luxury trade, particularly in silk and spices, interrupted by political problems in the Far East and by the continued Turkish conquests and resulting tightened hold on the trade of the eastern Mediterranean. In 1453 Constantinople, seat of Byzantium, fell to the Turks, threatening to cut European commerce off from the major Levantine trade routes, a development accentuated shortly thereafter by the Turkish conquest of Egypt. To assure supplies of eastern luxuries it was now necessary for Europe, and in particular the Italian cities that dominated its luxury trade, to find new trade routes free of Turkish control. The year 1453 also marked the end of the Hundred Years' War. England and France were left politically and commercially divorced, but each equipped with centralized monarchies seeking wealth through overseas expansion to maintain and expand their power. From both the Mediterranean and North Atlantic, European states were soon poised for overseas commercial expansion. If the Crusades resulted in a sharp check to European commercial and political ambitions in the Middle East, it was only a temporary setback. Indeed the fall of Constantinople to the Ottomans quickly rekindled the Crusading zeal; for it added immediate and pressing motives of commercial self-defence, impelling the European military and merchant adventurers southward and westward. The threatened sealing of the Mediterranean hurt the spice trade of several major European commercial centres and blocked further efforts by landless nobles to seize land in the Levant. The Crusades then shifted from commercial war in the Mediterranean to a world-wide movement to encircle Islam and seize control of its sources of wealth. In this movement Portugal played the initiating role, with Spain close behind. Both nations were encouraged in their pursuits by Italian capital and expertise.

Portuguese Commercial Expansion Portugal, along with Spain, continued to fight the Crusades long after northwestern Europe had lost interest, for the Iberian states were carved out of territories conquered from Arab rulers. Portugal had a signal advantage over its Iberian rival in that the last of the Moors had been driven out of Portugal by the mid thirteenth century — for Spain the battle continued more than two centuries beyond. Nor were

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the wars without rewards to the victors. Portugal inherited the commercial function of chief distributor of Mediterranean and North African products to northern Europe; and its subsequent military and commercial forays were designed to assure sources of supply and to cut off those to the Moors in Morocco and Iberia. Initially the Portuguese looting and trading expeditions down the African coast were the ventures of private interests, but during the early decades of the fifteenth century their character began to change. Among the most important forms of booty from the conquest of Moorish lands was knowledge — mathematics, astronomy, cartography— and the commercial possibilities such knowledge held out. For Portugal, the turning point was the campaign against Morocco and the seizure of the town of Ceuta, where Portugal's future sovereign Prince Henry the Navigator picked up news of the great Moroccan trans-Sahara gold trade. This knowledge precipitated systematic and state-supported efforts by the Portuguese to sail down the African coast in an attempt to bypass the Moorish traders and deal directly with the producers. The alliance of Portuguese state and commercial interests, in the effort to break up the Moroccan trade monopoly and divert it to Portugal, made a three-tiered thrust for overseas wealth. The Madeira islands were seized, their population exterminated or enslaved, and the islands turned into sugar plantations. The quest for the sources of gold carried the Portuguese down the African coast. And the gold trade, supplemented by a trade in ivory and African pepper, led to the beginnings of Europe's black slave trade. Soon Prince Henry pledged the resources of the state to the quest for gold and slaves, encouraging and financing advances in navigation and military and naval technology. At first Portugal moved slowly down the African coast, until it received word of Spain's success in reaching China by sailing west. In response the Portuguese launched a pursuit of their own route to the far east, completing the exploratory work of their early mariners who had sailed around the African cape. In attempting to break into the Asian spice trade, Portugal immediately faced the ancient stumbling block to western trade with the Orient — western demand for Asian goods was not reciprocated by eastern demand for the products of the west, apart from gold and silver which were in short supply. Having nothing of value to trade, the Portuguese substituted plunder for exchange. At the end of his renowned 1499 voyage on which he looted towns, destroyed shipping and ravaged warehouses, Vasco da Gama was able to declare a profit of 6,000% on capital invested in his expedition. Following da Gama's example, Portugal went on to seize trading posts on the Indian coast and attempted to monopolize the trade in spices and luxury fabrics. Portuguese incursions into the Indian Ocean were catastrophic for

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the Mameluke dynasty that ruled Egypt and Syria, the last great power of the medieval period in the Levant. They spelled the ruin of the trans-Egyptian trade in spices and Oriental luxuries, the taxes on which served to finance government and military activity. In 1453, immediately on the heels of the Turkish conquest of Constantinople, a Circassian coup in Egypt weakened a dynasty already drained by years of war against the Mongols on the Syrian frontier. The Portuguese destruction of the trade on which public finances depended proved the decisive blow. A few years after da Gama began his activities in the Indian Ocean, the Mameluke dynasty was bankrupt and in 1517 it too fell to the Turks. Despite such successes, intended or accidental, Portugal never succeeded in achieving a complete monopoly of the luxury trade, and, over the long run, it lacked the military strength to retain control over that which it had won. But in the short run the monopoly profits from its dominant position in the luxury carrying trades of the East incited the envy of other European nations, France, Holland, England — and especially Spain.

Early Spanish Expansion Like Portugal, Spain was a nation created by driving out the Arab emirs and reuniting the territories under Christian monarchs. The abundant wealth of Moslem Spain thereupon flowed into the hands of the Christian nobles who headed the Reconquista and who either settled in the expropriated lands inside Spain or extended such activities abroad. Financial links with Italian cities long active in Levantine trade gave an added impetus to Spanish external expansion. Genoa and Florence in particular were severely damaged when the Turks captured Constantinople and broke up the eastern spice trade. For Genoa, an added danger to its financial stability came from Portugal's interference with the trans-Sahara gold trade. Robbed of her spice trade by the Turks in the Levant and by the Portuguese in the Indian Ocean, and with her African gold sources threatened by the Portuguese, Genoa linked her commercial destiny to Spain. Genoa proceeded to help finance Spanish overseas expansion, investing in early Spanish sugar plantations, slaving expeditions, and voyages of "discovery". The geography of Spanish expansion also closely paralleled that of Portugal in the early years. As the Portuguese seized the Madeiras, the Spanish grabbed the Canary Islands, and the native population, like that of the Madeiras, was enslaved. But Spanish commercial

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ambitions faced an impasse. The Mediterranean routes were under Turkish control, while Portugal was progressing slowly but steadily down the African coast. Hence the logical option was to strike out for the east by sailing west. For this venture the Spanish again relied on Italian naval expertise and commercial zeal. Once more reflecting the vital link between the Crusades and the voyages of "discovery", the route to the east by sailing west had been worked out by a Florentine scholar named Paolo Toscanelli, who gave his map to a Genoese adventurer named Christopher Columbus. The Toscanelli family had been among Florence's leading spice merchants, but was ruined when the Turks captured Constantinople. Columbus initially tried to interest the Portuguese, at that time more advanced in naval technology and commercial aggressiveness than the still-disunited Spanish. But the Cape of Good Hope had just been broached by a Portuguese venture, and their attentions were turned in that direction. Hence Columbus called on the Spanish Crown. He arrived at an opportune moment. Isabella and Ferdinand had just united the thrones of Aragon and Castile and were jointly entangled in a campaign to destroy Grenada, the last Moorish emirate on the Iberian peninsula. The public purse was exhausted by the cost of the war. It was a time of the rise of standing armies, professional soldiers, and long costly sieges. Commerce and overseas plunder held out hopes for replenishment of the royal treasury, or so Columbus and his associates insisted. Columbus asked for very little in return — merely the rank of Admiral of the Ocean Sea; a vice-royalty for life; 10% of all the gold, jewels and spices obtained from the lands he conquered, all tax free; the right to invest up to one eighth of the total capital in any ship subsequently venturing to the areas he chanced upon; and a lien on all of these titles and privileges for his heirs and successors forever. The contract was agreed upon; two thirds of the required capital was invested by the Crown, one third came from rich merchants. Columbus then sailed off, carrying with him interpreters fluent in Arabic and other tongues equally useful for conversing with the native peoples of the Americas. Heading southwest in part, no doubt, because of the then current theory that gold was engendered in hot climates while silver was engendered in cold, Columbus "discovered" the island of Espanola — undoubtedly somewhat to the surprise of the million and a quarter people already living there. He quickly fell into reveries about gold and spices, and misnamed trees and plants in the conviction that they were bearers of Oriental spices. As to the native population, Columbus conceived plans for their exploitation and enslavement.

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CANADA IN THE EUROPEAN AGE Indians of the Caribbean

The "Indians" of the Caribbean (the name itself being another example of Columbus's genius for taxonomic self-aggrandizement) fell roughly into two main ethnic groups. The more numerous peoples of the northern islands — Espanola, Cuba, Puerto Rico, Jamaica, the Bahamas and others — were Arawaks of South American origin who had spread into the Caribbean via Venezuela and Trinidad. Settled on islands where game animals were rare, the Arawak economy turned on primitive agriculture, particularly the cultivation of starchy root crops like manioc (from which they had learned to derive cassava flour) and the sweet potato. Four fifths of their nutrition was provided by cassava flour, the rest by a medley of products of the soil, the sea and, to a small degree, the forest. Along with simple agriculture came the development of other skills such as basketweaving, cotton spinning and pottery manufacture. Metalworking, however, was unknown — with one unfortunate exception: gold nuggets from placer deposits were picked up in small amounts and fabricated into simple ornaments. The gold had no monetary value to the Arawak, but it certainly did to the Spanish. Not so easy to conquer as the docile, agricultural Arawak people were the Caribs, who had invaded the Lesser Antilles and driven the Arawaks out of the smaller southern islands long before the Spanish arrived. The Carib people were in part agricultural, but relied more heavily on the hunt to provide for their sustenance. Indeed, the Carib Indians' concept of a culinary delicacy was warm, raw human flesh, notably that of any unfortunate Arawaks who fell into their hands. But the appetite of the Caribs for Arawak flesh paled before that of the Spanish. The Spanish craze for precious metals that drove their impoverished noblemen abroad derived in part from long-standing structural problems of the Western European economy of the period, specifically its balance of trade deficit with the East that continually drained its supplies of precious metals. In addition, there were further domestic causes of depletion — the wearing out of coin, the flow into Church and lay hoards — that affected the supply. The inflows were erratic and could not match the steady hemorrhage into eastern trade or western hordes. Apart from the notes of the Italian banks whose activities were restricted to loans to royal houses and financing the wealthiest merchants, paper currencies were unknown. State credit itself was on the verge of collapse. Hence the heavy demand for precious metals to finance rising state expenditures, to sustain the growth of trade, and to facilitate the accumulation of mobile wealth at a time

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of general commercialization of social values. Thus one of Columbus's objectives was to find the fabled gold mines of Japan. Instead he found the hapless Arawak with their paltry gold trinkets, and proceeded to try to extort sufficient gold from them to take back to Spain to lend credibility to tales about his apparent success. The Founding of the Spanish Empire The return of Columbus produced paeans of joy in Spain and consternation in Portugal, stimulating the Portuguese into completing their exploration of the African route and shortly thereafter producing a Papal Bull dividing the non-Christian world into Spanish and Portuguese spheres of influence. The Spanish Crown decreed that Columbus's success was God's reward for its having just completed the destruction of the Moorish kingdom of Grenada. Columbus caught the spirit of the times, and vowed to put the products of his discoveries to work in rescuing the Holy Sepulchre from the Arabs. He swore to equip at his own expense in seven years' time a crusading army of 50,000 footsoldiers and 4,000 horse, to be followed in five years by another army equal in size. Clearly he had high hopes for the spoils of the New World. Columbus's subsequent voyages were closely linked to the Crusades materially as well as spiritually. Spain had attempted to expand its holdings into North Africa but had been blocked militarily. Hence it was enthusiastic to put its resources into trans-Atlantic empire building. Furthermore, the end of the Reconquista in Spain meant peace, boredom and unemployment among soldiers and gentry who were eager for overseas adventure. The loot from Grenada too financed the second voyage Columbus undertook. Columbus began his administration of the new colony with ambitious plans for extracting gold and agricultural wealth with the forced labour of the Arawak Indians. Capital equipment for plantations would be initially financed by the sale of Carib Indians as slaves in Europe. For the Arawaks the slavery was in theory to be confined to the islands (the facts, of course, being quite otherwise). In preparation the Spanish took a census of the population, and on that basis levied taxes payable either in gold, in cotton which the Indians had traditionally cultivated, or in personal service for such enterprises as the sugar plantations Columbus introduced. Many Indians who were considered unsuited for slavery had their hands cut off, were thrown to the dogs, or were simply impaled on swords if their captors were in a hurry. The Indian population was distributed among the Spanish colonists who secured concessions from Columbus, and ordered to

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pay tribute to the concession holder. Many Arawaks perished in the gold mines; many more were shipped off to Spain as slaves, slavery being the one enterprise from which quick and dependable profits could be made; and great numbers died of new diseases introduced into their population by the Europeans. When Columbus arrived in Espanola the population was thought to be well over a million; fifty years later the Arawak survivors may have numbered as few as 500. As the Arawak population of Espanola was depleted, the island's labour force requirements precipitated slave hunting expeditions to the neighbouring islands. It was said that the traffic in slaves was so heavy that one could sail from the Bahamas to Espanola guided by the trail of jettisoned bodies. Jamaica suffered a similar fate. In 1509 its population was thought to be about equal to that of Espanola, but a decade later its Indian population was largely extinct. Lands formerly tilled by the Indians became pastures for the sheep and cattle introduced by the Spanish. Espanola and Jamaica thus became important sources of raw materials for the flourishing leather and woolen industries of sixteenth century Spain. As to gold, by 1509 some $5 million worth (valued at pre-1971 prices) had been extracted and at a cost of about 1.5 million Indian lives. In 1510 the Spanish government tried to abolish the slave trade in Arawak Indians. It became illegal to ship Arawaks off to Spain, but not illegal to subject them to forced labour on the islands, for the Spanish government wanted to maintain a labour supply for the gold mines and for the great pearl fishery off Venezuela that Columbus had chanced upon on his third voyage. The Caribs, however, were exempted from the ban on slaving, and as a result slave traders grabbed Indians indiscriminately and claimed they were Caribs. Entire islands were designated Carib-inhabited before any European set foot on them to investigate the population. The paucity of wealth yielded by the extermination of Arawak Indians produced problems during the Columbus administration, and with it a rising tide of resentment among the Spanish colonists over Columbus's efforts to monopolize the spoils. Moreover, the inflated nature of some of Columbus's claims began to tell in Spain. When Cuba was "discovered" he forced his men to sign a deposition certifying that they had reached the mainland of China. Increasing mistrust in Spain and revolt in the Caribbean led to Columbus and his brothers being hauled back to Spain in chains. The new governor broke up the trade monopoly and emptied the jails of Columbus's political prisoners. The Indians, however, hardly noticed the change in administration — Columbus's successors maintained public order by burning native rulers alive. While never again securing absolute power, Columbus was partial-

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ly rehabilitated and returned to the Caribbean for a fourth voyage near the lands of the Mayan Indians, under whose auspices a tremendous coastal trade flourished. The first of these peoples that Columbus encountered was a merchant with a canoe load of trade goods en route to a fair. The Spanish thrilled to the discovery of a new civilization — and immediately pillaged the canoe. It was an appropriate ending to Columbus's saga of "discovery" and a disturbing portent for the fate of the mainland peoples. After Columbus, Spanish adventurers spread much further afield. Blocked by the Turks from expanding to the east and prevented by the Spanish Crown from stealing each other's land and serfs, landless nobles turned elsewhere and were a central motivating factor in Spain's economic expansion abroad. After early success of their enterprise in the Canaries, these land-hungry nobles, joined by an array of brigands, soldiers, criminals, debtors and fortune seekers, followed Columbus and descended upon the aboriginal peoples of the Americas. The search for loot by bankrupt aristocrats and fortune seekers could hardly lay the foundation for a stable empire. Most of the plunder was seized by the king and the ringleaders, leaving little to satisfy the rank and file. Hence they were always on the move. The opening of Cuba drained the white population of Espanola, while the opening of Mexico and the mainland badly depopulated almost all the islands of Spanish colonists. The opening of Mexico was an offshoot of the conquest of Cuba. The largest single investor in the venture was the Governor of Cuba, and the leader of the expedition, Hernando Cortex, was a disappointed Cuban planter and gold seeker. An immediate snag in the venture came when the Governor of Cuba deduced that Cortez planned to pocket all the spoils for himself. He thereupon cancelled orders permitting the expedition to sail. But Cortez lifted anchor anyway, and started off his venture by pillaging the king's stores and a Spanish cargo ship. He then landed his forces in Mexico. Aztec Economy and Society Apart from the marine-oriented societies of the northwest coast of America, economic and cultural advance among the aboriginal people of the American continents was synonymous with agricultural productivity. Agriculture meant a stable food supply, and therefore a non-nomadic population. In an area straddling Lake Ontario, the Iroquoian peoples rooted their society in corn cultivation. In the Caribbean, the manioc plant formed the economic foundation. But the truly great civilizations, representing the pinnacle of Amerindian cul-

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tural and material attainment, lay in the Andean region dominated by the Inca, the Middle American lands of the Aztecs and their subjects, and the realm of the Mayans. Here the stability of the food supply encouraged the rapid growth of a settled population. Agricultural productivity assured the means of sustenance of a large nonagricultural population. The population and wealth of these societies facilitated the evolution of complex social organizations, specialization of economic functions, the emergence of a class of artisans and public servants, and the diversion of great amounts of productive capacity into the erection of public works. The Aztec were the richest of the three great Amerindian civilizations, and the luxury and splendour in which the noble class lived stunned the Spanish intruders. They saw the emperor Moctezuma dine on a meal of 300 separate dishes using plates and utensils of solid gold, and stroll through a private aviary so huge it required 200 fulltime attendants. They beheld an astonishing system of roads, public warehouses and public record-keeping. Not least among the bizarre barbarian customs that astounded them was the Aztec practice of bathing daily at a time when to the Spaniard a monthly bath was the more normal event. But the Spaniards did not know that this fabulous wealth they saw was of recent origin, and won at enormous human cost. The Aztec tribe were latecomers into central Mexico. They absorbed and perfected the already advanced arts and technology of peoples they had conquered, and erected a great tribute-gathering machine that poured wealth into the hands of the Aztec elite. Aztec society was based on an agrarian militia, on a population of farmers working on communally owned land who could be quickly mobilized for wars or public works. Corn was by far the most important crop, but a proliferation of others played subsidiary roles in the Aztec diet — beans, squash, peppers, avocados, the sweet potato, the chichle tree, and the great Aztec-Maya luxury chocolatl. While turkeys and dogs were sometimes raised for food, animal husbandry was by and large unknown. The fundamental role of agriculture, specifically of tillage, in their society led naturally to the deification of phenomena vital to its pursuit. Among the more important of the gods was the Rain God, who could only be appeased by a diet of human hearts torn from the victims' living bodies and hence necessitating perpetual war to secure the sacrificial victims. Similar rituals were demanded by other gods. Needless to say, the piety of the Aztec people did not endear them to their neighbours. Above the peasant masses stood an elite of nobles and priests, presided over by a king elected for life by the tribal council. To gain the income necessary to sustain the noble and clerical elite, to invest in

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great public enterprise, or to store away food and implements against future contingencies in huge public warehouses, heavy taxes payable in commodities or labour were imposed on the peasantry, and heavy tribute payments on the subject peoples. Linked to the governing elite and sustained by it were two other groups: a class of officialdom—tax collectors, keepers of public records, temple staff and priests — and a class of artisans. The bulk of simple manufactures for basic needs were of household origin. But luxuries and special skilled crafts were undertaken by a group of urban artisans — gold and silver smiths, craftsmen of feathers and precious stones, painters, sculptors, architects and so forth who worked for the state producing luxuries that were either absorbed by the nobles or diverted through the merchant class into long-distance trade. The major source of the Aztec societies' wealth did not derive, however, from the activities of its merchants. Military posts, government officials, and a complex system of roads and communication assured that the conquered peoples regularly yielded tribute in goods and sacrificial victims to the Aztec state. The results were stupendous. Upon catching his first glimpse of Tenuchtitlan, the capital city, the conquistador Bernal Diaz del Castillo exclaimed: "It is like the enchantment they tell of in the legend of Amadis: Are not the things we see a dream?" Cortez himself described it as the most beautiful city in the world and compared it to Venice. Bolstered by thousands of Indians from the subject nations, the Spanish seized the capital, slaughtered upwards of 120,000 of its inhabitants, and razed it to the ground, taking care first to strip the bodies and buildings of their gold. The accumulation of Aztec gold of many generations passed to the Spanish in a few days: one fifth for the king, the rest divided among Cortez and his men. The great art works of gold and silver were melted into bullion and shipped off to Spain, where most of it would be frittered away in wars. The Indian population of Mexico had simply substituted Spanish hegemony for Aztec: the Spanish took over, intact and operational, the tribute-gathering system the Aztecs had erected. The decimation of the population by enslavement, European disease, execution and other acts of God dwarfed that of the Caribbean. In 1519 the population of Mexico was reckoned at 11 million; two decades later, it was about 5 million; by the turn of the century it was down to about 2 million. As the Indians died off the agricultural basis of the area changed, with cattle and sheep roaming fields once tilled by Indian peasant proprietors. It was left to the priests to complete the destruction by systematically hunting down and burning the "idolatrous" books in which the Aztec civilization had recorded its history and its social organization.

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CANADA IN THE EUROPEAN AGE The Mayan Civilization

After the fall of Mexico, lieutenants of Cortez started the process of conquering the Mayan areas of central America. These lands had been chanced upon by Columbus in 1502. Cortez himself had briefly scouted the area but his keen nose for gold apparently told him the pickings would be slim. The Mayan civilization, with its agricultural base centred on corn cultivation, in many ways resembled that of the Aztec. While the social class formations were also similar, there was one major political difference: Mayadom did not consist of a nation of conquerors imposing tribute on a vast subject population, but rather a set of independent city states often at war. Trade, rather than tribute, was the principal means of acquiring desired commodities from abroad, and the Aztec were the traditional trading partners. A far-flung and well-organized trading system evolved, with roads, warehouses and inns catering to the needs of merchant caravans on the roads. Credit terms were well defined, and contracts, while oral, were regarded with sufficient seriousness that breach of them could precipitate war. Long-distance trade chiefly concerned itself with luxuries — cocoa, emeralds, gold imported from Panama (given the lack of indigenous precious metal mines), and especially slaves, who were in great demand for heavy, unskilled work. It was upon the Mayan city-states, with their massive monuments, temples, libraries and public works, that the Spanish descended after the conquest of Mexico. Cortez's lieutenant Pedro de Alvarado, who began the conquest, afterwards bragged that during the Maya campaign he had slaughtered more people in a single battle than had ever before been accomplished in the history of mankind. On his death bed Alvarado made a present of the Indians he had enslaved as an encomienda to the Church, and sent 500 pesos of gold he had wrung from them to Castile to be used to redeem Christian captives from the Moors. The Church looked benignly on Pedro de Alvarado. It did not look so benignly on the relics of Mayan civilization. After its chiefs and priests were slaughtered and the cities razed, the Catholic church undertook the systematic burning of the great history and record books accumulated by the Maya over 800 years. In the meantime a business syndicate headed by Francisco Pizarro had turned to the chore of conquering the civilizations of South America. The Inca Empire Inca civilization bears some similarities to, yet at the same time reveals some striking differences from that of the Aztec and Maya.

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Unlike Mayadom with its long history of cultural continuity, but like the Aztecs, the Incas were the latest of a series of civilizations in the area they dominated. They built a demographically integrated empire knitted together by an efficient system of rapid communication, in contrast to both the Aztec pattern of extracting tribute from otherwise unintegrated subject peoples and the Maya pattern of independent city states. Perhaps because of the power to command on a day-today basis the labour and resources of such a vast empire, the public works of the Inca world surpassed those of its Amerindian rivals. Hillsides were terraced to increase the amount of arable land; enormous irrigation systems were built; the difficult high Andean plateau was transformed through sheer hard work into a cornucopia. Along with the Aztecs, the Incas introduced to Europe many species of corn, potatoes, yams, manioc, tomatoes, avocadoes, cocoa, peppers, papaya, pineapple, peanuts and cashews. Inca social formations paralleled those of the Aztecs. However, unlike the Aztec world, the ruling class of the Inca empire were detached completely from the population at large. The king was not selected by reference to a council of elders; rather the Lord Inca was regarded as a divine figure descended from the Sun, whose lineage was kept pure by incest. All gold and silver was the exclusive property of the Inca hjmself, the two metals representing the sun and the moon in Inca religious life. He was served by a great coterie of priests and government officials whose degree of control over the minutiae of socioeconomic life was unmatched elsewhere in America. Markets were very rare: money, even in the form of a commodity like the cocoa beans used by the Aztecs, was unknown. The bulk of the commodity exchanges that did occur were controlled by the state. Centralization of power also meant a fantastic concentration of wealth, particularly in the one form that held out a special interest to the Spanish. The artisans turned out an amazing array of artworks and even utensils of gold and silver. The principal residence of the Lord Inca even had a mock rock garden in which the pieces of "earth" which were in fact fine gold, were sewn with "corn" whose stems and cobs were of gold and whose silk was fine silver thread. Twenty lifesized gold llama statues plus an array of golden shepherds graced the garden. Pizarro and his entourage descended onto the Inca empire of perhaps as many as 10 million souls at a time when the empire was ravaged by civil war. The conquistadors captured the Lord Inca, ransomed him for a block of gold and silver ornaments 21 feet by 15 feet by 6 feet, and then murdered him after the ransom was paid. Towns and cities were razed and looted. Peruvian graves were especially lucrative fields of enterprise. The loot was divided on the basis of 80% to the entrepreneurs, 20% to the king of Spain. Rival bands of

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Spaniards arrived to try to seize a share and precipitated civil wars in which Pizarro himself died. Following them came the priests to complete the work. Much of the rest of South America suffered a similar fate, if not from the Spanish, then from the Portuguese, to whom Brazil had been ceded by a Papal decree. Tales of El Dorado drove the Spanish and Portuguese adventurers into a frenzy. Sometimes the fabrications about El Dorado were concocted by the Indians to send the Europeans off into the wilderness; sometimes they were made up by the Europeans to raise more men and capital for slaving and plundering expeditions. The Spanish also made forays into North America beyond Mexico, though with little permanent result. Ponce,de Leon landed in Florida in 1512 in search of gold, slaves and the Fountain of Youth. His expedition, like several later, was chased out by hostile Indians. The most concerted effort by the Spanish into North America was mounted by Hernando de Soto in search of the Seven Cities of Cibola. In 1537 a contract was drawn up with the King of Spain whereby the king would get one tenth the spoil, rising to one fifth in five years, while de Soto claimed one sixth, and the rest was divided among his followers. These percentages only applied to the proceeds of plunder, ransom and enslavement; in the case of the death of an Indian prince by disease or public execution, the king got 60% of the loot with the remaining 40% going to the members of the expedition. In the case of treasure acquired in the course of battle, one fifth was to go to the king; in cases involving the products of looting of temples or robbing of graves, half was to go to the king and half to the discoverer of the object in question. This contract was duly signed by King Charles, and de Soto spent three years in the present areas of Florida, Georgia, Alabama and Mississippi in vain pursuit of the fabled seven cities. Consolidation of the Spanish Empire By about the middle of the sixteenth century the Spanish Crown began to look more unfavourably upon the activities of its conquistadors, who strived to establish politically independent fiefdoms based on the forced labour of the Indian masses. Political feudalism — the independence of the lord — had been largely undermined in Spain with the rise of central power, but now threatened to reappear in the American colonies. In the Caribbean islands the efforts by the Crown to re-establish control had turned in large measure on the question of Indian slavery. In place of the export of slaves, the Crown had insisted upon the institution of the forced labour system in the islands. Under

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the encomienda system, the Indians were in theory not slaves, but merely owed a tribute to the Spanish rulers. Since the tribute could be exacted in forced labour the subtlety of the distinction probably escaped the Indians. In any event the consequence to the native population of the Caribbean, and subsequently of the mainland, was likely worse than that of slavery. A slave is an economic asset which has a replacement cost, and one of the laws of the economics of slavery is that a slave's life expectancy is directly proportional to his or her replacement cost. With the forced labour system derived from the masses of freely replaceable Indians, there was no need to conserve labour power. In 1542 Indian slavery was completely abolished in the Spanish empire and the private encomienda system sharply restricted in an effort by the Crown to centralize control. The loss of the private encomienda helped destroy the economic basis of an independent aristocracy in the Spanish empire. It further reflected the political intrigues of the traders in black slaves who were eager to ply their wares in the Spanish American colonies and who saw the abolition of Indian forced labour as a means of opening a market for black slaves. It also enabled the Crown, faced with the demographic shocks of the Conquest, to monopolize the forced labour of Indians for its pearl fisheries, and for the gold and silver mines. By mid-century the nature of the chief form of plunder from the Americas had changed with the opening of the silver mines of Peru, Mexico and Bolivia. For many decades an enormous flow of silver from mines which swallowed hordes of Indians flowed back to Europe, dwarfing the early shipments of plundered gold — with tremendous consequences for the structure of European economic life and the subsequent pattern of European colonial expansion.

2

The Foundations of English Bullionism

THE LOOT OF THE AMERICAS and the profits of eastern trade, accruing respectively to Spain and Portugal, invoked the jealousy of the northern European powers, who set out to imitate or displace them. The situation was not propitious for the latecomers. The Turks dominated the eastern Mediterranean; Portugal controlled the African route to the Orient and the spices it yielded, as well as the slave trade across the Atlantic; while Spain had captured the great bullionproducing centres of America and controlled the southwest route to the east. The newcomers had three options: ally with Portugal and/or Spain to try to share the profits, break up the existing commercial monopolies by war, or bypass the established powers and find new routes, particularly in the northwesterly direction. All three options were tried from time to time by various powers.

The Genesis of English Bullionism The operational principles of the philosophy that would guide the early overseas adventures of the northern European powers, particularly France and England, took shape during the one hundred years of war and economic crisis from the mid-fourteenth to the mid-fifteenth centuries. It was during this period that the Hundred Years' War ruptured the political links between France and England that had been forged by the conquests of the Duke of Normandy some two hundred years earlier. This period too saw the rising power of central authority in several of the chief political divisions of Europe. Modern warfare required more sophisticated equipment and mercenary armies, as opposed to the periodic conscription of the peasantry and knights loyal to the 20

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Crown. Centralization of power further demanded revenue for civil administration, and this led the Crowns to take control of the commerce that flowed through their jurisdictions. France seized Flanders to capture the wool trade, Gascony to dominate the commerce in wine. With its principal market for raw wool and its source of wine supply thus threatened, England was compelled to strike back. At the conclusion of the ensuing wars England was left stripped of its overseas possessions, except for Calais and a toehold in Ireland, and with its public treasury drained. It was therefore eager to find some means of reversing both territorial and fiscal losses through an appropriate set of overseas adventures. Beginning as a series of ad hoc measures prompted by the need to deal with particular fiscal and political exigencies, the political economy of English public finance evolved over the years into a conscious attempt to establish a general link between the needs of the public treasury and the returns from overseas trade. The policy of "bullionism" took shape as warfare and the centralization of political power increased the fiscal needs of the state at the same time an indigenous English merchant class clamoured for state aid against foreign interlopers, particularly the merchants from the Hanseatic League. The accumulation of merchants' wealth (and power) occurred simultaneously with the progressive impoverishment of much of the old nobility. The Crown, seeking to assert its strength at the expense of the feudal nobility, formed a tacit alliance with those merchants whose activities could bolster the public revenues and provide the funds needed to buy mercenary armies and other necessary accoutrements of modern state power. In the bullionist phase of public finance, the low level of domestic trade and the scarcity of gold and silver at home both inclined the state to tap the sources of wealth from the external trade sector. In the case of England, bullionist financial policy initially took the form of taxing raw wool exports to Flanders and Italy, while the Crown simultaneously centralized this main export trade of the nation in the hands of a favoured English merchant elite. These measures were taken with a view to pushing up export prices, facilitating the collection of taxes, and winning the political support of the indigenous merchant class for the Crown. Crown policies of political and economic centralization, external expansion, accumulation of precious metals, and the bolstering of public finances all went hand in hand — albeit more by coincidence of circumstances than by design, and subject to frequent reverses. It was in Tudor times that bullionism as a philosophy of fiscal and commercial development took on a more mature form. It had two central tenets. First, the accumulation of treasure, a primary objective of state policy, was to be achieved directly by restricting precious met-

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al movements, and indirectly by regulating commodity trade. Second, the Crown sought to develop shipping both for defence and for trade, which in turn implied state concern with the supply of timber and state promotion of the fishing industry (which trained a reserve of sailors). In keeping with the realization that foreign, not domestic trade provided precious metals and that the longer the voyage, the greater the number of sailors trained and employed, the first two tenets of Tudor bullionism implied encouraging long-distance over coastal trade. And underlying both was the fact that the English merchant class, under the stimulus of the "discoveries", looked no longer simply to controlling the flow of basic commodities into and out of England, but to the far more lucrative long-distance trade in luxuries between producing and consuming countries wherever they might be. During the reign of Henry VII, Bartholomew Columbus came calling on the English crown while his brother Christopher was busy in Lisbon: the objective of both was to drum up royal support for their plans. Neither was successful, and hence the Columbuses sailed under the Spanish flag. But in response to the Columbian "discoveries", the English Crown sponsored a major undertaking that it hoped would yield similar results further to the north. In 1496 an Italian adventurer, Giovanni Cabota, like Columbus Genoese by birth, set sail from Bristol. Bristol was one of the major centres of English international commerce, but had been increasingly harassed by the competition of the Hanse and by wars with the Icelanders for control of the northern Atlantic fisheries. Furthermore, Bristol was the traditional centre of England's Levantine spice trade, damaged by the Turkish onslaught in the eastern Mediterranean. Bristol thus wanted new northern fishing grounds and a Northwest Passage to Asia, and Henry VII wanted commercial wealth to rival his continental neighbours. Together they financed "John Cabot's" expeditions, guaranteeing him a monopoly of all the trade out of Bristol to new lands he discovered, subject to the royal due of one fifth of the profits. The Italian adventurer then set sail in search of the fabled island of Cipango, from whence he was convinced all the world's spices and precious metals originated. Although Cabot incidentally opened the Newfoundland fisheries to English penetration, his voyages were regarded as commercial failures; for in the interim the African route to the east was opened by Portugal and the wealth of Spanish America revealed. After the Cabot voyages, the English Crown's direct interest in the search for the Northwest Passage flagged for nearly three quarters of a century, until fiscal crisis rekindled it. In the meantime the new monarch, Edward VI, deeply indebted by his wars against Scotland and France, began to cultivate close

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relations with local merchants who lent him cash in return for his pledge of state aid for driving the Hanse out of the English external trade. By the middle of the sixteenth century English commerce was thriving in the Mediterranean and had even penetrated the Hanseatic heartland itself. When English expansion down the African coast, trading for gold and pepper, was blocked by the Portuguese, the English turned to the search for a Northeast Passage to China. When Russian expansion to the Baltic checked the prospects of a northeastern trade route, the commercial balance swung back in favour of the Northwest Passage, and by the middle of the sixteenth century the Crown was again interested in sponsoring the enterprise. Henry VIII's wars with France, Scotland and Ireland had drained the public purse and impoverished the country at large, with the obvious exception of a small group of adventurers and dealers in ordnance who profited directly from war. By the 1520's the fiscal crisis led to large tax increases and the imposition of forced "loans" that fed popular discontent. Faced with these pressing social and fiscal circumstances and the fact that Church lands were yielding ten times the income received by the Crown, Henry VIII responded by confiscating at least 60% of Church lands along with its hoards of gold and silver. These lands were then sold to the gentry to buy loyalty while the Church plate was coined and then spent on extravagant public works, more wars, and on overseas commercial ventures. Despite the acquisition of Church booty through the break with Rome, Tudor spending brought England quickly to the brink of bankruptcy again. With its overseas credit also exhausted, England by the 1560's was faced with a financial crisis of major proportions. Overseas expansion to find a Northwest Passage to the wealth of the Orient, and possibly some gold and silver mines en route, offered one possible solution, one which might also avoid open conflict with Spain. The most important of the new round of efforts to find the Northwest Passage and unearth new mines were the voyages of Martin Frobisher in the 1570's. His initial voyage to the Baffin Island area yielded a cargo of fool's gold that led to a wave of enthusiasm in England for northern ventures. A group of merchants founded the Company of Cathay (China), secured a Crown charter with Queen Elizabeth herself investing 20% of its capital, and sent the expedition off loaded with miners, refiners, and a handful of criminals, who were to be set ashore in Greenland to "civilize" the natives. Frobisher proceeded to kidnap Indians and Inuit and load up with more fool's gold. The ore was assayed by German "experts" who pronounced it of great value, and the Cathay Company used the assay report to get the capital required for the next voyage. A new, larger venture proved a complete failure; the ore was found at last to be void of value, and Martin

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Frobisher wandered off to the Spanish Caribbean to team up with Francis Drake in an effort to recoup his fortune by piracy. Others found more promising fields of endeavour closer to home.

English Enterprise in Ireland Just as Spain and Portugal inaugurated their careers of colonial settlement with the conquest of the Canaries and Madeiras and the extermination of their native populations, so too did England commence its imperial career in the Atlantic islands — or one island in particular, where the English presence after the Hundred Years' War had been reduced to a mere toehold. In the sixteenth century, Ireland's trade links and navigational abilities rivaled those of England. Ireland was also of great potential agricultural wealth. Hence when Henry VII set his sights on expanding England's overseas possessions in part to compensate for losses in France during the Hundred Years' War, one of his first objectives was the subjugation of Ireland. Initially the main purpose was to eliminate Irish rivalry in northern commerce and fisheries. However, some plantations were established. The basic idea was to confiscate Irish lands and cede them to English planters who would pay rent to the Crown and thereby cover the costs of the Irish wars. Later, Walter Raleigh, Humphrey Gilbert and others realized the possibility of forming large-scale plantations on which the English minor gentry could ape the manners and morals of the aristocracy. Then in late Elizabethan times the IrishSpanish alliance served as a pretext for a devastating series of wars aimed at the destruction of the Irish woolen industry, the subjection of Irish commerce to English control, and the confiscation of land on an ever-expanding scale. While English soldiers active in Ireland were notorious for their indiscipline — deserting frequently, often drunk in the face of the enemy, prone to pillage and rape at will — their efforts were enough to conquer large areas of the island. The resulting settlements took on a markedly military character. They were ruled by martial law in the manner of the Conquistador states, and their citizens were imbued with a view of the "wild" natives that was strikingly similar to the European view of Amerindians.

The Northern Voyages Beyond Ireland lay another prize of growing strategic and economic significance. The North Atlantic fisheries already had a long record of utilization by western European nations, beginning first in the North

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Sea, then proceeding to the Irish Sea, to Iceland, to Greenland, and ultimately to the Newfoundland cod banks. In the fifteenth and sixteenth centuries in particular, fish occupied a central place in the diet of Europe. The poor state of animal husbandry techniques created a mass market for cheap protein sources. Marine animal skins were important articles of apparel for some classes, while marine mammal oils provided a vital source of fuel. A sharp struggle for control of prime fishing areas marked the economic rivalries of the western European powers of the period. The fisheries issue was shortly complicated by the drive to find — and control — the Northwest Passage to the Orient. The first empire of the North Atlantic, stretching from Scandinavia to Newfoundland, was established by the Vikings who, though apparently expelled from Newfoundland by the Indians, succeeded in colonizing Iceland and Greenland. But the settlements on Greenland were also abandoned during the era of the "discoveries". Several factors contributed to their demise: the Norse and Icelandic economies never fully recovered from the effects of the Black Death; Portugal's African trade flooded Europe with elephant ivory and damaged the market for ivory from walrus tusks that had been a cornerstone of the Greenland economy; and English and Hanseatic ships chased the Norse out of northern commerce. While colonization ceased for a time, fishing ships frequented the Newfoundland cod banks. Ships of Portugal, Normandy, Brittany, and those of the Spanish and French Basques (who are thought to have been fishing in Newfoundland two hundred years before Cabot arrived) were the most common. In the early years relative peace prevailed among the participants of various nationalities, but by the mid-sixteenth century the situation began to change as the strategic value of the area became better appreciated. English official interest began with the Crown-sponsored Cabot voyages, which led immediately to the Portuguese and Spanish Crowns' laying claim to Newfoundland. The Portuguese dispatched Gaspar de Cortereal to "explore" the island — kidnapping Indians, searching for gold, and planting the Portuguese flag. Cortereal's expedition was followed by French and Spanish ones. Then, in Elizabethan times, English interest in the area rose sharply. Internal conditions were more propitious for overseas adventures. The Crown was better prepared, financially and politically, to expend its resources on a search for gold mines and for the Northwest Passage. In addition, England sought to liberate itself from dependence on foreign fisheries. Newfoundland promised unlimited supplies, especially of cod, but also of whale and seal oil, if English hegemony could be assured. Even walrus hunting was high on the agenda, un-

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doubtedly stimulated by a conviction among some in England that powdered walrus task was a cure for impotence. (One Bristol doctor went so far as to declare that powdered walrus tusk is just as good as powdered unicorn horn as a cure for that dreaded affliction. He was certainly correct: it if just as good.) Furthermore, the importance of securing privileged access to the cod banks was enhanced by its obvious link to English bullionist strategy. Cod opened up tremendous trade possibilities with the hot countries of the Mediterranean, and hence could serve as a tool for draining silver out of Portugal, Spain and Italy. As a result, the Elizabethan English set out to drive foreign fishing fleets, especially those of Spain, out of Newfoundland. The first concerted effort to seize control of the Newfoundland fisheries came with the 1578 voyage of Humphrey Gilbert. Gilbert had visions of becoming a latter-day Christopher Columbus. His first attempt to put that vision into practice by securing a monopoly charter for trading and property rights to all of North America, however, was blocked at Court by jealous rivals. Gilbert then turned his ambitions toward Ireland, becoming an important figure in English conquest and colonization projects of the day. But pecuniary returns were inadequate, and investments in alchemy also came to naught. Gilbert once more turned his attention to colonization projects. The immediate lure was the fabled kingdom of Norumbego. One sailor claiming to have seen it described a great city with streets broader than those of London, wherein men went naked but for valuable furs around their midriffs and hoops of gold and silver garnished with huge pearls suspended on various parts of their bodies. Norumbego's women were reputed to dress in plates of gold like armour, and to set up housekeeping in round homes erected on pillars of gold, silver and crystal. It was in part the search for Norumbego that prompted the Queen to give Gilbert property rights to vast tracts of North America. In 1583 Gilbert arrived at St. John's harbour and claimed it for England. The main purpose of his visit was to loot supplies from the fishermen so as to sustain his expedition of conquest aimed at more lucrative territory. He therefore began levying "taxes" on the fishing ships, precipitating a bout of open warfare that managed to wreck his "colony". This first effort to establish a "government" on Newfoundland set a pattern of violent political struggle between fishing and colonization interests that remained the most important political issue in Newfoundland for two centuries to come. After the precipitous departure of Gilbert (who would never return to the island), renewed warfare between England and Spain brought English privateers to Newfoundland en route to attack Spanish overseas possessions. It also brought about the rapid decline of the Span-

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ish fishery, which was crippled by the capture or impressment of sailors, the destruction of shipping, and heavy new taxes imposed by the Spanish government to raise money to fight the war. One of the most decisive engagements came out of Francis Drake's 1585 expedition, which saw him set off to terrorize the Spanish West Indies while his brother Bernard tried to destroy the Spanish and Portuguese fishery in Newfoundland, In its wake English fishing ships poured into Newfoundland. After 1600 England secured an ever-increasing share of the Iberian market, and with it a share of New World silver in return, as the Spanish fishery declined.

The Aboriginal Population of Newfoundland Newfoundland was not uninhabited when the first fishermen arrived. It was the home of the Beothuk Indians, whose numbers at the time of early contact have been estimated, perhaps with considerable exaggeration, as high as 50,000. By the 1820's, without any evident exaggeration, the Beothuk people were deemed extinct. The Beothuks were a semi-nomadic hunting and gathering people with a seasonal migration pattern. The summer was spent at the coast, fishing or hunting marine mammals; the winter saw them move into the interior where they subsisted on caribou and other animals. The bulk of their essential materials, even hunting and fishing gear, were owned communally. The holder appears to have had the right of continued, unrestricted use; but once the tool ceased to be used it became collective property again. Nor was there any conception of private property in land. Clothing and personal decorations were in fact the only things regarded as the personal property of the possessor. One unique feature of the Beothuk culture was their use of body make-up, painting themselves with a type of red ochre found in Newfoundland. It is from this practice that the term "Red Indians" comes. However, once the red ochre was washed off the Beothuks were in fact light-skinned, and that was part of the Beothuk tragedy, for light-skinned slaves fetched premium prices in Europe. John Cabot seized some of them in 1497 and put them on display in London, charging two pence admission. The Portuguese reacted to Cabot's voyage by sending Cortereal to claim Newfoundland — and to open the slave hunt. The Portuguese, and the French and English after them, in fact had little luck with slaving in Newfoundland. The Beothuks died too quickly to make them very profitable as slaves. Furthermore, the large area over which they were spread as well as their nomadic economy made them difficult and expensive to trap. Slave hunting in Newfoundland came to a halt because it was unprofitable. But one

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long-term result of the slave hunts was to make the Beothuks wary of contact with Europeans. Given the nature of the fishery, its exploitation of the beaches and periphery of Newfoundland alone, there was little impetus toward European-Beothuk contact in the early years save for minor fur trading. Contact grew over the course of the seventeenth century as settlement crept forward. The early settlers regarded the Beothuk as harmless and opened a minor fur trade with them. French fishermen, however, fought constantly with the Beothuks. The Beothuks' lack of a concept of private property led them to pilfer knives, axes, fish hooks or other useful objects left lying about by the European fishermen, exacerbating the antagonistic attitude of the fishermen toward the aboriginal population. Soon, mobs of fishermen were raiding Beothuk villages, slaughtering the inhabitants and looting their furs. Both English and French fishermen joined in the sport. The French-allied Micmac Indians of the Maritime provinces area, who themselves had a legacy of attempts to establish colonies on Newfoundland, were equipped with guns, and paid a bounty for every Beothuk they killed. The English also placed a price on the Beothuks. The manhunts continued until the last known Beothuk died in captivity in 1823.

The Southern Voyages More important than the Elizabethan northern voyages were the southern ventures of the same era. While the French had been active in the Caribbean for decades, English ships were rare there until John Hawkins and Francis Drake arrived in the 1560's. Hawkins first chanced into the Caribbean hoping to sell his mercenary services to the Spanish to help them deal with French priates, and then use the resulting position of favour to engage in trade between the Spanish West Indies, England, and the slave trade posts of West Africa. To acquire slaves for sale, he had to challenge the Portuguese monopoly. With the connivance of Spanish colonial authorities, who turned a blind eye to English contraband, he was so successful that Elizabeth herself invested in his subsequent slave trade operations. She also gave him a ship, the Jesus, with which to ply his craft. Hawkins, the effective founder of the English slave trade, was a religious man who used to enjoin his sailors to "love one another" and "serve God daily". So well was God served that the dividends paid on the second slaving operation led to Elizabeth knighting Hawkins; he chose as his coat of arms an African in bonds. The Spanish imperial authorities, however, took a dim view of Hawkins's activities, and stopped the contraband slave traffic. Elizabethan enterprise, led by Hawkins's cousin Francis Drake, had to seek out greener pastures.

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In 1567 English adventurers seized their first Spanish treasure fleet. In fact Drake and his cohorts seized few Spanish treasure ships over the long run, though a group of spectacular initial successes did fuel the fire of English enterprise and brought Crown investment into privateering ventures. The 1577-80 voyages of the Golden Hind to pillage towns and attack treasure ships served to assure Drake of immortality. This honour eluded most of his shipmates, however, as Drake returned to England after having lost four of his five vessels and most of the crew on the flagship itself. Fortunately for Drake, the voyages provided a return that was sufficient to pay a dividend of 4,700% to the stockholders; and Elizabeth herself held one half of the shares. The return to the Crown was sufficient to discharge its entire foreign debt and still leave a surplus to reinvest in other overseas endeavours. The profits of the early successes led to a scramble of capital into the business of looting ships and towns. Drake offered anyone who would "adventure" with him a guaranteed profit rate of 600 to 700%. In 1585 another Drake venture plundered Santo Domingo and Cartagena, then set off across Panama to attack the main treasure convoy with a view to combining looting for private gain with the broader public purpose of drying up the flow of Spanish treasure and thus preventing the Spanish from undertaking an invasion of England. Although the last voyage was unsuccessful, the invasion of England by the great Armada was subsequently thwarted. The Spanish set sail against a superior English force; outgunned, outnumbered, and pounded by adverse weather conditions, by sheer pluck the Spanish fleet pressed on. But the English won the campaign, and with it a powerful place in the great struggle for overseas empire.

3

The Foundations of French Bullionism

FRANCE, LIKE ENGLAND, really began its career of overseas commercial expansion after the end of the Hundred Years' War, which broke up the north-south inland trade routes traditionally subject to Flemish and Italian domination and cleared the way for the rise of an indigenous French merchant class. The war also devastated large parts of the countryside, eliminated much of the autonomy of the feudal baronry, and permitted the growth of centralized state power. The feudal nobles proved to be militarily incapable of undertaking modern warfare and were economically weakened by the carnage. In France, as in England, the Crown's need for liquid wealth to finance its military effort coincided with the requirements of merchants for protection and state aid. By virtue of its population and natural resources, France actually enjoyed major advantages over England in the subsequent bid for commercial empire abroad, but its incursion into the North Atlantic was considerably slower, partly because of the power of established trading nations and partly because its traditional commercial orientation lay elsewhere. France regarded itself first and foremost as a continental power, and secondly a Mediterranean one. It was French knights who formed the backbone of the Crusades, and in 1099 these had established the Norman kingdom of Jerusalem, which led to a major expansion of French Mediterranean commerce. Hence France's reaction to the Iberian discoveries took the form of an alliance in 1499 with Greece and Venice to attempt an eastern Reconquista. But the new Crusade was a failure which was compounded by a losing struggle with Spain over control of the commerce of northern Italy; and over the course of the early sixteenth century not only did the Turks stop further European encroachments in the eastern Mediterranean, but 30

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they extended their conquests in the Balkans, while a Moorish resurgence drove Iberia and France out of North Africa. French attentions, like those of Iberia several decades before, at last turned westward.

Early French "Discoveries" The west was not completely unknown to French mariners before the first major wave of French expansion in the late sixteenth century. Even while the nation's principal concerns had been Mediterraneanoriented, some "exploratory" voyages to the west had occurred. Francois I, who encouraged the initial western experiments, had reacted adversely to the Papal Bull dividing the world between Spain and Portugal. "The sun shines for me as for others," he decreed. "I should very much like to see the clause in Adam's will that excludes me from a share of the world." While Henry VIII in England had circumvented the implication of the Papal Bull by founding his own church, Francois I tried a different strategy — he married his son into the Pope's family, and the Pope soon thereafter found that the Bull of 1494 applied only to lands already discovered and not to those subsequently chanced upon. To help justify the convenient revelation, subsequent officially sponsored voyages of "discovery" by France assumed a smokescreen of missionary purpose. Italian capital and expertise again played a vital role. A group of Italian merchants and bankers in Lyons, centre of the French silk industry and a former major market town in the old north-south interior trade route, were anxious to secure new sources of raw silk from the Orient. They put their hopes in the discovery of a Northwest Passage which would circumvent the Turks, stabilize supplies, and reduce costs. Jointly with the French Crown they financed the voyages of a Florentine adventurer Giovanni de Verazzano, who in the 1520's went searching for the Northwest Passage somewhere between Florida and Newfoundland. On one of his voyages Verazzano ventured into the Caribbean and chanced upon a group of Indians. Used to dealing with the friendly aboriginals of North America, Verazzano reputedly paddled ashore to greet them. Alas for Verazzano the Indians turned out to be not docile Arawaks but Caribs, who seized him, hacked him to pieces and ate him on the spot. Jacques Cartier, of St. Malo, a Breton seaport, was selected to complete Verazzano's work. His voyages were backed by both the Crown and the merchants of St. Malo. Cartier, an admirer of Cortez, sailed off in search of gold and the Northwest Passage. He ended his first voyage to northern North America by carrying off the sons of an Iroquois Indian chief after the chief, Donnaconna, had told Cartier

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tales of a fabulous inland kingdom of Saguenay (the exchange of hostages was a normal part of aboriginal diplomacy — though there is no record of any Frenchmen being left behind). The Indian hostages were intended to tell the same stories in France to facilitate the raising of capital for the next voyage from a set of investors who were bound to be disappointed by the lack of spoil from the first trip. On his next voyage, Cartier continued to gather "intelligence" from Chief Donnaconna himself. The old sachem spun Cartier fantastic tales of the kingdom of Saguenay full of gold, silver and precious stones — items of absolutely no value to the members of the Iroquois band themselves. Donnaconna, in fact, was merely trying to be polite to his visitors: he had noticed how ecstatic the French became when he talked of gold and jewels. Cartier, apparently not at all deterred by the fact that thus far Indian information had led him not to the walls of some great Tartar citadel but to the feeble pallisades of a collection of Iroquois huts on Montreal island, kidnapped Donnaconna to have him repeat his fabrications in France before King and creditors. Accompanying them on their return voyage to France was a shipment of fool's gold and quartz that Cartier believed to be gold and diamonds. They arrived back in France at an opportune time. The Treasury of Francois I had been drained by war with Spain. Spain's wealth and therefore military power was built on the spoil of central and southern America, and Francois I coveted the potential booty of Saguenay as a counterpoise. Donnaconna, noting that French interests went beyond precious metals, added cloves, nutmeg and pepper to the products of Saguenay. He then threw in oranges and pomegranates and told stories of races of unipeds, of men with wings instead of arms, and of men born without anuses! The French courtiers apparently believed him, especially after Donnaconna put his religious principles on the line and swore on the Bible before a notary that it was true. Plans for a third expedition, to be led by Sieur de Roberval with Cartier second in command, were put into operation. The preparations were carefully watched by Spanish spies, and the Spanish Crown, taking note of the character of the expedition's leadership, ordered extra fortifications to be built in its wealthier Caribbean possessions in anticipation of a visit. Roberval busied himself with recruiting "colonists" — often criminals dragged out of jail, with preference given to those facing death sentences. Only those guilty of heresy, crimes against the King's property, and counterfeiting were disqualified. Capital was subscribed on a joint-stock basis from merchants, nobles, and the Crown, with the profits to be divided on the basis of one third to the King, one third to Roberval, and one third for the other shareholders.

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Once Cartier sailed off with his part of the flotilla Roberval, as the Spanish authorities correctly foresaw, was diverted into piracy for a while in an effort to raise more money. Finally Roberval too set off, only to meet the remnants of Cartier's disastrous effort at colonization on their way back with the inevitable load of "gold and diamonds". Other efforts at northern exploration and colonization met with similar results. French efforts in the Caribbean met with a little more success, though private enterprise rather than the Crown played the leading role. Dieppe, the old centre of French privateering, sent its mariners into the Spanish Caribbean to seize cargos of hides, sugar, dye woods and other products. Prominent among the Dieppe explorers was Jean d'Ango, former Levantine spice trader whose commerce to the Mediterranean was increasingly hampered by the Turks and who therefore diverted his ships into Newfoundland and the Caribbean. In 1523, d'Ango intercepted Cortez's treasure fleet as it returned to Spain bearing loot from Moctezuma's palace. The seizure of the fleet woke the French to the real wealth of Spanish America and prompted a series of raids on Mexican and Peruvian treasure ships. A French colony was established in Florida as a base from which to attack Spanish cargo ships in the Caribbean. But the Spanish decimated the colony, and most of the French pirates, who lacked support from the French state, were expelled from the Caribbean.

The Genesis of French Buttionism Over the course of the fifteenth and sixteenth centuries bullionism, as a philosophy of French economic policy, gradually shaped legislation, although not yet in any systematic way. The first manifestation was the link between the accumulation of treasure and the successful prosecution of war, which resulted, over the course of the sixteenth century, in several general edicts prohibiting the export of precious metals. A second manifestation was a series of policies designed to curb "luxury", to hold down the wages of the poor, and to prevent the middle classes from overshadowing the aristocracy. These measures were designed to curb the import of luxuries which drained out gold and silver. Such policies were accompanied by the growing awareness of France's potential self-sufficiency, of its capacity to support itself while still generating an exportable surplus. To this end the Crown undertook to subsidize selected industries. A final symptom of the awareness of changed economic circumstances was the emergence of antagonism toward "foreign" mer-

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chants, including, at a later period, French Protestants. All of these tenets of bullionist thought were built into policy on a haphazard basis over the late sixteenth and early seventeenth centuries, though not until the 1630's did the outlines of a coherent, interrelated set of policies take shape. Even then French policy was subjected to the contradictory demands of those who argued for self-sufficiency and those, usually weaker voices, who urged an aggressive international commercial stance. Public finance and overseas expansion were inextricably linked. Civil wars had wracked France in the sixteenth century and, together with continental wars, drained the public purse and ruined some of the Protestant coastal towns from which overseas commercial enterprises would normally have been launched. With the ruin of such ports and the flight of seamen to England, the French navy and merchant marine was so weak that by the late sixteenth century Arab corsairs had largely chased them out of the Mediterranean. Recovery began under the reign of Henri IV as he financed his naval rebuilding program from the proceeds of the dowry of his rich Italian bride and from a tax on French brothels. During his rule too the state took a more active role in sponsoring chartered trading and colonization companies, companies which made a few more largely futile efforts to grab Caribbean islands from Spain, to challenge the Dutch in the East Indies, and to found northern colonies. Three separate efforts were made to establish a permanent French presence on Sable Island. In 1603 the survivors of this jewel in the French colonial Crown were mercifully removed. By the turn of the seventeenth century there began a series of efforts to colonize what became Acadia and the St. Lawrence valley. There was little crown participation, for the ministers generally agreed that it was a waste of scarce national resources to attempt to plant colonies where there was no gold, silver or precious stones. Thus when Pierre de Monts and his agent, Samuel de Champlain, a veteran of French encroachments in the Spanish Caribbean, undertook the first permanent white settlement in North America, initially there was little royal support apart from the grant of the fur trade monopoly. This lack of Crown enthusiasm derived from the disappointment of France's earlier hopes of turning North American fur supplies into good bullionist use.

Fur Trade and Atlantic Empire Furs had been important to northern European commerce even before the Commercial Revolution of the twelfth and thirteenth centuries, and remained a central part of the pattern of commodity ex-

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change for centuries after. Fur garments were cherished by the nobles, the clerical elite and wealthy commoners both for their beauty and for the warmth they provided to the occupants of cold and damp stone buildings. However, supply was constrained by the technology of the felting process, its sophistication, and limited diffusion. A specialty of artisans of Constantinople, the science of felting was to some degree picked up by western Europeans during the Crusades and carried to France where it quickly became the domain of the Huguenot artisans, especially in Normandy. After the fall of Constantinople to the Ottomans, Byzantine artisans fled to Russia, which also became a major centre of the industry, particularly since the artisans in Russia shared the Orthodox faith and were free of the religious persecution that the French Huguenot so often faced. The fashion of wearing furs spread to the middle classes of Europe throughout the fourteenth and fifteenth centuries at a time when Western Europe's supply was falling sharply. The resulting scarcities and high prices led to a twofold reaction. In some areas the wearing of furs by the lower social classes was prohibited by law, in part to confirm the existing social structure in which luxuriant apparel served as a visible symbol of social rank, and in part to restrict the loss of gold and silver spent for imports of luxury furs. At the same time business interests hastened the development of trade between western and northeastern Europe. Russian furs increasingly flowed from the eastern limits of its empire to the Baltic, from where the Hanse and Dutch merchants carried them to final market. In the sixteenth century English efforts to find the Northeast Passage were supplemented by a drive to displace the Hanse from the Baltic fur trade, but the English in turn were largely driven out by the rising Dutch commercial presence. Over the course of the sixteenth century Portugal, Spain and France were all aware of the vast fur supply of North America. But because of the temporary state of falling demand in Europe, partly a reaction to the increased flow of silks and cotton from the Orient during the "discoveries", there was little incentive for systematic exploitation of the trade. Besides, early explorers were mesmerized by the search for precious metals and the Northwest Passage. Such early trade in furs as did develop was strictly an offshoot of and secondary to the coastal fisheries, rather than supplying a basis for systematic exploration and settlement of the interior. Nonetheless, the coasting trade conducted by fishermen was sufficiently widespread that when Cartier arrived in 1534 the Indians he first encountered were already well aware of European goods and the desires of the European mariners. Upon perceiving Carrier's men, the Indians displayed their furs to signify a willingness to trade.

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The Indians that greeted Carrier were unusual for an Iroquoian band in that instead of the normal pattern of reliance on corn cultivation, they drew the bulk of their sustenance from the river. The difference may well reflect their determination to situate themselves in areas strategic for controlling the flow of Indian-European trade that was well established before Carrier arrived. The Indians were already accustomed to long-distance intertribal trade. European goods were thus added to an existing far-flung pattern of exchange. Intertribal trade was based on complementarity of economic structure and/or on the possession within tribal territory of some unique natural resource. It further involved the exchange of surplus manufactured products incidentally derived from the operation of the subsistence economy, or that of luxuries coveted for their ceremonial and symbolic value and produced expressly for exchange. Thus native copper from closely guarded sources around Lake Superior was manufactured into ornaments (being too soft for use as a tool) by the Nipissings and exported over hundreds of miles. From the area south of Long Island down to the Virginias, the Susquehannock and other peoples manufactured wampum belts out of clam shells. These belts, whose manufacture demanded great effort and skill, were highly treasured throughout much of eastern North America for ceremonial, diplomatic, and record-keeping purposes. The wampum belts moved to the Iroquois nations northward in the form of tribute, and were then distributed in trade over many hundreds of miles. Flint, obsidian and catlinate for arrow heads, knives, peace pipes and other objects all moved in manufactured form out of those areas endowed with the requisite natural resources and into regions without such endowments. Indeed the so-called Neutral Indians in the Niagara area owed their neutrality in pre-contact conflicts to their possession of the materials and techniques for manufacturing high-quality flint tools for war and work. Peaceful trade with the Neutral was therefore a cardinal objective of their neighbours' diplomacy. Perhaps most important to pre-contact trade in eastern North America (and certainly most important following contact) was the unique situation of the Huron-Iroquois people. As an agricultural nation they could barter their surplus corn and tobacco to the hunting and trapping peoples in exchange for meat, skins and furs. They also tended to have the most complex forms of social organization and the highest population density, which enhanced their commercial power. Thus, prior to contact, trade in manufactured goods stretched over hundreds, even thousands of miles in many directions. Its rules were well established and respected in peacetime. European trade began simply by superimposing itself on existing patterns, but in time it warped the objectives and patterns of aboriginal trade and, as the

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relative importance of the trans-Atlantic fur trade increased, undermined the social organization of the chief participants. By the end of the sixteenth century European attitudes were changing, and the fur trade ceased to be merely an incidental offshoot of the fisheries. Both the English and the French were squeezed progressively out of the Russian fur trade by the Dutch and wanted alternative sources of furs. Fur, too, held some prospects for the development of a trans-oceanic luxury trade, similar to the commerce in silk and spice in the Orient. Successful trans-oceanic trade in the face of heavy transport costs in the late sixteenth and early seventeenth century required commodities light in weight and small in bulk in relation to value. Beaver fur, the raw material for a type of hat in fashion during the seventeenth century, was the chief but far from the only prize sought by the early traders. Its ease of acquisition coupled with competitive pressures meant the beaver population could be quickly exterminated in certain areas, a factor partially explaining the steady push of French influence ever deeper into the interior of North America. And as penetration proceeded, the cost of conducting the trade rose, particularly the fixed costs associated with maintaining a long transportation route — forts, trading posts, the staff to maintain the posts — whatever the supply of furs. Trading costs also rose rapidly. The manpower necessary for moving goods over longer distances increased, and the interest costs of trade debt mounted as commercial capital was tied up for longer and longer periods of time. Added to these were the cost of trade goods. The Indians refused to be satisfied with baubles and beads. Guns and gunpowder, cloth, and iron tools were all in demand. Another vital commodity, though for the ceremonial prelude to trade rather than for trading per se, was alcohol. Indians expected gifts from the traders before negotiation actually began, and alcoholic beverages were among the most important. Here the French, with their brandy, faced a cost disadvantage. France protected its brandy industry and discouraged rum distilling in the West Indies. The English sugar plantations and North American colonies on the other hand produced torrents of cheap rum with which they could buy Indian allegiance. This relative cheapness of rum, along with the lower costs of English wool and cloth, gave the English traders a competitive edge over the French from an early period. In the earliest period of development of the fur trade, when it was conducted as a sideline by ships involved in the sedentary fishery, there was no problem of capital supply, and no monopoly in the collection of furs. The trade was open to all who obtained a licence from

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the King, or were bold enough to smuggle furs back without a licence. But the high profits meant ever more participants and the gradual evolution of firms whose specific and sole objective was to trade with the Indians. With them came the problem of assuring a flow of revenues sufficient to cover the rising level of overhead costs. Attempts to monopolize the business were the inevitable result of the heavy investment of fixed capital. Typically in the earlier years, the Crown would grant a commercial monopoly to a handful of favoured individuals in return for their undertaking settlement. The discontent of those left out led to lobbying for cancellation of the monopoly, while internal dissatisfaction over the division of profit sometimes induced desertion. The colonization obligations of the monopoly company were inevitably evaded — and this would provide its opponents with the necessary weapon to attack the company. Government pressure would lead to the transportation of a few beggars and convicts who were simply an added expense to the company. Further settlement was therefore avoided. The attacks were renewed. And ultimately the monopoly would be cancelled. Under Henri IV, France entered a brief period of energetic overseas expansion. Henri IV saw in the North American fur trade a way of assuring to France supplies of a vital raw material, a tool for the Crown to reap revenues from its investment and therefore lighten the tax burden in France, and a means of developing a luxury export industry to improve the French balance of trade and attract gold and silver. The result was a series of generally unsuccessful monopolies with the usual colonization obligations, directed toward Acadia and Canada. If the colonization obligations were not fulfilled the company faced the possibility of early dissolution; but if they were, the company found the cost involved threatened its profitability. Thus policy and practice swung to and fro, as monopoly gave way to open trade only to be replaced by monopoly again. The trading and colonization venture of Pierre de Monts and his associate Samuel de Champlain immediately ran afoul of the opposition of the French towns and the Canadian winter. The de MontsChamplain monopoly, lost in 1607, was regranted for one year in 1608, the final upshot of which was the successful planting of a permanent colony at Quebec at the already cleared site of an old Iroquois town, selected for its access to the rich beaver country that surrounded it. Then in 1609 came the act which cemented the little colony in place. That year a delegation of Huron, Algonquin and Montagnais Indians called on Champlain to seek an alliance in war against the Iroquois. In exchange they promised that the overthrow of the Iroquois would open up a rich new fur country to French exploration. In 1610 French modern weapons of war joined the attack on the

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Iroquois camp. The Indians proceeded to scalp their dead enemies while the French busied themselves with stripping their dead bodies of bloodstained furs. The captives were slated for the ritual burning demanded by Indian tradition, but the French code of ethics forced them to intervene: the living were also stripped of furs before the burning could go ahead. The monopoly had expired in 1609 and despite the efforts of Champlain and the company, free traders made serious inroads, leading to Champlain's lament that he had to bear the overhead cost of war and diplomacy while his competitors collected the profits. The problem was that everyone in New France had to trade furs for a living. Even the Jesuit fathers were alleged to be actively involved in "converting the beaver" — establishing their own trade posts and hiring professional traders to run them. New France became a haven for the upstart bourgeois or bankrupt aristocrat to make or recoup a fortune in the traffic in pelts. The pattern of granting monopolies, revoking them, then regranting them, continued to characterize official French policy toward the least renowned, and at that time probably the least profitable, overseas commercial presence. France's relative indifference toward North America and even the Caribbean contrasted sharply with its attitude toward the Mediterranean. During the bullionist era the most highly regarded forms of commerce were the oriental luxury trades, on which the profit rates, and the risks, were high. With the Dutch and Portuguese battling for control of the African route, and Spain still in command of the Pacific route, French commercial diplomacy aimed at a rapprochement with Turkey and a reactivation of its Levantine trade. A commercial triumph of the reign of Henri IV was a 1597 treaty by which, briefly, all European trade to Turkey's possessions had to be carried in ships flying either the French or the Venetian flags. The recovery of French external commerce was brief. As foreign wars again consumed national resources and were complicated by the renewal of internal strife, foreign trade companies floundered, colonies were neglected, and both navy and merchant marine were reduced to insignificance. English and Dutch ships took command of northern commerce, while the French North Sea fishery was practically extinguished. Spain aspired to control the Mediterranean as well as the Americas, in fact putting the treasure of the latter to work in conquering the former; and its intrigues and growing influence in Italy threatened the French Mediterranean trade. The Barbary pirates were growing in boldness. The French Protestant towns were in a state of ferment. These circumstances were not seriously alleviated until well into the seventeenth century, when France's imperial policy would take a more coherent shape.

4

The Aftermath of the Discoveries

THE IBERIAN-LED WAVE OF CONQUEST and colonization in the early sixteenth century had tremendous economic consequences both for Europe and for those areas unfortunate enough to have been "discovered". The opening of new trade routes to the east — the Portuguese African route, the Spanish-controlled route around the Americas and across the Pacific — meant an enhanced supply of eastern luxuries such as spices, silks, cotton fabrics and tea. Africa was opened up to slave traders, and the great American civilizations were extirpated in the rush for gold and silver plunder. Apart from precious metals and oriental luxuries, many other, more basic commodities entered international commerce as a result of the "discoveries". Agriculture on both sides of the Atlantic was revolutionized by the post-Columbian exchange. Tobacco, tomatoes, maize, potatoes, yams, manioc and many other species of plants moved from America to Europe and/or Africa, while sugar, wheat and domesticated animals — horses, cattle, sheep — moved the other way. But none of the commodity movements that occurred in the wake of the conquistadors' galleons had as enormous a material and psychological impact on Europe as the seemingly limitless supplies of precious metals that America revealed. In 1503 the first shipment of gold from Espanola reached Spain, the harbinger of a flow of gleaming booty that for centuries formed the lifeblood of the Spanish imperial system. Gold looted from the Aztec empire began arriving in 1519, and that from the realm of the Inca in 1534. But by then the nature of the flow was changing. Plundered gold gave way to a fantastic output of silver from the great mines of Peru, Bolivia and Mexico. Silver formed the backbone of the monetary system of Europe at a time when the revival of commerce, the ever40

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increasing demands of the state for cash revenues, and the new exaltation of the status of mobile, monetary wealth at the expense of the landed class drove up the demand for metallic assets. Silver also formed the basis of the monetary system of India and China. At a time when the far east had insufficient demand for western goods to reciprocate the western craving for silks and spices, silver plundered from America was essential for buying imports from the Orient. Coming on top of an already existing revival of trade and commerce, the influx of new purchasing power into Spain, particularly after the middle of the sixteenth century, served to sustain a generalized economic boom throughout western Europe, one of whose principal symptoms was a period of inflation unprecedented since the era of coinage debasements of the later Roman period, and one of whose main long-term effects was to help undermine the political and economic power of Spain and Portugal.

Iberian Decline The fundamental problem of both of the Iberian empires was the failure of their newfound wealth to transform their socioeconomic structures. In both of them the heavy hand of the Crown drew off much of the new wealth and frittered it away on the unproductive trappings of prestige and power, while the development of mercantile enterprise lagged. Elsewhere in Europe, commercial revival led to the accumulation of merchants' wealth and with it the extension of the process of urbanization, the spread of market-oriented activity, and the development of capitalist enterprise. In Spain, however, the Crown allied itself with the feudal lords to put the wealth of the colonies to work to destroy urban autonomy, repress freedom of trade, and discourage the development of dynamic capitalism. The Portuguese empire was based overwhelmingly on the carrying trade. Portuguese ships carried much of the earlier spice trade and the cottons of India, and Portugal established an early dominance in the African slave trade. Brazil, its greatest colony, quickly became the world's leading sugar producer. But the direct link between Portuguese production and Portuguese commerce necessary to sustain long-run economic development was missing. Neither the eastern luxury nor the African slave trades provided much of a market for Portuguese produce. Even the slaves were bound overwhelmingly for Spanish American markets rather than to provide a labour force for Portuguese colonies. The sole important Portuguese colonial staple product, sugar from Brazil, was refined in Brazil and carried to Amsterdam for distribution to European

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markets, Portugal gleaning only the profits on the carrying trade. Portugal was not even self-sufficient in basic raw materials, and its necessary imports of grain and timber from the Baltic were a perpetual, and growing, drain on its precious metal supplies. The Spanish empire was far vaster than that of Portugal, but the basic problems were similar. Spain had seized the great bulk of Central and South America, dominated the trade of the Pacific, and controlled parts of Italy and the Netherlands. But only America was a source of gain. Spain's European possessions were a tremendous drain on its financial resources, siphoning the wealth of America out of Spain and spreading it through Europe without engendering any major transformation of the Spanish productive apparatus. While France and England, during their subsequent careers of imperial consolidation, formulated more or less coherent programs (often only inadequately implemented) for the commercial regulation of their empires, Spain's imperial system was premised essentially on a flow of tribute in the form of silver from the colonies to the metropole. There was little effective insistence on the colonies as a source of tropical staples or as exclusive markets for the metropole's output. Rather, a flow of bullion was assured by taxes on the booming silver-based economy, by a poll tax (payable in silver) on the Indians, and by the Crown's reservation of one fifth of the gross output of the mines. Thus the flow of European commodities from Spain to the colonies increasingly came to be of foreign, usually French origin. At the other end, much of the bullion coming into Spain flowed out again to pay for wars of empire inside Europe (especially in Flanders and Italy), or for the manufactured goods the Spanish economy itself could not produce. When the annual flow of tribute started to decline sharply in the third decade of the seventeenth century — as a result of the decimation of the Indian slave labour force, the depletion of the most accessible veins of precious metals, and the acceleration of smuggling abroad — Spain entered a phase of rapid decline as an imperial force. Others were waiting in the wings to displace it. The Struggle far Succession The year 1618 was doubly distinguished by a commercial depression and the opening salvos of what became the Thirty Years' War. American silver had consolidated Spain's hold over much of Europe, and the Spanish-led (though Austrian in origin) Hapsburg dynasty controlled Portugal, much of Italy, Austria, the parts of Hungary not held by the Turks, and a large part of the southern Netherlands. For a

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time, after the murder of a Bourbon king of France in 1610 and the marriage of his successor to the Spanish ruling family, the Hapsburgs' sway crossed the Pyrenees into France, though the rapprochement between the two nations was brief. Spain was suffering from increasing economic and financial difficulties after the turn of the century, even before the silver inflow began to level off and then decline. By contrast the Dutch provinces that had shaken Spanish rule, with their far-flung trade to the north and into the Orient, were flourishing. So too, briefly, was France, which was staking its claim to the Levantine luxury trades by diplomatic overtures to Turkey and by intrigues with the Vatican against the extension of Spanish power. While the fortunes of the Thirty Years' War swayed to and fro, the net result was almost always a deterioration of the Hapsburg position, both within Europe and in the colonial sphere. It effectively finished the era of Spanish-Austrian hegemony in central Europe. Furthermore, to complete the disaster for Spain, the Dutch in 1639 decimated Spain's navy and seized control of much of the Spanish carrying trade. And in 1640 Portugal, encouraged by the Dutch, English and French, rebelled against Spanish rule. As Spain's silver supply dried up, so did the flow of subsidies to Austria, and military decline on that front was followed by France destroying Spain's army in 1643. The war ended with the Treaty of Miinster in 1648, a treaty which in effect ceded Spain's imperial trade to the Netherlands and made Amsterdam the new centre of world commerce and finance. In essence the contest had been between the old Mediterranean economy and its trans-Atlantic extension on the one hand, and the new North Atlantic economy that the Dutch represented on the other, and the end of the war can be taken as the starting point for a new epoch in world commercial history. The aftermath of the war, together with the economic crisis it helped produce and perpetuate, set off fundamental and far-reaching changes in the structure, location and organization of the economies involved.

Commercial Crisis and Reorganization The crisis was one of general retrenchment and the shift of the European centre of commercial and industrial gravity to the north. Iberia, Italy and Turkey were in decline and never recovered. England, France and the Netherlands found their economic expansion checked, but only temporarily, and in the long run emerged ascendent from the crisis. Industrially, several major structural changes were in evidence.

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Italy and Flanders, the old woolen textile producers, regressed steadily. England, their principal supplier of raw material, found its old staple markets ruined, but reacted by finding new ones and rapidly developing its own manufacturing capacity. Its woolen fabrics, virtually its sole export, were soon undercutting the old producers not only on the foreign markets where Dutch merchants had formerly sold their wares, but also at home. The English advantage was twofold. First, the conquest of Ireland in the wake of the defeat of its Spanish ally provided England with new grazing grounds for sheep; second, its wars against the Dutch established its merchandise in areas formerly catered to by Italian and Flemish artisans, some of whom reacted to the crisis by moving to England. The flight of artisans from the skilled crafts in the Mediterranean economies went beyond the textile industry. The ascendent powers offered incentives to skilled tradesmen to bring their crafts north, hampering the recovery of the southern industries crippled by the crisis. In Spain a similar result followed the expulsion of the Moorish craftsmen in the early seventeenth century. However, it was not simply a process of the northern states' transferring bodily to themselves the industrial potential the southern powers were losing. Within the new industrial states a major change in patterns of industrial organization was taking place. As wars, plagues and famine stalked Europe, the living standards of both urban and rural populations collapsed. The resulting weakening of the urban crafts, together with the development of a pool of impoverished peasants willing to supplement their meagre farm income by wage work, encouraged the shift of industry from town to country. Along with the locational change came the increasing importance of the merchant-capitalist in intermediating the flows of raw materials and goods back and forth. Artisanal production remained the norm, but power to dictate quality and quantity passed increasingly to the merchant-capitalist. In short, unlike earlier crises, that of the seventeenth century was associated with the extension, rather than the contraction, of market-oriented economic activity. Commensurate with their increased control over the productive apparatus came the merchants' aspirations to greater political power. While their sociopolitical control in France remained stultified for some time, in England and the Netherlands over the course of the seventeenth century the consolidation of power by the haute bourgeoisie was virtually complete. And it meant that the accumulation of wealth increasingly favoured a class which would reinvest it in commercial enterprises rather than waste it in prestige purchases such as land or luxury goods. The frontier for commercial investments was also shifting. The crisis that followed the falling off of Spanish silver imports meant the

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sharp decline of the Atlantic trade centred on Seville. The slave trade also declined, as did the East Indian trade in luxuries to Amsterdam and Lisbon. The frontiers of overseas colonial enterprise actually shrank. When recovery under the leadership of France and England began in the last third of the seventeenth century, the primary focus had shifted away from the East Indies and the Mediterranean to the West Indies, where great slave plantations were established and from which France and England could vie with each other for commercial hegemony over the decaying body of the Spanish American empire. The ascent of the bourgeoisie was reflected in a change in the focus of economic policy. Spanish colonial theory, and indeed that of England and France in the late sixteenth and early seventeenth centuries, had remained grounded in classical bullionism. The demands of the central authority led to the imposition of tribute on the colonies, payable in silver. At a time when the internal economy was only partially monetized, taxation of the fully monetized external sector was the obvious recourse for a state seeking the means of financing an expanding set of governmental obligations. The specie, once admitted into the polity, was not (legally) permitted out again except through state-authorized expenditures. But the spread of a market-exchange economy meant a new attitude toward the colonies, the public finances, and the balance of payments alike, a philosophy subsumed under the term mercantilism.

The Genesis of Mercantilism Mercantilism was an economic philosophy appropriate to western European societies in which the transition from feudalism to commercial capitalism and the attendant rise of the bourgeoisie was already well in progress. It was a philosophy of wealth and power, and of the relationship between them both at home and abroad. As the economic counterpart of the rise of nationalism, it involved a program of economic development for both the metropolitan and colonial sectors of the imperial economy. Bullionism as an economic philosophy had been appropriate to an alliance of a territorial prince or king with the merchant elite at the expense of the feudal nobility. The merchant elite, which needed the power of the state to promote its economic interests and create a climate conducive to the accumulation of capital, had cash to lend to aid the state, which needed money to support a growing range of state functions. Together they undermined the power of local nobility and local urban authority alike, and set in motion a process of centralization of power and standardization of economic conditions. During the Age of Mercantilism the state structure was in place,

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and central authority — whether wielded by elective institutions under the control of the bourgeoisie as in the Netherlands, or an appointed bureaucracy answerable to the Crown as in France, or somewhere in between as in seventeenth century England — was largely free of serious challenge from decentralizing influences. With the consolidation of control and the extension of market-oriented exchange, the public finances ceased to rely on taxing a few luxury staple trades and came to depend on a generalized system of customs and excise whose manipulation could influence the broad outlines of national economic development. The creation of a national market society required extensive investment in roads and communications networks, canals, and public offices. Weights and measures, coinage, and the general legal framework within which trade took place all demanded unification. The general need to eradicate barriers to the progress of a market economy and achieve security of private property was basic to the rise of the nation-state and capitalist society. And what differentiated mercantilism from bullionism, above all else, was that mercantilism linked the development of external commerce to the development of national industry through state interventionism, while bullionism was content to tap the profits of the luxury trades of different parts of the globe. Policies therefore were adopted to stimulate economic growth by encouraging industrial expansion, population growth, immigration of skilled artisans, and an influx of wealth and treasure from abroad. Reflecting the economic climate of relative stagnation, the fundamental premise on which mercantilist policy was predicated was that the world and its resources were known and constant — the only way to accumulate wealth and power for one state was to take it away from another. Thus came the policies to seize territory, induce an inflow of skilled craftsmen with new industrial techniques, and to create a haven for the rich to bring in their wealth. In addition, protective tariffs and subsidies to favoured industries were common. Patents of monopoly for a particular industry or for the pursuit of the trade of a particular area were sometimes given in return for a fee or bribe paid to the public authority. And wages were controlled. The notion that high wages led to sloth on the part of workers was prevalent among planners. Moreover, if wages were high, so too was consumption. The paradox between the encouragement of production and the frowning on domestic consumption is more apparent than real. For at heart mercantilist industrial strategy focused on the possibility not of domestic, but of export markets. External expansion involved securing colonies from which raw materials and luxuries could be extracted, new markets for manufactured goods, and the accumulation of gold and silver from foreign

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adventure — a little piracy and a lot of trade. Under the simple notions of bullionism, appropriate to an age of plunder and tribute, gold and silver were to flow unilaterally to the metropole from its overseas ventures. But mercantilism evolved a more sophisticated approach appropriate to an age of expanding commerce. Mercantilists focused on the net balance of trade, and aimed at assuring an overall surplus of all transactions to ensure a net inflow of precious metals. The preoccupation with foreign as opposed to domestic trade, and with assuring a net inflow of precious metals, reflected concrete economic conditions of the time. Europe was still overwhelmingly an agrarian society. Apart from the revenue appropriated by the landlord class, it was assumed that agriculture was unlikely to produce a substantial surplus product — increases in agricultural output simply called forth a larger peasant population to consume it. Manufacturing, however, was quite different. Manufacturing generally produced a product surplus to the producers' needs that had to be disposed of by trade. Internal trade did not contribute to the growth of national wealth — it simply redistributed. Moreover, given the low level of domestic income, home consumption could never absorb the manufactured surplus. Foreign trade, however, did contribute palpably to national wealth, and therefore the manufacturing surplus was to be diverted to foreign markets where it could be sold for precious metals. Again a vital difference between Iberian and western European notions of empire is evident. For Spain and Portugal commerce meant wealth, but not, to the degree evident in northern Europe, the parallel development of their domestic productive apparatus. But mercantilism clearly linked home production to foreign trade. It evolved a theory of empire that saw the metropole as the manufacturing centre, the colonies feeding it raw materials for processing into commodities suitable for export to third parties in return for gold and silver. Thus came the policies of discouraging manufactured imports, prohibiting the export of raw materials from the colonies to any area but the metropole, and the commercial strategy of tariffs, bounties, treaties and wars to maximize metropolitan control over world trade. It was such a philosophy that underlay the strategy of imperial expansion undertaken by the northern European powers, France and England, in the seventeenth and eighteenth centuries.

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II The Age of Mercantilism

Colonies are the wings on which Empires soar to power. Napoleon I The business of a servant of the [East India] Company was simply to wring out of the natives a hundred or two hundred thousand pounds as speedily as possible, that he might return home before his constitution had suffered from the heat, to marry a peer's daughter, to buy rotten boroughs in Cornwall, and to give balls in St. James square. Macaulay

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5

The Origins of the English Plantation System

DESPITE SOME CONCERTED EFFORTS, English commerce expanded little during the Elizabethan period. The ventures into new or Spanish-claimed territory were led by courtiers with little support from established businessmen, and their principal objective was to plunder cargoes, especially of precious metals. Even in terms of such limited objectives little resulted. Hence the growing respectability of another option, the exploitation of permanent overseas plantations by merchants and commercially minded gentry. Reinforcing the change in outlook over the course of the seventeenth century was the growing awareness of the need to link public finance to trade rather than loot, of the need to assure that Parliamentary law with respect to the national merchant class as a whole replaced royal whim with respect to this or that set of sycophants and favour-seekers in conditioning foreign commercial policy initiatives, and of the concomitant need to better integrate overseas possessions with the domestic economy — though not until near the end of the century could such concepts be said (with the benefit of hindsight) to have been truly systematized into a legislative framework.

From Buttionism to Mercantilism With the advent of James I, the first of the Stuarts, to the throne of England came a policy of rapprochement with Spain. In 1604 the Treaty of London formally ended the state of war between the two states, thus conceding England's failure to either conquer colonies, seize many treasure fleets or seriously damage Spanish commerce, as well as Spain's failure to check the rise of English maritime power. 51

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The English empire-building process shifted away from the Spanish and Portuguese territories of the Caribbean and South America and moved to less contentious areas, first to Newfoundland and Ireland, then onto the American mainland beginning with Virginia, and later into such West Indian islands as Spain had left unconquered. There was a shift not merely of geographic locus but also of methods of organization. Elizabeth had shaped colonial and industrial policy by Crown fiat, and supplicants for favour, for money, for patents of monopoly and so forth came directly to the Crown. Similarly, the Stuarts delegated royal power for overseas trade and colonization to great chartered monopoly companies who in turn provided a flow of revenues direct to the Crown, reducing its fiscal dependence on Parliament. But in the Stuart era, Parliament began to challenge royal absolutism both because of James I's lack of aggressiveness (in comparison with late Elizabethan times) toward Spain and because of the discontent of those left out of the dispensation of royal favour. This discontent was fed by the evident success of the Dutch, who once they had broken free of Spain carved out a far-flung commercial empire. Out of the classical mercantilist alliance of large-scale mercantile enterprise with the state came a series of great chartered monopoly trading companies such as the Dutch East India Company, whose main objective was to break into the Portuguese spice trade. In addition the state undertook military action to weaken Spanish control of the Caribbean and then to seize Brazil, the Portuguese sugar colony. In the Far East the Portuguese were driven from the spice islands. To assure high prices the Dutch contrived to ensure scarcity of the precious condiments, destroying vast amounts of productive capacity. In the Caribbean the Dutch objective was commerce rather than colonization, and much of the Spanish trade fell into their hands. Brazil, whose sugar was traditionally traded through Amsterdam, was conquered outright by the Dutch, who went on to seize parts of Venezuela whose salt mines would free their North Sea fisheries from Portugal's near monopoly of western European salt production. Both the sugar plantations and the salt mines required labour, so the Portuguese control of the West African slave trade posts had to be broken. Moreover, with the general economic stagnation of the Iberian powers, more and more of the general carrying trade and the business of supplying manufactures passed into Dutch hands. Dutch commercial strength was not limited to the Iberian imperial preserves. The Dutch also succeeded in partly displacing the Hanseatic League from the Baltic commerce and in dominating the North Sea fisheries. Nonetheless the most important attribute of the Dutch commercial system was its essential parasitism off the existing

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Spanish and Portuguese possessions. In the long run the Dutch involvement both hastened the decline of Iberian power and inadvertently provided a protective shield behind which France and England could prepare for their competitive assault on Spain and the Netherlands in the late seventeenth century. However, in the short run in England the political battles between Crown and Parliament impeded the development of a rational and coherent colonial policy until the overthrow of the Stuarts and the establishment of the business-oriented Cromwellian protectorate. The Stuarts' policy, however incomplete, of rapprochement with Spain and their failure to respond to Dutch expansion was blamed for the lethargy of English trade. The Dutch in fact succeeded in driving the English East India Company completely out of the spice islands, and largely took control of the carrying trade of the few isolated and struggling English Caribbean colonies that had been established. The overthrow of the early Stuarts reversed the trend. England embarked on an aggressive commercial policy, aiming through war and trade to end the Dutch commercial hegemony and encroach directly on the Spanish possessions. In 1651 the Navigation Ordinance decreed that all products of Asia, Africa and America could be imported into the colonies only in English or colonial ships, and European goods only by either imperial shipping or the ships of the country of origin of the product. Its motivation was to drive the Dutch out of the English West Indian carrying trade. It was supplemented by a war which ended in 1654 with Dutch recognition of their exclusion from the English colonial trade. England also turned its attention to Spanish America. Cromwell launched his Western Design, a major assault on the Spanish Caribbean, though its only important result was the acquisition of Jamaica with its fresh soil for sugar plantations and potential as a base for penetrating the Spanish American carrying trade. In 1660 the Stuarts were restored. But the assault on the Dutch continued. Beginning in 1660 came a series of legislative enactments that defined the legal framework of the old colonial system. Under the Navigation Act of 1660 all imperial trade was restricted to English or imperial ships. A list of "enumerated" articles could not be exported from a colony to any foreign country even in imperial ships was compiled. This act made England the entrepot for the export of cotton, tobacco, sugar, indigo, ginger and dyewood to European markets. In 1663 the Staple Act further strengthened England's position as entrepot by largely forbidding the import of European products into any English possession unless the product was laden and shipped in England, and carried in English ships. While smuggling and looseness of administrative control often thwarted the operation of the Navigation

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Lavva in practice, in theory and in law they constituted the institutional framework within which a far-flung empire was built over the next hundred years and within which the economic development of Ireland, Newfoundland, the North American Atlantic seaboard, and much of the West Indies was intended to be shaped.

The Irish Plantations Initially the English agricultural expansion into Ireland was largely aimed at displacing the existing landlords. Only secondarily did it involve the eviction of Irish tenantry and their replacement by English peasants, and this mainly in the Ulster area. Moreover the policy of the Crown, which directed Irish policy up until the Civil War, was to assure the general prosperity as well as the dependence of Ireland, for the country was used by the Crown as a direct source of revenue independent of Parliamentary control. Thus the struggle between Crown and Parliament over control of the public purse was bound to have serious repercussions in Ireland. After the Irish rebellion of 1641 came twenty years of devastating war and land seizure directed by an English parliament that had stripped Charles I of power and now sought to wipe out the Gscal independence of the Crown, as well as to promote the personal interests of the Whig business elite who financed the operation. A joint stock company composed of members of Parliament and prominent merchants was entitled to seize 2.5 million acres, roughly 20% of the total productive area of Ireland, and to finance the military assault by loot and by the sale of lands. Financial bickering and the zeal of some of the contractors and directors for plundering the company's resources hampered the operation. So too did the uncertain politicalmilitary balance inside Europe. But the end of the Thirty Years' War in 1648 opened the way for unbridled English expansion into the Atlantic, and the following year Cromwell launched the great Irish campaign. Ultimately, 11 of 20 million Irish acres were seized; livestock and crops were destroyed with a conscious view to starving the population into submission; factories and mines were razed. By some estimates as much as two thirds of the native population died in the wars or ensuing famine and plagues. Part of the population was rounded up in mid-winter and forcibly transported into the Irish "reservation" across the Shannon River. "The expectation of the day is the hope of Israel," one of the Commissioners in charge of the transportation of the population exclaimed ecstatically as he viewed tracts of fertile land emptied of population, reflecting the then-current (but never im-

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plemented) idea of replacing the disloyal and reputedly lazy Irish with Jewish colonists from whom England might derive handsome rents. Ireland was slated to be a model plantation, a producer of agricultural products for export to the metropole from which it in turn filled all its manufactured goods needs, a source of rental income for English investors in Irish lands, and an area whose commercial relations with the rest of the world were subordinate to and regulated by English business interests. Furthermore, the destruction of much of the Irish peasant tillage economy and its replacement by sheep farms (analogous to developments in Mexico a few decades earlier) gave England a new source of cheap raw wool that helped its woolen textile industry to establish its pre-eminence over the old Flemish and Italian producing centres, particularly since England banned the working up of raw wool inside Ireland and blocked its export to other markets. The depopulation of the island was the result not only of war, famine and plague, but also, to a minor degree, of kidnapping. In the early years of English colonization in the West Indies the demand for forced labour was heavy, and British merchants involved in the West Indies trade organized slave hunts in Ireland by which youths were "barbadoed" into West Indian service. These unwilling emigrants were supplemented by workers transported to Newfoundland and New England. In terms of numbers of settlers the Cromwellian settlement was a failure, and dreams of dumping England's unemployed in Ireland came to little. But in terms of land ownership the results were dramatic. By 1688, 75% of Irish land was owned by Englishmen, while deliberate destruction of industry threw an increasing percentage of the native population into dependence on agriculture, and thus into the position of paying tribute to English landlords. After wool, tillage constituted the largest share of Irish agricultural activity, particularly after the introduction of the potato, which permitted a large population of tenantry to subsist on a small piece of land at a biological minimum while labouring to produce marketable grain to pay the rents. In the centuries to come, with each successive potato crop failure a mass of destitute Irish emerged ready to emigrate to the New World. In one of the most far-reaching of the post-Columbian exchanges, the Old World got the potato while the New World got the Irish peasant.

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The Rise of the English Fishery One of the destinations of the Irish emigres in the seventeenth century was Newfoundland, though sometimes not by choice and also without the official assent of the English authorities. For almost immediately after the English had consolidated their hold, the question of the nature of Newfoundland in the English commercial network — whether it was to be a colony of settlement or merely a seasonal fishing base — came to the fore. In the early period the North Atlantic fisheries primarily served the English home market. Trade was direct and bilateral and the scale of enterprise small. But the home market declined in relative importance as the rise of Protestantism led to a reduction in fish consumption, and improvements in animal husbandry to an increase in animal-derived protein. Furthermore, there was increasing concern with the Spanish and Mediterranean market from which specie could be derived in trade — supplemented, in the middle seventeenth century, by the rise of a market in the Caribbean for a cheap slave food. As a result the English domestic market for fish products declined in importance while big business interests and the Crown, for reasons of private profit and public finance, increasingly concentrated their efforts on reaping the returns of a growing overseas trade. The shift in the direction of trade from the domestic market to the international, together with the growing need of the Crown for revenue sources independent of Parliament, caused the settlement issue to become explosive. The Crown and London big business favoured the creation of chartered monopoly companies to sponsor settlement and development. But since settlers in Newfoundland, with its barren soil and apparent shortage of other easily exploitable natural resources, would have to fish for a living, they would only introduce more competition in an industry where relative ease of entry and small scale of plant (the fishing ships) already made profit margins low. Hence the West Country ports of England, whose economic livelihood depended on the annual migratory fishing fleet to Newfoundland, violently opposed the plans for settlement and colonization: by political warfare in England where they were powerfully represented in a Parliament intent on denying autonomous revenue sources to the Crown, and by open warfare in Newfoundland. In 1610 a group of merchants active in overseas trade and plantations secured a charter for the London and Bristol Company and set about trying to introduce a permanent population of "planters" into Newfoundland. The governor and colonists immediately clashed with the migratory fishing interests. The governor forcibly evicted fisher-

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men from some of the choicest drying areas and attempted to impose civil government upon them, thus overriding the customary form of law that had governed the conduct of the fishery. It was a reenactment of the Humphrey Gilbert scenario of three decades before — with the same result. The London and Bristol Company failed in its objectives; its search for precious metals in Newfoundland and the attempt to establish a sedentary fishery both came to naught. The colonists' wars with the fishermen were compounded by periodic raids of both pirates and privateers. Sir Walter Raleigh stopped by to plunder ordnance, food supplies and manpower in 1618 on his way to the West Indies. The notorious pirate Peter Easton was also active, raiding ships and settlements for men, stores and vessels to build up his fleet en route to attack Spanish cargo ships. Even the Barbary pirates would waylay the fleets on their way to and from England until Charles II began paying them annual protection money. All of this complicated an already awkward commercial, political and military situation of both colonist and fishermen, but on balance it was the chartered companies that were financially the most vulnerable. The lack of success of the London and Bristol company led to bickering among by the directors as to how to recoup their losses. Efforts to explore for iron mines were fruitless; fur trade receipts were small. In desperation the Company resolved to try to sell land in Newfoundland. The grantees occasionally tried to settle the tracts they bought, but none were successful. As a result, the white population of the island grew very slowly during the early and midseventeenth century, and such settlement as did occur was hardly a voluntary phenomenon: many of the "settlers" were men escaping the press gangs, or refugees fleeing the miseries of life on Ireland. Not least among the factors inhibiting colonization was the continual uncertainty about the political status of Newfoundland, which changed constantly as the balance of power between Parliament and the Crown shifted back and forth. Newfoundland was not a colony in any officially recognized sense, so it lacked the normal instruments of civil government. Such a situation was quite agreeable to the fishermen, who feared that a regular civilian government would mean both the encouragement of a sedentary fishery and the overthrow of the traditional forms of government. Under the customary law that prevailed, the captain of the first ship into any particular cove in any year became magistrate of the bay, and the ship had first rights to the surrounding beaches for the rest of the year. The fishermen, with their experiences under the London and Bristol Company to guide them, feared that a resident governor would drive the ships away from the beaches and parcel them out to

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the resident fishermen on a more or less permanent basis. As the population of the island grew, armed clashes between residents and fishermen increased in frequency. Settlers were accused of seizing scarce timber near shore and producing shortages of materials for drying racks. They were also accused of pillaging the equipment of the fishermen. The fishermen on the other hand were busy sacking and burning settlers' homes. In 1634 Parliament passed the Western Charter. It was a great victory for the fishermen, laying down the basis of Newfoundland government according to the principles of customary law. Taverns, which would lure men ashore and thus aid the growth of a sedentary fishery, were banned. Conservation measures to protect the timber supplies for drying stages and the like were included. It was also decreed that offenders against the Western Charter could be tried by the mayors of any of eight West Country ports. Under Charles I the pendulum swung back the other way. All contrary claims to Newfoundland were cancelled and a royal charter was granted to Sir David Kirke, a Huguenot pirate from Dieppe who had hired on in the service of the English Crown and who was fresh back from an attack on French America. Kirke and his company were given title to Newfoundland, Nova Scotia and Cape Breton. On Newfoundland Kirke established a system of "taxation"; moved to control trade; began licensing taverns; tried to establish a salt manufactory to control the flow of vital raw material to the industry; and then attempted to seize control of the fishery itself. When Parliament regained dominance over the Crown the campaign against the sedentary fishery and colonization resumed. Kirke's company was pro-Royalist and tried to use Newfoundland as a military base for anti-Parliamentary activities. Parliament, reflecting the influence of the West Country interests and pressure from the proParliamentary English navy (which regarded the annual fishing fleet as an essential training ground and reservoir of sailors), struck back. Under Cromwell plans were made, though never enforced, for the forced removal of the Newfoundland settler population. In 1663 general trade legislation prohibited the taxation of the products of the fishery. Yet cod was the only resource in Newfoundland that could be taxed; without such a tax the financial basis of a civil government simply did not exist.

The American Plantations While the early battles over the political future of Newfoundland went in favour of the anti-settlement forces, there was ample scope for plantation activity elsewhere in the Empire, first in Ireland and then in the

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Caribbean and mainland America. The latter areas were different from Ireland in one vital respect: Ireland had a large native population that had to be dealt with during the plantation process, but the Caribbean islands had already been largely denuded of population by the Spanish slave hunts, while the aboriginal population density in mainland North America was quite low. These areas, however, were far from empty. The Indians heavily utilized the land area they inhabited in pursuing hunting and gathering and an extensive form of primitive agriculture. It was only relative to western technology that the lands of mainland North America were underpopulated. Nonetheless, once the lands were seized by the English, the problem of building up a suitable population emerged immediately, and the population requirement depended in turn on the nature of the staple product that the particular colony was to send to the metropole. American colonial expansion was pioneered by the same figures who led the Elizabethan assault on Ireland. Walter Raleigh, for example, after slaughtering Irish and Spanish soldiers and seizing 20,000 acres of Irish land, was next lured to America in search of the elusive El Dorado. He tried to raise enough capital through piracy to establish a colony in Virginia, a base from which to find — and loot — El Dorado. Little of consequence came of Raleigh's efforts. His royal grant was revoked, and Parliament ceded the area to the Virginia Company, a joint stock company of powerful merchants, in 1606. But like Raleigh before them, the settlers' first concern was to find a through route to the far east and to search for gold and silver. In fact so single-minded were the colonists in these endeavours that in the early years only Indian charity kept them from starving. When Virginia turned out to be neither the key to the Northwest Passage nor particularly blessed with precious metals, the company, like the London and Bristol concern in Newfoundland during the same period, turned its hopeful attention to other possible commodity exports: timber, wood by-products, wild grapes, furs, and even sassafras. London was wild for sassafras, touted as a cure for the syphilis which the Amerindians had bequeathed their unwanted and uninvited guests. The new wonder drug was also supposed to cure stomach ache, tooth ache, headache, and innumerable other afflictions. The sassafras trade, needless to say, did not form much of a basis for profitable colonization, and the Company was on balance a commercial catastrophe. But the colony itself was saved once again by the Indians, who taught the settlers the art of tobacco cultivation. The new flow of Virginia tobacco came at a time when the Caribbean was also providing it in volume, causing prices to fall sharply over the seventeenth century and thus facilitating the spread of the tobacco habit among the public in Europe and beyond to Asia. This systemat-

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ic addiction of the Old World population to the noxious weed rescued the financial fortunes of Virginia and made it, together with its neighbouring colonies, vital parts of the maturing British mercantile system. The development of Virginia as a staple-exporting colony required a labour force to produce the staple. In the early years tobacco was typically grown and cured on small farms using a limited amount of labour, making it possible for English minor gentry to migrate to Virginia and develop small estates provided the problem of finding a labour force could be solved. Since most free settlers in the early seventeenth century migrated to Ireland, Virginia and the other early staple exporting colonies in America came to rely on forced labour in the form of indentured servants or transported criminals. The English courts co-operated by churning out masses of criminals convicted of an array of petty crimes for which transportation to the colonies was the penalty. Moreover, inside England impoverished tenants, expropriated by enclosure of their land for sheep pastures, would sell themselves to ship captains and into exile and virtual slavery in return for passage, and the captain in turn would sell them to planters across the Atlantic. Finally, kidnapping was for a short time serious business. The major kidnapping operations were conducted in Ireland, but later spread to England as well. However, Virginia and the other American mainland colonies, while important to the English commercial empire, were not the foundation of it. Tobacco soon glutted the market; furthermore, the mainland colonies drew off the white population of England, thus, in the eyes of imperial strategists, weakening her militarily. It was in the Caribbean, with colonies that had none of these drawbacks, that the main contours of the English mercantile system took shape, and in relation to a completely different staple export.

The Genesis of the Old Colonial System In the early seventeenth century conditions in the Caribbean were unsettled. Spain controlled the mainland areas and the larger islands, and still claimed the lesser ones. Portugal dominated the sugar and slave trades until the Dutch annexed Brazil, ousted the Portuguese from the West African slave ports, and tried to control the carrying trade of Spanish America. The French and English entered the picture somewhat later, occupying a series of minor islands in competition with the Spanish, the Dutch, and each other. Spain was doubly incensed by the fact that the early French and English planters were often pirates as well; and from the 1620's the northern European

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pirate ships began taking a serious toll of the Spanish treasure and sugar ships. The early English plantations in the Caribbean, particularly in Barbados, the most important of the early English-held islands, produced a range of tropical commodities — indigo, cotton, ginger, cocoa, and above all, tobacco, which as in Virginia was cultivated on small estates using white indentured labour or, sometimes, the products of the English courts and the kidnapping gangs. White indentured labour tended to die off very quickly — not because of the climate, but because the planters had an economic incentive to secure a maximum output from the indentured workers in a span of time determined by the length of their prison sentences or contracts of indenture. In the 1640's, however, the structure of West Indian economic society — small plantations with bonded white labour — began to change. When the Dutch captured Brazil, they assumed a dominant position in world sugar markets. However, after Portugal broke free from Spain during the Thirty Years' War, it insisted on getting back its most profitable colony. The Dutch were left with idle refining capacity in Amsterdam, fleets of ships ready to carry the cargoes of sugar, and a powerful position in the slave trade, but with no assured supply of raw sugar or guaranteed market for their slaves. On the other hand the English and French West Indian tobacco plantations were under pressure from the falling prices that the competition from superior Virginia tobacco engendered, as well as from the rising tide of mercantilist opinion that frowned on the depopulation of the metropole to fill the demand for a labour force in the Caribbean. Thus when the Dutch merchants, harassed in their Brazil sugar trade, approached the English and French West Indian planters with the prospect of substituting sugar for tobacco as a staple export crop, the idea took root in fertile soil. The switch to sugar was likely the most important single factor molding the character of the entire English imperial economy for over a century. Sugar meant the shift from small-scale estates to huge plantations, concentrating socioeconomic power in the colonies and metropole alike, and engendering a switch to much more capitalintensive modes of production. The switch to sugar launched a whole new scale of commercial warfare in the ensuing struggle for control of a lucrative sugar carrying trade and for the conquest and/or destruction of rival nations' sugar capacity. And sugar in the West Indies provided the crucial factor dictating the expansion of English economic activity from Newfoundland to the Guinea Coast.

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The Slave Trade The Arabs, who had introduced sugar to European palates, had cultivated it with peasant agricultural techniques. But Europe, to service a far-flung commercial demand, had switched to slave-oriented modes of production. Portugal's Brazilian plantations had a seemingly insatiable appetite for slave labour, and they were matched by those of the English and French. Hence once the Caribbean switched from tobacco to sugar as the principal export staple, it was inevitable that consolidation of control over the slave trade became a cardinal objective of commercial policy. From 1640 to 1660, when Dutch merchants still dominated the sugar carrying trade, the Portuguese position in the slave trade ports of West Africa was increasingly threatened by Dutch and English contraband traders. After 1660, the English set out to gain control over the flow of slave labour, both to feed the demand of their own plantations for labour as well as to obtain a commodity which could be exported to the Portuguese and Spanish colonies in return for silver and, later, gold. In 1660 Charles II chartered the Royal Africa Company with a view both to providing revenues to the Crown that were independent of Parliamentary control, and to serving as an instrument for smashing the Dutch ascendancy in the trans-Atlantic slave traffic. One version or another of this chartered monopoly controlled the English slave trade until 1689 when Parliament broke its monopoly and opened the trade to all English and colonial business ventures. Even during its brief monopoly career, the company was often in a state of financial crisis — precisely because of the profitability of the trade. The monopoly structure served to internalize competition, as it did with many similar corporations ranging from the East India Company to the Hudson's Bay Company in times to come. Company agents bought slaves on their own account using company assets wherever possible, packed them into ships for transit at company expense, and then, when overcrowding caused a rising mortality rate, simply decreed that the dead slaves belonged to the company, rather than to the private traders. The company referred to these private cargoes that yielded no profit by the technical term "dead weight". Its career was further hampered by Spanish official harassment of its efforts to sell slaves to Spanish America, and by the agitation of the politically powerful English West Indian planters for free trade in slaves (while, of course, retaining protection for sugar). Free trade coincided with a period of increasing demand for slaves. Partly the rising demand was due to the fact that slaves lasted an

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average of seven years in the fields. Sugar rapidly exhausts the soil in which it is grown: intensive cultivation meant that the English islands were very quickly worked to the point of rapidly diminishing yields. Moreover, the planters usually had heavy debts to merchants who provided them with capital goods and supplies. Covering the debt charges required a steady flow of staple output, which meant continual production without allowing the soil to rest or crops to rotate, which in turn hastened the exhaustion of the land and drove up the demand for slaves. Until the 1640's West African states had produced a supply of slaves for exchange to the European traders incidentally to the prosecution of war. But as the demand for slaves rose and African taste for European goods rose with it, slave hunting became the actual objective of war. Several million slaves were landed in America from Africa over the course of about two hundred years. While the death rate on the voyages was not much different from the rate at which the sailors themselves died off from scurvy, plague, shipwreck, flogging, keelhauling and other occupational hazards, the overall human cost of the trade was inflated by many other factors. There must be reckoned the human cost of the slave-hunting operations themselves — wars and forced marches of captives from the interior to the coast — as well as impact of the client's preference for the youngest and strongest of the African population. Between 1650 to 1850 Europe's population rose four-fold and that of Asia three and one half times while the subSaharan African population is estimated to have remained about constant. The traffic in slaves was an indispensable part of the old colonial system, the opposite side of the sugar coin, and it laid the foundation for the growth of Liverpool as England's most prosperous port during the mercantile era. Conforming to the canons of the Navigation Acts, ships set off from Liverpool with British goods — iron tools, rum, cotton imported from India through the East India Company — and traded them in West Africa for slaves. The slaves were carried off to the plantations for sugar cultivation, incidentally keeping the demand for plantation labour from depopulating England itself. Raw sugar from the plantations was refined in England and re-exported to Europe (along with tobacco and woolen cloth) to provide the net inflow of precious metals in which mercantilists reckoned the gains from trade. The sugar plantations provided a market for English manufactures and for temperate raw materials—grain, timber, workhorses — coming from New England as well as an increasingly important market for fish from the West Country and New England fisheries at Newfoundland. Thus the empire that took shape aimed to be essen-

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dally self-sufficient, and at the same time capable of producing a manufactured product, surplus to England's needs, that was in great demand in Europe. Meanwhile the French were busy attempting to do the same.

6

The Origins of the French Plantation System

IN THE EARLY SEVENTEENTH CENTURY French overseas possessions were still few and far between. A handful of islands in the Caribbean functioned intermittently as pirate bases and tobacco plantations but had only loose links to metropolitan France. In North America only a toehold existed at Quebec, despite Champlain's enthusiasm for the area. He had assailed the King with reports of the great potential wealth of Canada if only French enterprise — namely his own — were given a conducive investment climate. Fish, timber, minerals and fur all abounded. Furthermore Quebec, commanding the Northwest Passage, could expect to become the central trade route of all Christendom as the trade of China moved down the St. Lawrence on its way to Europe. While Champlain's knowledge of geography sufficed for his company in 1613 to be granted a twelve-year monopoly of the trade beyond Quebec, together with orders to colonize and search for precious metals and the Northwest Passage, little else by way of public support followed. The turning point, albeit a hesitant one, emerged during the Thirty Years' War when the French first minister, Armand du Plesis de Richelieu, set out to construct an anti-Hapsburg alliance within Europe and to assure for France the fiscal and economic strength to lead that coalition. At that time French statecraft was still oriented toward two mutually supporting goals — political power within Europe, and commercial power in the Mediterranean — while its colonial policy was seen as a subordinate instrument for achieving these goals. As Richelieu and his contemporaries saw it, Spain was the dominant power of Europe as a result of its vast colonial supplies of silver which maintained its armies and purchased allegiance across 65

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Europe. Not only did the European alliance system make Spain militarily and politically powerful, but its Italian links threatened to squeeze France out of the Mediterranean, where its main hopes of commercial empire had always been. The key to restoration of French power in the Mediterranean lay in inflicting a military and economic defeat on Spain. Since the European power of Spain derived in good measure from the loot of the Americas, confrontation with Spain required that France secure access to adequate supplies of gold and silver. The Richelieu period therefore saw energetic efforts, albeit ultimately of little result, toward economic development at home and expansion of French naval and commercial power abroad. Industries that would replace imports and also, if successful, provide an export that would yield a return flow of precious metals, were encouraged by subsidies and monopolies, particularly in fields like silk-making where the profits, and the loss of specie if the products had to be imported, were high. Politically, the power of the state was extended. The old aristocracy was reduced in power by loss of authority, and then further degraded in social significance by the practice of rewarding commercial enterprise by granting titles of nobility to prominent merchants. Subjugating the Protestant seaport towns was also necessary to centralize power, as well as to achieve the economic objective of expanding French commerce. For the seaports were ideologically and sometimes militarily aligned with England, which encouraged them to assert their independence in order to block French advance northward. Among the more grandiose schemes of the Richelieu era was that of the improvement of the internal waterways of France to provide a transportation link between the Mediterranean and the North Atlantic, in effect bypassing Spain's control of the Strait of Gibraltar and reactivating the old interior north-south luxury trade route that had flourished before the Hundred Years' War. The dream was to have the great commercial cities of France displace Lisbon and Seville as the main European distributing centres of eastern goods. The luxury trades to the Levant could then be conducted by the exchange of French for Asian goods. Even when the export of specie was necessary, the return flow of luxuries could be resold elsewhere at a handsome profit in gold and silver. But the restoration of French primacy in the Mediterranean required a diplomatic rapprochement with Turkey, the suppression of the Barbary pirates, and the military strength to drive Spain out of Italy and break its power in Austria and Germany. War, to Richelieu, was an extension of commerce by other means. Further afield, Richelieu provided merchant enterprise to the East

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Indies, West Indies, West Africa and North America with the support of the French state. The slave trade was highly in favour, for it yielded a valuable, resalable commodity through barter exchange without the need for any export of gold or silver. The Guinea gold trade was doubly desirable for the same reason. South America and the Caribbean, however, were relatively low on the list of priorities. The area that was to be of paramount importance in the Age of Mercantilism was still marginal to the bullionist theories of Richelieu.

The North American Plantation New France fitted well into Richelieu's bullionist conception. Its fur trade, like the slave trade, required no outflow of bullion, involving a purely barter exchange with the Amerindian population while producing a luxury product for re-export. Trade relations with the aboriginal population of North America were also a first step toward the creation of a nation of half-castes similar to those created by Spain in South America, which would help bolster France economically and militarily without draining it of population. Richelieu favoured commercial expansion by the great chartered monopolies which, by pooling the resources of the Crown with the merchants, could partially offset the loss of entrepreneurial capital and skills that the exclusion of the Protestant merchant class entailed. Furthermore, a company could establish large convoys to defend its ships against pirates. Centralization of commodity and financial flows entailed by company organization would also make them easier to tax. The Company of New France, also known as the Company of 100 Associates, was founded in 1627 by a group of prominent courtiers and was given property rights to all of North America from Florida to the North Pole forever, along with a monopoly of all its commerce (with the exception of the fisheries) free of taxation for fifteen years. In return the company had to take out 4,000 colonists in the first fifteen years. As the Protestant towns asserted their autonomy and relations with the French government degenerated, merchants and mariners of the seaports aligned themselves openly with England. In 1628 David Kirke, the French Huguenot pirate now in the pay of an English company seeking to monopolize the fur trade, pounced upon and captured the entire fleet of the Company of New France. The 1629 voyage was equally a failure — one ship was wrecked, another wearied of trying to find New France and returned to port, and a third wandered offinto the Caribbean to do a little privateering. Then Kirke attacked

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again, actually seizing New France. Back in France, the Protestant merchants left out by Richelieu's policy of religious and ideological homogenization lobbied against the company. Another colonization effort in 1633, with Champlain at its head, sent out settlers and priests but found its trade crippled by the English and especially the Dutch draining off the best furs. In 1604 an agreement with Russia gave the Dutch monopoly control over the distribution of eastern furs, but the French began pouring cheaper North American pelts into Europe and damaged the Dutch markets. Hence the Dutch too began to register an interest in cheap American furs. The lure of fur combined with the dream of the Northwest Passage sent Henry Hudson, then in the employ of the Netherlands, off to America; and his voyages proved the foundation on which the Dutch fur trade was built. In 1621 the Dutch West Indian Company was granted control of Africa, South America, the West Indies and all parts of North America unclaimed by Christian powers. It then proceeded to occupy the New Netherlands (New York) area from which it could control the trade of the HudsonMohawk river system and, through its alliance with the Iroquois Indians, tap a huge trading area. The resulting flow of furs into Europe and the wars of the Iroquois against the French-allied trading system of the Hurons in America ravaged both the account books and fur posts of the unfortunate Company of New France.

The Economy and Society ofHuronia The Huron-Iroquois people who straddled the fertile regions of the Great Lakes area had migrated from the west coast of America through the Mississippi Valley, where they became acquainted with corn cultivation, and then northward where they formed an economic and cultural wedge in territories inhabited chiefly by Algonkianspeaking forest-oriented tribes. The Huron, who inhabited part of the southern Ontario peninsula, were at the time of contact a loose confederation of about 21,000 people living in a fertile tract of land about 340 square miles in size. Intensive hunting had rendered game rare; the Hurons relied on agriculture supplemented by fishing. The social stability engendered by the agrarian-piscatorial economy and their long history of pre-contact trade with the neighbouring peoples permitted their easy assimilation into a Eurocentric exchange nexus. That the Huron did become so deeply and quickly involved in the machinery of trans-Atlantic trade reflects certain basic traits of their pre-contact socioeconomic evolution. The economy and society of Huronia was essentially classless. Though there were some slaves

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captured in wars they were of little or no economic significance. The division of labour was based not on social class, but on sex. Men performed the heavy work of clearing fields, building villages, and manufacturing the implements of agriculture and war. They also performed the economic functions that were secondary to the subsistence sector of the economy — fishing and hunting. Trade with other peoples was exclusively a male preserve. Women on the other hand dominated agricultural production — planting, cultivating, harvesting and processing the crops of corn, beans, melons, squash, sunflowers — in fact, all but tobacco, which as a trade and ceremonial commodity was grown in small amounts by men. Women too gathered and processed the wild fruits and berries, maple sugar and herbs used for food or medicine. They were also responsible for most manufacturing activities — pottery, clothing, food products etc. — except for the tools directly associated with war or agriculture. Despite the central role of tillage in the economy — or perhaps because of it — land was not a basis of social differentiation or accumulation of wealth. The ownership of land inhered not in a nuclear family or individual but in the community. The family using a particular piece of land had security of possession as long as it was used; non-use led to forfeiture and to reallocation by the clan authority. Land could be neither sold nor inherited. Furthermore, Huron-Iroquois society was matrilineal: a woman was a member of her mother's clan and men became members of the clan they married into. The head of the clan was always a woman, and the clan was the ultimate custodian of the land. The result of the rule of possession conditional on use, together with the absence of extensive polygamy or slave labour, was a fairly equitable distribution of the land, and therefore of agricultural output, among families. Nor were the productive activities of men capable of generating serious inequality in the distribution of material wealth. While the use of good fishing areas was the exclusive prerogative of an individual as long as he continued to exercise it, the yield he could exact from the site was limited. Hunting grounds submitted to similar rules when individual exploitation prevailed. However, individual hunting operations were rare, for it required a major collective effort to clear and maintain the pasture lands that attracted the deer on which the hunter relied. And when hunting and fishing were conducted on a collective basis, equality of shares of output was the rule. Clearly there was little scope for internal trade inside Huronia. The principles of distribution implicit in the mode of production itself meant that household self-sufficiency in food and basic manufactures was the norm. Redistribution did occur on a regular but strictly nonmarket basis. Underpinning the mechanism of redistribution was the

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fact that accumulation per se was not a source of social status in Huronia. Quite the reverse — social status depended on generosity, on the amount of possessions given away. Thus the institution of reciprocal gift-exchange among peers was the fundamental instrument by which goods surplus to an individual family's needs made their way into other hands. There was therefore no possibility of a significant accumulation of tools or trade goods to enhance the future flow of material wealth to an individual, and no notion of the use of wealth to command the labour power of others. All manner of ceremonies institutionalized the gift-exchange process. Its effects on the distribution of material possession were enhanced by other mechanisms of reallocation — gambling, voluntary contributions to the village treasury, and even theft, which in a society where selfish accumulation was despised did not carry a severely adverse social stigma, especially if conducted at the expense of stranger. It was a source of no small irritation in future French-Indian relations that the Huron were so quick to make off with any tools or goods left lying about and refuse their return to the missionary or trader. The institutions of redistribution thus all worked against the sort of accumulation of wealth that conferred economic power over other individuals, kept the social structure egalitarian and stable, and prevented economic class differentiation. Nor was there any social force within Huronia proper to work in the other direction. Indeed anyone wanting in generosity could be denounced for witchcraft and killed for such an offence against the social ethos. The only exceptions to the rule — and they were minor — were the medicine men who, detached from the productive structure itself, could demand a flow of tribute in return for controlling the forces of nature, and the handful of slaves, who had no rights. Outside the village the rules were quite different. Trade or war were the norm, both intended to assure an inflow of commodities through loot or exchange. External trade was essential for the accumulation of goods that logically preceded their redistribution inside the village because the internal economy had no mechanism for permitting the concentration of ownership of goods in a few hands. Hence the Huron trading system was quite elaborate even before the French arrived. Corn could scarcely be a commodity valued for internal redistribution within Huronia given the equality of distribution inherent in its mode of production. But surplus corn could be bartered to the Nipissings for ornamental copper and for meat and fur, in scarce supply inside Huronia. Given the natural complementarity of the Huron and Nipissing economies, their trade relations were intense. Trade also existed between the Huron and their close relatives, the Petun and Neutral tribes, the first providing tobacco which the

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Huron often re-exported, and the second fine flint tools. Another of the (less important) commercial links of the Huron was to the Ottawa Indians in the Lake St. Glair area, who intermediated a flow of wampum, catlinite and other ornamental products from their ultimate producers yet further south.

Commerce and Diplomacy in Franco-Huron Relations Trade was an alternative to war. Hence a military alliance, requiring an exchange of gifts and sometimes hostages, was a necessary prelude to the establishment of commercial links. Once the communities had established alliances, trade was conducted by the men of the villages on a strictly individualistic basis, trade connections belonging to the first man of the village to pioneer them and usable by others only in return for payment of a toll. On the other hand, the trader moving beyond his village territorial limits had to pay tolls to other tribes whose territory he crossed. These rules of aboriginal commodity exchange formed a body of commercial law that was respected by tribes with trade and military agreements, until the introduction of European goods elevated trade to the status of necessity rather than convenience; and, by increasing the stakes, introduced commercial reasons for an escalation of destructive intertribal conflict. With the negotiation of a French-Huron alliance, the stage was set for the rapid extension of French and Huron commercial influence and the expansion of the trade that provided the economic lifeblood of the infant colony. The Indians stood at centre stage in the production, processing and distribution of furs, in fact for all roles except the ultimate direction of the flow of trade. The Huron (and Iroquois in the Dutch and English systems) produced the food surplus necessary to maintain the traders on the road. They provided the interpreters and trading agents for the actual prosecution of the business, the HuronIroquois tongue itself becoming the language of commerce over a wide area tributary to Quebec and New Amsterdam. They also provided the necessary labour for the carriage of furs and trade goods, by land and by water. And they provided the canoes by means of which the trade goods were transported. Further into the interior were the nations which actually trapped and processed the pelts. Trapping was a long and arduous task, involving great skill on the part of the men involved, and the traversing of large areas to maintain trap lines. Once the animals were caught, the preparation of skins and furs by the women of the

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northern nations was onerous and time-consuming. The prepared pelt which reached the European furrier was far from being a windfall of a bounteous nature casually stripped from its owner by a race of carefree and indolent savages. Beaver pelts, the most earnestly sought furs in the early years, were of two principal categories. Castor sec was the pelt as it came off the animal, castor gras the pelt as it came off the Indian. In the first case the pelt was cured, dried and traded. In the second case the Indians greased their bodies and wore cloaks of beaver pelts fur side in next to their skin for eighteen months until the constant wear caused the long, tough guard hairs of the animal to drop out, leaving the prized soft felt below. These furs were referred to in the trade as sales etpuants ("dirty and stinking") and it was always something of a mystery to the Indians as to why the French would come so far at such expense to buy their dirty old clothes. The mystery could have been easily solved had the Indians been able to perceive market conditions in Europe. Until the French found the North American treasure trove of castor gras, the secret of eliminating the tough guard hairs of the beaver pelt was known only to Russian artisans, and the Russian fur trade was under Dutch control. Thus, in the early years, beaver pelts from New France (like tobacco and sugar from the West Indies) often had to be sold to Dutch merchants who carried them to Russia for processing, and then carried the finished product back to European markets, reaping profits from both transactions. Castor gras freed the French trade of Dutch commercial hegemony and Russian technology alike, giving France a new luxury export industry as well as a new colonial staple trade. It also drove the French trading system ever deeper into the continent to make contact with new tribes who were unconsciously undertaking the time-consuming task of processing the castor gras. The impact of the fur trade was not, then, to expropriate Indian land and obliterate their traditional lifestyle, but rather to take certain native traditional pursuits and commercialize them, while casting others aside. Furs, formerly produced incidentally to the hunt for food and used by the individual producer for his families' needs for clothing and shelter, now became a commodity produced for exchange with other commodities of European origin. The traditional trade link between the agricultural and the hunting peoples based on the complementarity of their economies was preserved and reinforced, and both became tributary to a further link in the commercial chain emanating from the fur manufacturers of France. The concentration of effort on the production of furs for commerce eventually eliminated the Indians' ability to produce many other traditional items of clothing, utensils, and instruments of war and work. Nor

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were the old tools efficient for the new pace at which output had to flow. In their place came European clothes, iron axes and knives, traps and firearms. And the steady encroachment of market-oriented exchange on non-market societies produced social disaster for tribe after tribe, including the Huron. French trade goods, and a dependence on European technology, quickly took root in Huronia. Metal tools revolutionized the nature of work, freeing both men and women of some of the worst forms of drudgery in customary occupations, and, as a result, freeing time for the commercial pursuits necessary to obtain western goods. Guns too had a major impact on the lifestyles of those who could obtain them, displacing the bow and arrow for hunting and warfare in the southern woodlands. Indians who lost the skills necessary for handling traditional weapons never acquired the knowledge necessary for maintenance and repair of the new ones. Technological dependence was in fact used by the French as a deliberate instrument of control. In response to the demand for European goods, competition led to the intensification of intertribal warfare, while the European trade provided instruments capable of making traditional modes of warfare highly destructive. When Champlain first joined the HuronMontagnais alliance against the Iroquois, the French were thoroughly unimpressed by the methods of Indian warfare. Prompted by blood feuds or considerations of prestige, groups of warriors would discharge flights of arrows at one another and attempt to secure some captives for ritualistic torture. For the French, war meant burning villages, razing crops, slaughtering the men, raping the women, and carrying the survivors off into galley slavery. Champlain's 1613 penetration of the upper Ottawa, partly in pursuit of the Northwest Passage and partly to step up the flow of fur down the river, was a watershed point in the Europeanization of America. In 1615 he concluded a commercial-military alliance with the Huron against the Iroquois. Huronia's existing trade links with neighbouring peoples thereupon deepened. From the Neutral the Huron drew raccoon and squirrel skins for the French trade and tobacco for re-export to the hunting peoples further north. The Ottawa bartered the wampum they acquired from the southern trade to the northern peoples for fur which in turn they exchanged with the Huron for French manufactured goods. The traditional Huron exports of corn and tobacco to the Nipissings for furs were buttressed with French manufactured products; and in return came an expanded flow of furs to be bartered further down the chain. The Huron were ideally placed by virtue of their geographic position and their agriculture-based economy to become the principal

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middlemen of the French fur trade. Given the sexual division of labour — men trading and women tilling the fields — it was easy for Huronia to provide a supply of food to sustain the traders without having the two occupations compete for labour time. Between the spring and fall fishing seasons, men were free to conduct trade with no loss to the indigenous economy. On the other hand with the hunting people — Algonquin, Montagnais, Nipissings and others — men were responsible for providing the bulk of the primary sustenance, and the collection of furs was incidental to the hunt for food. Given the commitment of men's time to food production and the lack of seasonality in the process, it was impossible for the northern peoples to travel long distances to conduct trade themselves. Hence the Huron came to dominate their commerce with the French. But the French-Huron alliance was not to last. In the 1620's the Dutch began their efforts to get the Montagnais and Algonquins of the Ottawa valley to by-pass the French and deal with them through their Mohican allies, who controlled the lower Hudson River. The Dutch position was strengthened by their ability to control much of the area's flow of wampum. But the neighboring Mohawks, the most powerful of the Iroquoian peoples, took alarm at the rising influence of the Mohicans and at their own limited supply of furs, and drove the Mohicans out of the Hudson valley. From that time, the Iroquois stood between the Dutch (and subsequently the English) and the interior suppliers of furs, much as the Huron did with the French. Iroquois demand for European goods grew rapidly until by the 1640's it was outstripping the supply of beaver available to them from hunting, trade, or the imposition of tribute payments on subject neighbours. Efforts to make peace with the French to enable the Iroquois to penetrate the supply areas north of the St. LawrenceGreat Lakes frontier came to naught in the face of French intransigence. The French even sent missionaries to Huronia to break up peace talks with the Iroquois and keep the Huron loyal to the French military-commercial alliance. The missionaries' work led to growing social tension within Huronia by fostering the development of a Christianized pro-French faction. Christianity provided the ideological cement for the FrenchHuron alliance. In time, it would also permit the detachment of individual Christianized families of Indians from band life, and their settlement as nuclear families near French posts to serve as interpreters and trading agents with more distant peoples. The usual conflict between fur trader and missionary was absent in Huronia. The normal fear of the trader was that the missionary would encourage the Indians to forsake a hunting and trapping existence in order to settle down in farm communities more appropriate to Christian ideology.

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But the Huron were already farmers, and in fact their agricultural activity was essential to the conduct of the French fur trade system; hence such a conflict of objectives did not exist. Furthermore, Christianity opened up the Indians to an ideology of accumulation, raising the competitive consumption demand for European goods. And it replaced the old animist religion, which taught harmony with the ecosystem, with a religion that was compatible with the wholesale destruction of nature and therefore with (in the short run) an increased supply of furs. From the Huron point of view, Christianity held out a number of advantages apart from their conviction that it would protect them from the European-introduced diseases that the French did not seem to catch. Special privileges such as the use of guns to carry out the Lord's will accompanied their agreement to abide by it. Christianity also absolved the convert of the need to take part in the redistribution of personal wealth to the village community at large. Christianity too conferred the status of French citizen — and therefore higher prices for their furs at the monopoly company store. Thus Huron politics became increasingly polarized between the Christian pro-French factions and the traditionalists who were ready to make peace with their Iroquois kin. In the 1640's the Iroquois launched a series of wars along the Ottawa and the St. Lawrence. Then came Iroquois raids into Huronia itself. In 1648 a final peace overture from the Iroquois was sabotaged by the French missionaries and pro-French faction in Huronia. In 1649 Huronia ceased to exist. Subsequent Iroquois forays destroyed the Petun and Neutral and even scattered some Nipissing and Algonquin bands. Most of the neighboring tribes now owed tribute and obeisance to the powerful Iroquois Confederacy which continued to press on New France, destroying the economic base of the Company of the Colony, and threatening Quebec itself with extinction.

From BuUionism to Mercantilism The crisis of the French presence in North America in the 1640's was not an isolated event. For a variety of reasons, many of the overseas initiatives of the Richelieu era ended in commercial or military failure. Indeed even before the disaster in Huronia, endemic fiscal and social crisis accompanying the Thirty Years' War forced France to direct ever more of its increasingly strained public revenues to internal and European problems. Far from being a source of gain in terms of precious metals, the colonial experiments were a drain on

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France. In fact it is plausible that the increased flow of arms from the Dutch to the Iroquois during the 1640's, which ultimately turned the military balance in their favour, was a strategy prompted by the shifting balance inside Europe, by the fact that Spain was sufficiently on the defensive that members of the anti-Hapsburg alliance could already begin to stake their claims to the spoils via the encouragement of proxy fights in the colonies. Thus while France ended the European wars with notable territorial gains at the expense of Germany, first the seizure of Alsace in 1649 and then, ten years after the war ended, the annexation of Lorraine, its colonial position suffered a setback. For the next two decades, apart from minor gains in its South American trade, France continued to see its own ambitions realized by its Dutch rivals. Despite neglect by the metropole, the French presence on the Caribbean islands remained, and even grew as the initial colonies in turn spawned more. By the 1660's more than a dozen mainly small Caribbean islands had been wrested by French adventurers from Spanish claimants or Carib inhabitants, but metropolitan inability or indifference meant that commercially they evolved into appendages of the Dutch trading system. Paralleling developments in the equally isolated English islands, the French planters switched from tobacco to sugar which the Dutch marketed in Europe, while providing the plantations with slaves and manufactured goods. It was the long-term effects of the rise of sugar that eventually consolidated the French mercantile system, just as it did the English. While the English Parliament and Cromwell launched their campaign to smash Dutch commercial hegemony, penetrate the Spanish American trade, and integrate the empire of sugar and slaves into a selfsufficient whole, the French Crown of Louis XIV, guided by the strategy of Jean-Baptiste Colbert, did likewise. Colbert looked forward to the rebuilding of French political and social grandeur on the solid foundation of a far-flung overseas economic empire with schemes for promoting the West Indian and East Indian trades, establishing a French presence on the West African coast, penetrating the lucrative Spanish American market, encouraging French industrial growth by protective tariffs and Crown subsidies, commercial and military war against the Dutch, and developing a strong French navy and shipbuilding industry. His plans were implemented in time to save the French West Indies from falling into the hands of the Dutch and the fur trade posts that defined French territorial power in North America from being obliterated by the Dutch-allied and later by the English-allied Iroquois Indians.

7

Competition for Empire, 1663-1713

THE ANGLO-DUTCH-FRENCH CONFLICTS of the seventeenth and early eighteenth centuries, while predominantly European affairs, had a global dimension as well. The metropoles faced off in the North Atlantic, the West Indies, West Africa, India and the North American mainland; and metropolitan military and naval forces were bolstered wherever possible by colonial levies and native allies. As bullionists, and later mercantilists, were well aware, political and military power rested ultimately on financial foundations. Since public finance depended on the taxation of commerce, the achievement of territorial and political objectives was inseparable in the long run from the achievement of commercial ones. Moreover, colonies were expected to contribute financially to the costs of imperial defence. Hence the successful prosecution of the colonial staple trade, which yielded the revenue out of which the colonial authorities could finance defence as well as development expenditures, was the sine qua non of successful empire building.

The Maturation of French Mercantilism While Colbert's program of national development was founded as much on expediency as long-term consistency, nonetheless it did represent an attempt to put into practice the principles of a mercantilist philosophy that linked together internal industrial growth, external expansion, and the development of state power. Taken together their policies comprised a body of measures that revealed a fair degree of internal consistency of purpose. Fiscal objectives were the core. To Colbert, manufacturing industry had a vital role to play in gen77

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crating national prosperity and state power. Manufactures meant employment and the progressive monetization of the economy, which in turn expanded the potential tax base. Unlike classical bullionism which sought to tap the external (and already monetized) trading sector for fiscal purposes, mercantilism aimed at fostering the internal expansion of market activity and to subject it to state fiscal and political control. To stimulate industrial growth, a system of special privileges in the form of subsidies, tax concessions, and grants of monopoly to selected industries was instituted. Notable among the favoured industries were those involved in the working up of colonially supplied raw materials — furriers, hatmakers and sugar refiners — and those geared to producing at home substitutes for the luxury products formerly imported to satisfy the demands of the rich — glasswork, silk, lace, etc. Thus from the point of view of both substituting for imports and working up colonially derived raw materials for re-export, the strategy was one of conserving and increasing the stock of precious monetary metals inside France, for before money could be circulated among the population to enhance the tax base it had to be acquired in the form of precious metals from abroad. Commercial expansion overseas took many forms. To the north, trade wars aimed to drive the Dutch out of the French grain and wine trade, and expand the French presence in the Baltic and in the North Sea fisheries. To the east, a large-scale monopoly company was established to prosecute the Levant trade with greater vigour, while another was launched against the Dutch, Portuguese and English interests in the East Indies. To the southwest, a major commercial and diplomatic offensive to capture the Spanish American trade was undertaken. The principal sphere of activity was the West Indies. French planters had occupied a string of islands, but the Dutch controlled the supply of manufactures and of slaves, as well as the carriage of colonial staples to Europe for refining and final distribution. Paralleling English efforts, France launched a series of wars to expel the Dutch. The strategy necessitated strengthening the French navy and merchant marine, barring foreigners from the imperial carrying trade, seizing slave trading ports on the West African coast, strengthening the French presence in the North Atlantic fisheries, and developing a French sugar refining industry. To these ends three other state chartered monopoly corporations — the Companies of the North, Senegal and, most important, the West Indies — were launched. And Alexandre Prouville de Tracy was sent with French imperial troops to drive the Dutch out of the French sugar islands and to prevent New France from being swallowed up by the Dutch-allied Iroquois. In theory the French empire, like the English, was to consist of sev-

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eral interrelated parts. France was to be the manufacturing centre and trade entrepot from which the colonies would draw their industrial needs and to which they would send their staples for processing and re-export to Europe or to Spanish America. Most important of the colonies were the West Indian islands, which could produce raw sugar, cotton, tobacco, coffee and other tropical staples that were not competing with metropolitan products and that would, where necessary, be manufactured into final form in France for re-export. France itself was to be self-sufficient, and the export of colonial staples or French luxury products would be undertaken with a view to inducing a specie inflow. To ensure the success of the Caribbean plantation economies other colonies were necessary. Trade posts on the West African coast would assure a supply of slave labour, bartered in exchange for Frenchmanufactured iron, cotton goods and brandy. The great fisheries of Newfoundland and Acadia produced refuse fish to supply the slave plantations with cheap protein, as well as a higher-quality fish for export to Mediterranean markets in exchange for Spanish silver. Also essential to the operation of the self-contained system was Canada. The fur trade produced a staple whose role in the French economy was analogous to sugar: it catered to French domestic demand and provided a luxury re-export. But in theory Canada's importance went well beyond that. It was conceived of as a producer of grain, timber and other temperate raw materials for the West Indies which, concentrating as they did on tropical staple production, could not feed or equip themselves. Trade within this self-sustaining empire was to be conducted in a series of triangles, emanating from and ultimately returning to France. France imported more from the West Indies than it exported, but it would cover the deficit by a surplus with the other parts of the system which in turn ran trade surpluses with the West Indies. With trade controlled by French merchant houses the system should balance, French domination would be assured, and no net inflow or outflow of specie would be required to finance intra-imperial exchange. Specie movements did of course occur in trade relations outside the empire. Spanish America controlled the bulk of the world's supply of monetary metal, and exhibited a voracious demand for European goods and slaves. India, China and the spice islands provided the oriental luxuries so craved in France as elsewhere in Europe and demanded enormous amounts of silver in return. Thus French manufactures, slaves and colonial staples moved to Spanish and Spanish American markets to provide the French government with the silver it needed for internal development, European war, and the far eastern trade.

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The theory was excellent: the practice left something to be desired. Over the long run the French and the parallel English mercantile systems were subject to important structural imbalances that generated increasing inter-imperial conflict and ultimately destroyed both. At the top of the imperial chains stood the metropoles. France had by far the greater population and resource base, but England had a more aggressive, business-oriented ruling class committed to pledging the national resources wholeheartedly for overseas empire building. England's manufacturing base, though smaller, was more dynamic and oriented toward a broader urban middle class and export market, while France's great industries catered more to the luxury consumption of a small elite.

Competition for the Continental Interior The fur trade was far from being merely an incidental offshoot of the colonization process. It played a vital role in the mercantilist strategy of the rising northern European powers — France, the Netherlands and England. North America had a pre-contact population of perhaps as many as 10 million, more than that of England and about half of that of France, and the resulting possibilities of trade were fully appreciated by the strategists of economic empire-building. Furs were a luxury product appropriate to the commodity pattern of trade of the Age of Bullionism and Mercantilism: they could be obtained by barter without a drain of precious metals; and the large aboriginal population represented a major new market for European manufactures at a time of a generalized economic recession in war-torn early seventeenth century Europe. Woolen products, England's traditional mass consumption staple export, at the time increasingly blocked from European markets by depression and tariffs, could be diverted to America in exchange for furs to export to the European elite whose purchasing power, in gold and silver, was the last to feel the effects of general economic distress. The French brandy industry, coddled by the Crown and catering to a strictly limited local elite market, could not fail to be stimulated by the introduction of ritualistic drinking as part of the aboriginal social life, while France's elite classes could have their luxury demands at least partially met without loss of specie to foreign trading partners. The colonization process itself could scarcely have taken place without the fur trade. The profits from the fur trade financed many of the early ventures at a time when public funds were diverted away from exploration and overseas conquest into European war. Thus the early settlements tended to be located in areas prime for the fur trade,

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areas either often already cleared and prepared for urban development or agriculture by the Indians, or where Indian charity or trade permitted the survival of the early groups of colonists. Expansion of the colony followed the fur trade literally as well as figuratively as the Indian trade stimulated colonization, and European explorers and colonists penetrated the interior along communication and transportation lines already evolved by the Indians. Nowhere did this principle operate more clearly than in New France, where the fur trade was inextricably linked, both financially and militarily, to the extension of the French territorial presence in America. And the very organization of the trade, to the extent it proved amenable to manipulation by the public authorities, was conditioned as much by military and financial as by commercial considerations. Until 1649 the Hurons, France's chief commercial allies in the New World, had carried the fur output of a vast region to the annual fur fairs at Montral. The fall of Huronia therefore left a huge gap in the machinery of trade, a gap only partially filled by the Ottawa Indians who moved in to assume an intermediary role. Furthermore, Iroquois forays continued to threaten not only the conduct of the remaining trade, but even the very existence of New France. At the same time, Dutch and English competition further eroded the fiscal position of the colonial administration and the fur trade monopoly that financed it. And parts of the colony had virtually seceeded from the central authority, functioning as more or less independent states, much as were the contemporary West Indian colonies. In 1663, a major reorganization changed Canada's status into that of a Royal Province, structured politically like provinces of France. Its chief officers, a governor, a bishop, and an intendant of justice, finance and administration, were all appointed by the Crown, as was a Sovereign Council, an advisory body comprised of leading commercial figures selected on the recommendation of the governor. In 1664 the land and trade of the reorganized colony were ceded to the new Company of the West Indies, which soon dispatched the Marquis de Tracy to Canada along with the Carignan-Salieres regiment, purged of heretics and ordered to make holy war against the Iroquois. Its 1666 campaign to reopen the fur trade — burning villages, destroying crops, looting accumulated stocks of furs, and enslaving captured Iroquois as baggage animals to carry the loot back to Quebec—was a commercial and military success. The Iroquois soon sued for peace with France, albeit continuing sporadically to strike at France's various Indian allies. Many factors contributed to the drastic reorganization of the fur trade in the years that followed. The Iroquois were temporarily

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suppressed, but the Hurons were gone. Trade was opened to all who secured licences at a time when New France saw a major wave of immigration, including aspiring traders. The result was a great burst of exploration and trading activity, symbolized by the rise of the coureurs de bois, unlicensed small-scale traders outfitted by and dependent upon the merchants of the major urban centres. These French traders spread throughout the commercial hinterland formerly dominated by the Huron, and well beyond. The old monopoly companies typical of the Age of Bullionism had simply attached themselves to the previously existing pattern of aboriginal trade and diverted part of the flow of goods. In place of the old joint stock monopoly trading and colonizing company came the institutional framework of mature mercantilism — direct royal control over a colony of white settlement whose commercial and political life was in many respects an extension of that of the metropole. Symbolizing the transition was the new governor of the colony, Louis de Buade, Comte de Frontenac. Typical of the bankrupt aristocracy of seventeenth century France, Frontenac was a representative victim of the system of compulsory conspicuous consumption imposed on the nobles who congregated at the court of Louis XIV. Deeply indebted by his activities at court, he married a rich woman for her money only to have her outraged father refuse him a share of his estate. In 1664 he reached an agreement with some of his creditors on a schedule of repayment, then broke the agreement and ran off to join the Venetian forces fighting the Turks at Crete. Thrown out of the Venetian army, in 1672 he secured the appointment as governor of New France and with it an opportunity to make money to repay his debts, as well as to escape from his wife, who was of no further pecuniary value. Frontenac's early years as governor coincided with the efforts of the energetic intoufanf, Jean Talon, to promote a diversification of the economic base of the colony. Assisted by a major influx of (often involuntary) immigrants, many with craft skills, and an infusion of subsidy money from a French government that briefly found itself relatively solvent, Talon encouraged the development of a wide variety of artisanal enterprises, including shipbuilding, and funded mineral exploration ventures. With at least the tacit assent of the French authorities, Talon invested his own money in some of the industrial and commercial enterprises his government encouraged with public policy and capital. Such activities landed Talon in a series of quarrels with the new governor Frontenac, and he was soon recalled to France, his economic initiatives left to wither. Frontenac devoted his energies and his authority to the accumulation of wealth from the only business enterprise in New France offer-

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ing fast money. At the time, Montreal and Quebec stood as rival centres of the fur trade. To deal with Quebec, he had to crush the coureurs de bois. A 1673 edict decreed anyone supplying or dealing with an unlicensed trader (the governor controlled the distribution of licences) was to have his goods seized and be fined; unlicensed trading was to carry a penalty of flogging for a first offence, and galley slavery for a second. The next year Frontenac arrested twelve coureurs de bois and executed one. The result was a sharp drop in activity except, it was claimed, by those coureurs de bois directly linked to Frontenac's growing trading empire. The next step was to deal with Montreal and its fur fairs. With his business partner, Robert de la Salle, Frontenac concocted a scheme to extend fur trade posts along the Great Lakes and beyond, and divert the Indians' trade to their posts and away from the annual migration to Montreal. The joint enterprise in fact expanded well beyond the traditional fur hinterland, pushing southwest into the Mississippi drainage system. To complement the move southward, they secured a monopoly of the export trade in bison skins from a Crown which had despaired of New France's deer population ever sufficing to render the French leather industry independent of Spanish colonial products. There was some opposition to the Frontenac-la Salle assault on the beaver and the bison. Montreal, led by its governor Francois Perrot, continued to protest until Frontenac had him shipped off to the Bastille where he remained until he agreed to obey Frontenac's orders. Opposition came also from the Church, whose co-operation was essential to the safe and profitable prosecution of the fur trade. The problem for the Church was that the Frontenac-la Salle era witnessed the unrestricted use of brandy in the conduct of treaty and trade relations with the tribes. The controversy peaked with the calling of the Brandy Parliament in 1678 where twenty major traders met with Frontenac and his Council to deliberate the pros and cons of alcohol in the conduct of trade. La Salle led the pro-brandy forces, arguing that brandy was crucial not only to the maintenance of the flow of furs, but also for the salvation of Indian souls. Far better, argued la Salle, that the Indians be poisoned, debauched and robbed by the use of French brandy than to have them go off and drink English rum and be seduced into Protestant heresy. While the French government endorsed the pro-brandy position, it argued for restrictions on its use. In fact, the Brandy Parliament was followed by open season in the use of alcohol, in part no doubt to head off the rising pressures of English competition. In the wars of the 1660's the English succeeded in ousting the Dutch from the Hudson-Mohawk trading system and, after allying

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themselves with the Iroquois, stepped up the competitive pressure on New France. The Iroquois, encouraged to penetrate and conquer deep into the interior, did so with such gusto that they soon helped to precipitate another glut on European fur markets. Part of the EnglishIroquois advantage lay in the cost and quality of trade goods. English guns and cloth could be obtained by English traders more cheaply than could French, and the Indians preferred English to French goods. While French brandy was more highly regarded than English rum, the cheapness of rum poured out by the slave plantations of the West Indies in contrast to the expensive product of the tariffprotected French brandy industry offset that advantage. In general English goods could be obtained by traders at about half the cost of French. Furthermore, the French trade laboured under higher transport costs and heavier taxation. Given that the terms of trade with the Indians in the interior was much the same for English and French traders, the relative cheapness of the English trade goods gave the Hudson-Mohawk trading system an important advantage over the St. Lawrence-based one. To it was soon added a new and more serious source of competition, via Hudson Bay. After the fall of Huronia, French traders moved deeper into the interior to try to assure the fur supply. The first two Frenchmen recorded to have penetrated beyond Lake Superior were the Huguenot coureurs de bois Pierre Radisson and Medart Chouart, Sieur des Groseilliers, who returned to New France in 1660 with a cargo of fine pelts, a cargo especially remarkable after many years of bad and sporadic trade. But official French policy was to try to restrict the trading activity to the St. Lawrence area, where it could be controlled and taxed. Furthermore, the activities of the coureurs de bois posed a threat to the fur trade ambitions of the colonial officials. A fine was imposed on them, and Radisson and des Groseilliers deserted to the English. In London Sir David Kirke, son of the Dieppe pirate who had hired on in the service of England, brought the two coureurs de bois' knowledge to the attention of a prominent group of nobles and merchants active elsewhere in imperial trade and plantations. Charles II put up cash and granted the new Hudson's Bay Company a charter of monopoly, while Prince Rupert assumed the title of governor. With such political connections and the knowledge that the Hudson Bay area was populated by two especially desirable types of fauna — the finest beaver in the world, and Cree Indians already addicted to European goods — prospects for the new firm seemed excellent. It shared with the Hudson-Mohawk system a cost advantage over the French trade. Initially the Indians expected much less in return for their pelts than did those of the Great Lakes area, and the superior quality of furs from

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the area soon brought fur buyers from all over Europe to the company's London warehouses. In 1675 the French responded to the new threat by paying Radisson and des Groseilliers to return to New France; and Radisson subsequently led Frontenac's troops against the posts of the Hudson's Bay Company that he had played such an important role in founding. He was then lured back to England to help the English forces in the recapture of these same posts. In 1689 the renewal of war in Europe prompted Louis XIV to send Frontenac back to New France. For the governor, the new assignment came at an appropriate time, for his creditors were once again pressing him. Though explicitly ordered to stay out of the fur trade, in fact under his guidance a three-way offensive was launched — against the Iroquois, against the English posts, and against rival French traders. He soon regained control of his old network, then spread his activities even further afield. The centre of the western trade then was at Michilimackinac under the command of Antoine de la Mothe-Cadillac, who was openly in league with Frontenac. La Mothe-Cadillac's administration of the post was distinguished by the torrents of brandy that gushed from it in a volume that rivalled the headwaters of Lake Michigan. To the usual la Sallian "spiritual" argument for brandy, la Mothe-Cadillac added a nutritional one, claiming that the food at Michilimackinac was rendered much healthier by copious drafts of after-dinner brandy. La Mothe-Cadillac and Frontenac conceived a plan for opening a new post at Detroit, the straits linking Lake Huron and Lake Erie, which provided the key to control of the upper three lakes and the vast area they and their tributaries drained. The post would also give Canada direct access to the Mississippi valley, which la Salle had actively explored; it would provide a link to Louisiana, and it would form a bulwark against Iroquois expansion northward. It would, incidentally, also be a means by which Frontenac could further undercut Montreal's fur trade. With Frontenac's backing, la Mothe-Cadillac secured the appointment as commander of the new post. The result of all of Frontenac's activities was a revival of the flow of furs that helped precipitate another collapse of prices. The new glut of furs came when other structural problems were plaguing the French industry. The renewal of persecution of Protestants led to many of France's skilled hatters migrating to England. Competition forced the industry to cut costs and encouraged the mixing of cheap rabbit fur with beaver, to the detriment of the demand for New France's staple. Wars disrupted the European markets for French fur products, while England, under the influence

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of the Hudson's Bay Company proprietors, raised its tariffs on foreign fur hats. By 1695 western posts in Canada were abandoned, and other restrictive measures imposed. Thus began a twenty-year period of financial crisis in which one fur trade company after another went into insolvency, a period of crises that ended only with the complete reorganization of colonial commerce and finance in the wake of the Treaty of Utrecht in 1713. In the meantime, all was not well with the English fur trade out of Hudson Bay. The royal grant of a charter of monopoly was open to sufficient legal objection that the Company scrupulously tried to avoid any legal contests. And the overthrow of the Stuarts caused a brief flurry of panic; the Company paid a heavy bribe in stock and dividends to King William, who reciprocated by declaring his intent to drive the French out of "Rupert's Land". But William's bark was much less potent than Pierre le Moyne d'Iberville's bite, and the forces of that privateer's company were soon crippling the English trade. While the fortunes of war swayed to and fro from 1689 to 1713, French successes in the Hudson Bay area were enough to cause serious financial problems for the English company, which was forced to pass dividends and try to cut its costs. One of the acts of financial retrenchment was to cut off the pension of old Pierre Radisson, who had to fight through the courts for five years to have it reinstated. Over the long run the two imperial systems that took root in America diverged drastically, largely in response to the early opportunities of aboriginal trade. For the English colonies, the Indian trade quickly became marginalized as the production of staples for export (particularly tobacco, whose cultivation had been learned from the Indians) dominated the pattern of development of the southern mainland colonies, and the West Indies trade, slave trade, and fisheries pre-empted the attention of much of the north. The Indians increasingly became an impediment to further settlement of a large white population, and a dangerous tool in the hands of England's chief rival for territorial empire in North America. By contrast, aboriginal trade remained central to the French empire in America. The exports of New France were never less than 80% furs and skins, trapped and processed by Indian labour. Furs were useful not only for re-export but also to feed an enormous appetite at home, an appetite much greater than that of England because of the size of France's population, the distribution of income that concentrated so much purchasing power in the hands of the very rich, and the proclivities of the aristocracy, clerical elite and haute bourgeoisie for luxury consumption. In classical mercantilist fashion, the French fur trade linked the goals of territorial expansion to commercial profit, assuring the rapid

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expansion of New France across North America to the Rockies and south to New Orleans. Prodded on by privateers such as le Moyne d'Iberville, it thus threatened the English colonies with a series of fortified trading posts linking a wide-ranging panoply of Indian nations that were tied into military-commercial alliances with France. The fur trade and the Indian alliance system that went with it was in the long run the main source of French strength in North America in terms of extensive territorial penetration: it was also its main source of weakness in terms of intensive economic development. In the final contest with England for hegemony over the continent, the weaknesses derivative from the fur-based economy and society overshadowed the strengths. But the final decision was a century and a half in coming.

Competition for the Fisheries The fisheries of Newfoundland and Acadia were another major bone of contention between the two great aspirants for political and economic power. Not only did the great cod banks sustain a peace-time reserve of naval strength that could be called upon in time of war, they produced a supply of refuse fish to feed the slaves as well as a quality product for European palates. Although for both England and France the annual migratory fishing fleets initially dominated the trade, by the 1660's a major divergence of policy and practice emerged. An aggressive policy of French state-sponsored commercial expansion led to acute competition in the West Country's European markets from the spreading French sedentary fishery in Acadia, the Gaspesie, Labrador, and the south shore of Newfoundland. In response to the rise of the French sedentary fishery, the English government eventually had to reconsider its traditional Newfoundland policy, though fundamental reform was a long time in coming and it continued to be official policy to inhibit colonization and harass the illegal settlers. The resident fishery's triumph over the annual fishing fleet was inevitable. Population did grow, in part due to the fact that the measures to control it fell afoul of an internal contradiction. Newfoundland was not a colony: it had no civil government. But by the same token Newfoundland was effectively exempt from the restrictions like the Navigation Laws that structured the pattern of imperial-colonial trade. The Navigation Laws, designed to guarantee England the monopoly of manufactured colonial raw materials, enumerated a number of commodities that had to be carried from the colony to England before re-export. Cod was not an enumerated commodity. The success of the West Country interests in exempting Newfoundland

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and the cod fishery from the normal restrictions on imperial-colonial trade opened up the area to foreign ships calling to purchase cod, and it made Newfoundland one of the great smuggling entrepots of the North Atlantic. Population growth was encouraged by Newfoundland's development as a trading centre. Furthermore her lack of civil government made her a prime retreat for pirates, while English depredations stepped up the flow of refugees fleeing the misery of life in Ireland to embrace the misery of life in Newfoundland. Life in Newfoundland was especially nasty, brutish, and short. Low wages often paid in rum for highly seasonal work, were often followed by winters of near starvation, and a perpetual state of debt-peonage to local merchants. St. John's, the non-capital of the non-colony, was a town of hovels and taverns that was a non-town in the sense that no proper institutions of civil government were permitted. The long-term forces that would eventually bring about the victory of the sedentary fishery and the decline of the West Country fleet were at play from the mid-seventeenth century onward. Frequent wars against the French and the Dutch took their toll of the transitory fleet and disrupted markets. When the fishing fleet was blocked from its annual voyages, unemployment and economic distress spread throughout the West Country area. But in Newfoundland sedentary in-shore fishing continued to grow, safe from the worst ravages of the wars and encouraged by the expansion of New England industry and Yankee fish merchant houses. A New England resident fishery also evolved with a distinct competitive advantage over the West Country fleet, especially in the business of supplying the growing West Indian slave food market. French-English tensions in the North Atlantic fisheries came to the surface early in the process of mercantilist consolidation and peaked at the same time as conflicts over sugar, slaves, furs and the Spanish American trade. Initially the French fishery, like the English, was conducted overwhelmingly by an annual migratory fleet, but English pressure led in the 1660's to a decision to fortify Placentia to defend the fishery. The establishment of the base meant a commitment by the French government to aid the growth of a sedentary fishery in addition to its annual fishing fleet. The result was that the type of conflict between migratory and sedentary fisheries that wracked the Englishcontrolled areas and exacerbated political quarrels within England was of little importance to French development. It meant too that France had a permanent stronghold on Newfoundland at a time when the power of the West Country interests precluded such a development by English fishing interests. Since France already controlled Acadia and therefore commanded the Gulf of St. Lawrence, a concerted French assault from Placentia, Acadia and Canada might well

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have driven England completely out of Newfoundland. And the military threat came at a time of acute economic conflict. A French dry fishery meant competition with England for the supply of Mediterranean markets, especially that of Iberia which paid for its fish in silver. Moreover, the spread of slave plantations across the Caribbean created an ever-growing market for "red, stinking fish". To meet the demand, French ships even began buying fish from the (illegal) English sedentary fishery. Open warfare for control of Newfoundland broke out shortly after the "Glorious Revolution" confirmed Parliament's dominance in English politics. In 1690 the English declared their intent to seize Placentia. But the French recovered the fort and counterattacked the English fisheries. For nearly a quarter of a century war raged back and forth. By the time of the Treaty of Utrecht, in 1713, France was firmly in command of Placentia and had inflicted heavy damage on the English fishery. Offsetting French successes against the English migratory fleet in Newfoundland were their losses to the New England forces in Acadia.

The Atlantic Seaboard While Newfoundland was the most important prize in the contest for control of the North Atlantic fisheries, it was not the only one. The West Country fishing fleet was subject to competition not only from the French fishery on Newfoundland, but also that of Acadia. Hence at the end of the War of the Spanish Succession France was forced to cede not only the bulk of her holdings in Newfoundland, but also her title to mainland Acadia, and its settler population along with it. For most of its history, the population of this eastern extremity of New France had managed to stay largely aloof from the storms that raged around it. Acadia — embracing the current territory of the Gaspe Peninsula, New Brunswick, Nova Scotia including Cape Breton, northern Maine and Prince Edward Island — was certainly of major strategic importance. The naval and fishing centres of Acadia — Port Royal before 1713 and Louisbourg in the decades to follow — commanded the approaches to the Gulf of St. Lawrence, were important staging points for the fisheries, and were located on a major crossroads of Atlantic trade. But for the actual settler population, a French-speaking polyglot of Breton, Basque, Irish and other peoples, most of these issues were of minor significance, for their economic life was not tied into the great colonial staple trades and they were therefore relatively immune from the contest for the control of these trades. The population was overwhelmingly agrarian. In the early years of

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settlement fur trading with the Micmac was of some importance, but there was no significant fur-producing hinterland available, and the trade was soon marginalized. In addition to farming, the chief economic activities were hunting, fishing, lumber producing, and boat building, along with some barter of foodstuffs to New England traders and, after its establishment, to Louisbourg. The little village communities had some craftsmen, but the bulk of both traders and craftsmen were farmers who simply pursued other activities on a part-time or seasonal basis. While the Acadian settler population tried to maintain a stance of comparative neutrality in the struggles that went on around them, the land they inhabited could not. Its strategic importance meant that from the earliest days of permanent settlement it would be a theatre of conflict between rival claimants that reflected the very course of imperialist rivalries of the day. Up until the 1670's the squabbles of rival claimants were largely private operations, but that changed with the Colbertiste resurgence of French imperialism. Charles II agreed in the Treaty of Breda to cede Acadia-Nova Scotia to France in exchange for half of the island of St. Christopher, thus setting a precedent of using Acadia as a bargaining counter in postwar settlements that enraged New England expansionists for the next forty years. The most energetic of New England's early campaigns came with the renewal of European war in 1689. Sir William Phips, a former shepherd turned carpenter turned pirate, had in 1687 dredged up a Spanish treasury ship sunk many decades before off Espanola, and the profits from the salvage operation not only made his own fortune but helped set off England's first stock exchange boom, the shares of salvage company promotions being particularly favoured. Returning to Massachusetts a public hero, Phips with his "golden touch" was charged with the task of arranging a new expedition against the Acadian capital of Port Royal by promising high pay and half of the loot to the troops who signed on. After the fort surrendered on the express understanding that the private property of its citizens would be respected, the troops were turned loose to loot, with Phips himself grabbing all of the governor's valuables including his clothes, silverware, liquor and cash. The results of the successful assault was described by one of the militiamen: "We cut down the Cross, rifled the Church, pulled down the Altar and broke the images. Kept gathering in plunder all day long." One inventory of the spoil read as follows: "24 girdles, two caps, one hood, 24 canonical gowns, 4 more gowns with silver clasps and laced; beds and bedding; one white coat; two pair of shoes; one red waistcoat; 14 old kettles, pots, and stew pans." Such a vast treasure undoubtedly whetted appetites for

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more and Phips, backed again by Boston capital, plunged headlong into military disaster at Quebec the next year. At the time no effort was made to hold Acadia. But as the relations between New France and the American colonies deteriorated, an assault with a view to permanent conquest became inevitable. Added to the commercial threat Acadia posed to New England was the military one. While New York was protected from the raids of the Frenchallied Indians by the Iroquois, Massachusetts lay open and vulnerable to the Abneki of Acadia. As the border war dragged on, Massachusetts began raiding the largely defenceless Acadian villages to seize captives to exchange for its own citizens. French settlements were plundered, livestock was slaughtered, and a bounty on Indian scalps — £100 for male and £50 for female or child — was offered. With the outbreak of the War of Spanish Succession came several New England efforts to capture the broken-down fort of Port Royal and its handful of green troops. These efforts failed until 1710, when Samuel Vetch entered the scene. Vetch had been active in the Darien Scheme, a Scottish operation for planting colonies in Panama that came to a disastrous end. After pilfering the remaining company assets, Vetch moved to New York and became involved with the illegal fur trade with Canada. When war broke out again, Vetch found himself doubly burdened with unpaid debts owed to him from Canada and litigation against him for violating the Navigation Laws. In 1706 he left for England with the dual purpose of pressing for a refund of his fines, and impressing upon the Board of Trade the desirability of conquering Canada and Acadia which, he contended, would produce huge wealth from fish, fur, wheat and timber and make an ideal alternative field for Scottish colonization in the wake of the Darien disaster. With the support they found in England, Vetch and his associates turned to Acadia and in 1710 Port Royal fell for good.

Competition for Sugar, Slaves and Silver While the English position in the Newfoundland fisheries, in the general trade of the North Atlantic (in terms of value of territorial possessions), and in continental North America was considerably stronger than that of its main rival, the balance of advantage lay in reverse in the West Indies. The English-held islands there were smaller and of lesser fertility, and French sugar quickly established a competitive advantage over English in European markets. The result was many decades of strife. In general, the objectives throughout the late seventeenth and most of the eighteenth centuries were not to seize the rivals' territory: from the 1680's the territorial division of

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the Caribbean was more or less fixed. Rather, in keeping with the mercantilist strategy of limiting supply to push up prices, the aim of warfare in the Caribbean was the destruction of the rival's capacity to produce — razing crops, burning buildings and mills, and slaughtering slaves. Given the rate at which the principal capital asset of the sugar plantation — slaves — depreciated, and given the rising demand for slaves to export to Spanish America as well as to replace those who died in the fields of cane or battle, the slave ports of West Africa were among the flashpoints of Anglo-French relations, and another major source of structural imbalance. France, while controlling the fastest growing and richest sugar islands, had a weak position in the slave trade in comparison to the English, the Dutch, and even the Portuguese. France strove continuously and largely in vain to assure a supply of slaves equal to colonial demand. The imbalance became worse when France got the opportunity to supply the Spanish American market. Behind the numerous sources of tension between the imperial systems, causing them to face off in continental North America, the West Indies, West Africa, Newfoundland, and even India, lay one more basic antagonism — Spanish America, regarded by western mercantilists as an inexhaustible market for manufactured goods and slaves, and an equally inexhaustible source of precious metal. To acquire a share, three strategies were possible: securing control of the carrying trade in tropical products and silver to Europe; controlling Spanish America's supply of European manufactured goods; and controlling Spanish America's supply of slaves. These last two were the favoured strategies, since Spain was industrially too backward to meet its colonies' demand for manufactures, and had no position in the slave trade. The result was intense rivalry between the Dutch, English and French for the supply of Spanish America; by the end of the seventeenth century the Dutch had withdrawn from the contest. England's initial tactic was to develop Jamaica into a smuggling base for the movement of goods and slaves into the Spanish empire; the French responded in kind with a parallel development of Grenada. At this stage both powers worked on the assumption that Spanish America would remain under the Spanish crown but would be weak and vulnerable to commercial penetration. However by the turn of the eighteenth century that presumption was no longer valid. In the 1690's Brazil, Portugal's great sugar colony, increasingly faced French West Indian competition and, squeezed by rising slave prices, was rapidly losing markets. Then the discovery of gold transformed the character of the Brazilian economy. Portugal became increasingly dependent financially on Brazilian gold, while England

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came to dominate the trade of Portugal and the Portuguese empire. At the same time France and Spain drew closer together. The key to access to Spanish American silver was slaves. Hence France and England vied for control of the Asiento, the monopoly of the supply of slaves to Spanish America. France intrigued for a union of the crowns of France and Spain which would formalize the transfer of commercial control over the Spanish empire to it. In 1701 the Asiento was formally ceded to France's Guinea Company, and Louis XV assumed the Crown of Spain. England and the Netherlands, threatened with complete exclusion from the Spanish American trade, struck back by declaring a war that ultimately embraced metropoles and colonies on four continents.

The Spanish Succession Conflicts raged in North America, India, the Caribbean and Europe. There, the principal burden of fighting fell on England's allies, especially the Dutch. At that time the dependence of France and England on overseas trade and colonies had not yet reached the stage when the metropole's war effort could be seriously hampered by the destruction of its colonial trade. Colonial territories were still more a prize than an instrument of imperial wars. Hence to keep the Dutch in the war to sustain the European front, England in 1709 promised them the Spanish Netherlands and a share of the Spanish American trade. The English reneged on these promises a few years later. But in the meantime the Dutch merchants agreed to pile up the bodies of their peasants and craftsmen in the hope that a share of the profits of selling kidnapped black labour to Spanish American planters would accrue to them. Inside England a Whig-controlled Parliament, the product of the revolution of 1688, waxed enthusiastic over the prospect of eventual victory, all the more so since relatively few Englishmen would be expected to die to achieve it and since the cost of fighting it could be met by profitable loans from Whig financiers to Parliament or by taxes imposed on Tory landlords. The Tories disagreed, and pushed for an early cessation of hostilities. Securing power in 1711, the Tories immediately commenced peace negotiations with France in open violation of the terms of alliance with the Dutch. The planned peace involved France making important colonial concessions to England while England conceded Dutch-held European territory to France. In 1712 the European allies of England launched a new offensive. The English leaked the battle plans to the French, declared a truce, and watched France regain most of the ground it had earlier lost. There followed the celebrated Treaty of Utrecht in which France

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rewarded England for having sabotaged its allies' war effort by offering major colonial concessions. It ceded Acadia with the exception of Isle Royale (Cape Breton Island) to England; acknowledged English control of Newfoundland except for some residual rights to dry fish on the south shore; and confirmed England's position on Hudson Bay and its influence over the Iroquois, thus conceding control of Lake Ontario. England also made a few gains in the Caribbean. Most important, it secured the Asiento to supply 4,800 slaves per year to Spanish America, giving England undisputed dominance in the Atlantic slave trade at a time when not only were its own colonies crying out for labour, not only was Spanish America in need of constant replenishment, but the French West Indies demanded slaves at double the rate French traders could supply them. In the long run, after 1713, the slavery question, together with unresolved disputes in the north, would bring France and England into conflict over the requirements of their own mercantile systems, instead of quarreling over who would secure the maximum advantage from the decay of the Spanish Empire. But in the short run, before 1713, all eyes were focused on Spanish America, still regarded as the ultimate fount of the western world's wealth, and on the slave trade to Spanish America as the key instrument to tap it. Securing the Asiento still left open the question of specifically which set of English business interests would benefit from it. The profits of war having gone overwhelmingly to the Whig financiers who had directed it, it seemed only fitting that the spoils of peace accrue to the Tories who had negotiated it. Hence the Tory chancellor and some cohorts organized the South Sea Company and granted it a monopoly of the English Pacific trade as well as the Asiento. Under the terms of the agreement, the Royal Africa Company was to deliver a supply of "healthful, sound negroes of all sizes in such condition as to go over the ship's side" at Jamaica, from whence the South Sea Company would run them to Spanish America. Whoever else might have been impressed by the South Sea Company, the Spanish authorities were not. The refusal of Spanish colonial officials to co-operate, and harassment by buccaneers in the Caribbean, kept its trade from turning a profit even while other English merchants amassed fortunes from the slave trade. Then in 1718 a brief Anglo-Spanish war cut off all of the company's trade with the New World. The outlook in external commerce being bleak, the company turned to internal finance and, inspired by a fantastic operation in public finance then being undertaken in Paris by Scottish financier John Law, the directors launched a project for refunding the English public debt. In short order it degenerated into a stock exchange bubble whose bursting set off a wave of bankruptcies and abscondings,

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and reduced the South Sea Company to a debilitated shell of an enterprise. But it managed to limp along for over a century in possession of a theoretical monopoly of the British Empire's Pacific trade, at a time when the Pacific was virtually without commercial importance. The real action remained in the Caribbean, where Anglo-French conflicts over sugar and slaves brought the two powers to blows time after time during the next century.

8

France in America, 1713-1763

IN THE WAR OF THE SPANISH SUCCESSION and the peace treaty that followed, France had asserted itself as the great power in continental Europe, but in the colonial realm its position was much less secure. As providers of tropical staples and points of access to the silver supplies of Spanish America, France's colonial possessions were impressive; but from the point of view of adding territory and population to enhance the military and economic power of the metropole, something which colonies of white settlement in temperate lands were best suited to provide, French holdings were weak and precarious in spite of their apparent size.

The Rise of Louisbourg Acadia had been considered vital to the French empire in North America, and during the Treaty of Utrecht negotiations France offered three small Caribbean islands and complete evacuation of Newfoundland to retrieve it. Its residual Newfoundland privileges were largely at England's mercy, and the French sugar plantations had no shortage of land even without the three small islands. But Acadia could control the Gulf of St. Lawrence and access the fisheries of the North Atlantic, and the English decided to keep it, along with its French-speaking settler population. France therefore shifted its base to Cape Breton and proceeded to fortify it. A stronghold on Cape Breton would serve as a commercial entrepot between France, Canada, Acadia and Newfoundland; function as a base for a winter fishery, and for seal and whale hunting; and provide a naval station and privateering base to expand French power in 96

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North America. The Treaty of Utrecht added further reasons for the project. France, shorn of the Acadian mainland and of its fishing station at Placentia, required a new base from which to both defend the approaches to the Gulf of St. Lawrence and conduct its sedentary fishery. Under the terms of the Treaty, France was permitted to fortify the island — much to the outrage and disgust of New England interests who contended that the English diplomats had been bribed by France into making the concession. France began the construction of Louisbourg, supposedly the greatest fortress city in North America. The actual process of building the fortified city took a remarkably long time, to the great profit of the builders. Mortar was filled with sea-sand, with predictable results during future sieges. High-quality stone hauled from France for the ramparts and walls was diverted into building homes for the governor and intendant or else sold to passing New England ships, while inferior local stone was substituted. As late as 1740 only one of the several batteries was functional, and as late as 1745, on the eve of a new war, the works were still incomplete. Some military circles in France had already written off Louisbourg as undefendable. But the city was of commercial importance, not least to New France, whose agricultural development came to depend significantly on the Louisbourg market. Apart from living off military and naval pay, the principal economic endeavour was the dry fishery. After 1713 the French dry fishery, with official financial assistance, was centred at Louisbourg, and its products were exported in large amounts to France as well as to the West Indies, Italy, Spain and Portugal, where they were more highly regarded than the products of the English dry fishery. However, the fishery prospered only in times of peace, and peace was less common than war over the forty years from 1713 to 1753. In time of war, the other major commercial occupations of the Louisbourg population — privateering and smuggling — took precedence. While Louisbourg was the greatest French privateering centre in the North Atlantic, it was not without competition, particularly from the Cape Ray pirates, a motley crew of ex-buccaneers who had been chased out of the Caribbean, men thrown out of the French and English fisheries for drunkenness or misbehaviour, and deserters from the poor fare, low pay, and appalling living conditions of the national navies. Smuggling was another mainstay of Louisbourg's economic life. Its mode of organization was no different from that of "legitimate" trade: the merchants, smugglers and privateers were often the same individuals; and official participation in both legal and illegal commerce was equally open. With appropriate payments to the officials,

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Louisbourg became a clearing house for trade of France, Canada, New England and the West Indies, and even saw the occasional ship from the East Indies en route to France. Louisbourg had to import virtually all of its consumption requirements. The fisheries were almost the sole local industry. Agriculture was poorly developed; the coal and lumber resources worked only sporadically; and industry, apart from a small sloopmanufacturing business, was virtually non-existent. The food supply problem was the most pressing logistical difficulty. To the extent that agriculture could develop on the poor soil, the drain of manpower into the fisheries meant that it was an occupation restricted to women and children, who were none too numerous in such a society. Furthermore, the poverty of the general population coupled with the connivances of the officials and merchants sometimes pushed prices beyond the reach of most people, who reacted by contracting debt or famine-related disease. French officials and officers deeply resented the dull social life of the garrison town with its unruly population of fishermen, smugglers, and discontented troops — many of whom were drawn from regiments comprised in good measure of deserters from other regiments and who were often in a state of rebellion against the depredations of their officers. The officers, who formed a hereditary caste, passing ranks down from father to son, seemed to live in the hope of quick fortune. Captains were responsible for the distribution of both regular pay and any supplementary earnings of the troops that resulted from them being hired out as cheap labour. Whatever the officers managed to skim off from the pay was supplemented by the officers' joining with the traders of Louisbourg in the business of selling brandy and rum. Moreover, officers would draw pay and rations on the basis of the theoretical numbers of troops in the detachments, pay out on the basis of the actual number, and pocket the difference. Sons of officers as young as six years old could be found "serving in the ranks" and drawing full pay and rations. The town itself was so overcrowded that regulations had to be passed to allow the free movement of air to permit the drying offish. Added to the fetid character of the fish-drying operation was the fouling of the cattle and goats stabled inside the town, and of the swine running freely through the streets. However, the freebooting hogs were of some social value, for they did help to keep the town cleaner by consuming the garbage the population dumped into the streets. On the other hand, their voracious appetites posed something of a danger to free-running chickens, drying fish, and even small children.

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Fur Trade and Transcontinental Expansion The record of French imperial success and failure in North America — short-run military and territorial gains in the context of a long-run trend toward complete expulsion from the continent — reflected the pattern of colonial commercial development. The phenomenal success of the French West Indies diverted imperial attention southward; at the same time in New France the fur trade, the one truly profitable business pursuit, generated a pattern of economic development and of concomitant social institutions that spread the French presence in the north thinly. The French flag was carried across vast expanses of the continent but a genuine French presence was hampered from taking serious root anywhere beyond the confines of the St. Lawrence valley. Even in that area it exhibited serious structural weaknesses. While some efforts toward the economic diversification of New France were made in the period after 1713, the colony's economy still depended overwhelmingly on the fur trade to maintained its export trade and its public finances, and to a much lesser extent on subsistence agriculture in which the great bulk of its population was employed. While on a strictly economic level there was little direct articulation between the fur trade and agriculture, on a broader social level they were mutually reinforcing. French dreams of creating a supply base in New France to provide grain, livestock, timber and other temperate raw materials for the French West Indies remained largely unfulfilled, but New France's subsistence agricultural sector did assist imperial strategic objectives in another way. New France's farm population constituted an agrarian militia, the farms supporting in peace the supply of manpower that could be drawn on in time of war to defend the fortified trading posts. The spurt of industrial activity that did take place in the eighteenth century was evidence of the military nature of the society, and the military role of its economy, including furs. With the aid of heavy imperial subsidies and, later, deficit-spending by local authorities financed by the issue of paper money, major military industries, notably shipbuilding and ordnance making, took shape. However, unlike the 1660's, when the energetic intendant Jean Talon oversaw the process, the spate of industrial growth derived not from artisanalentrepreneurial activity; nor was it from the investment of the surpluses of the staple-export trade. Rather, it derived from a phenomenal expansion of military expenditure which was linked directly to the expansion of the fur trade-Indian alliance system deep into the west and down the Mississippi, which in turn was motivated by a

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mixture of strategic, military and commercial objectives, behind which lay the fundamental drive to outdistance the English in the process of global empire-building and to continue the search for a Northwest Passage to the Orient. The long period of war had damaged the fur trade of both powers. But after 1713 the trade had again become profitable, and the Hudson's Bay Company prepared for a period of expanded activity. The Company hoped that exploration, nominally in pursuit of the Northwest Passage, would yield copper and gold mines and relieve it of its dependency on furs alone. To finance the new activities, profits were reinvested and an effort was made to raise capital on the London stock market. But the bursting of the South Sea Bubble, and the crisis it brought onto the London stock market, destroyed that strategy. Then a voyage in pursuit of the elusive Western Ocean, the inland sea reputed to link up with the Pacific, and in search of copper and a possible site for a whale fishery, ended in disaster, and the company returned to its posture of sitting tight at the posts on the bayshore, awaiting the Cree and Assiniboine middlemen. France was not so easily put off its search, in part because of the greater degree of government direction of its overseas enterprise. While the English were determining that the entrance to the Western Sea did not lie northward in Hudson Bay, la Salle established that the Mississippi system led southward, not to the Mer de 1'Ouest but to the Gulf of Mexico. But when Indians persisted in their tales of salt water and mines of yellow metal lying to the west, France in 1713 decided on a big push to the Pacific across the interior of the continent, establishing en route a series of posts to draw off the trade of their English rivals and provide the revenue to sustain the exploratory drive. Hence France's strategic interests (briefly) coincided with the economic needs of its Canadian colony which was seeking new fur trade territory at a time when much of its traditional territory was depleted or disturbed by wars, and when the trade was further sapped by the illegal drain of furs to Albany. Also present was a class of fur traders-fam-explorers, of whom Louis-Joseph Gaultier de la Verendrye was the most energetic. Under la Verendrye's leadership and with the financial backing of colonial merchants and the endorsement of the Crown, French traders quickly penetrated the hinterland hitherto regarded by the Hudson's Bay Company as its own preserve. But while the French government insisted on the primacy of the search for the Western Sea, it also insisted that la Verendrye's explorations be financed out of the profits of the posts established along the way, and when these profits failed to materialize refused to extend additional financial assistance. The rising costs of la Verendrye's travels and the lavish gifts necessary to secure the Indians into a

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French alliance ensured that France never reached the Rockies, let alone penetrating beyond them to the Pacific. While the French did enjoy some brief success against the English northern posts, the ultimate result of the new round of confrontations was not long in doubt. The English also succeeded in eroding the French position in the eastern part of the continent. Even though beaver export taxes had been abolished, the illicit trade to Albany flourished in the years after the War of the Spanish Succession. The long struggle had cut the sea lanes and led to a great accumulation of unsold furs in New France as well as an acute shortage of French trade goods. On the other hand English trade goods, better and cheaper than French, had piled up at Albany. Hence the surplus stock of furs were exchanged for English iron, cloth and rum. The Iroquois were central to relations between New France and New York. Without them New York was defenceless. In spite of being routinely robbed by New York land speculators, cheated by traders, and neglected by the British government, the Iroquois remained loyal to the English cause throughout the remainder of the period of French-English confrontation. The Iroquois were also the principal mechanism by which trade between New France and New York (Montreal and Albany in particular) took place. Christianized Iroquois and Huron who had settled at Caughnawaga were used by the French to send their contraband furs to Albany. Meanwhile, the Iroquois on the American side took furs from the upper Great Lakes tribes to Albany, sold them for relatively cheap English trade goods, and then took the goods to Canada to exchange with the French for furs which then joined the parade of pelts southward to Albany. There is a stark contrast between New York, the fur trade centre of the American mainland colonies, and New France, in terms of the capacity of a staple to generate balanced development. The level of external trade per capita was about the same, while the early overwhelming dependence on furs was common to both. The similarities end there. For New York, the high per-capita level of foreign trade was an index of development; for New France it was a measure of underdevelopment. One vital factor explaining the difference was the Iroquois, who hemmed New York in territorially, precluding the establishment of an extensive system of interior posts. Nor was there any need for such a system given that the supply of furs was assured by the Iroquois traders. For New France there was no such assurance after the fall of Huronia, and the pressure of competition forced a tremendous pace of expansion into the interior. The colony's resources, human and material, were therefore tied up overwhelmingly in the fur trade. To maintain the huge overhead investment, the colony had to assure a steady flow of staple exports.

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New York had no such overhead costs to meet, thanks to the energy of the Iroquois, while its entrepreneurs were free to invest their accumulated wealth in alternative endeavours. Moreover, centralization of control of the French fur trading system, reflecting the enormous military as well as commercial reliance on the fur trade posts and their alliance systems, and reflecting as well the political power the Ministry of Marine held over the colony, meant that New France's entrepreneurial class was very much an appendage of metropolitan fur trade houses and dependent on the whim of the French government. New York was much freer of both economic and political control by the metropole, thus further easing diversification of its economic base. At the end of the French regime, furs still accounted for 70% of New France's exports, agriculture 18%. In contrast, agricultural products reached 50% of New York's export volume in the same period. Thus for New York, in good measure because of its relationship to the Iroquois Indians, fur provided the foreign exchange-earning staple export that facilitated capital accumulation and economic development. For New France, again because of its relationship to its aboriginal allies, a fur trade economy was associated with the growth of a sort of primitive military-industrial complex, dependent on political direction and financial infusions from the metropole, and in which the colonial mercantile class played a subsidiary role. After more than a century of French presence on continental North America, there stretched along the banks of the St. Lawrence a scattering of largely self-sufficient agrarian communities interspersed with three urban centres. Exchange between town and country was of far less commercial and political significance than exchange between town and aboriginal society. Commerce meant the fur trade, whose rapid expansion into the interior drew off the resources of the government and private business alike to such a degree as to minimize the amount of integrated industrial-agricultural development of the settier community per se. Reliance on the fur trade to the detriment of agrarian and urban industrial development meant recurrent balance of payments, fiscal and monetary crises, while the centralization of control over economic activity that the fur trade engendered meant the growth of a military-commercial complex in the colony, which in turn meant that economic life in general was subject to the whims and fancies of the Ministry of Marine in Paris. French imperial policy assured that war would be as common as peace, if not more so; war in turn precipitated periodic collapse of the colonial commercial and financial system as its resources, human and material, were mobilized for metropolitan strategic objectives.

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The Last Eldorado After the War of the Spanish Succession France found itself increasingly squeezed out of the northern colonial system. But its hold on southern colonial commerce was much less impaired, despite the loss of the Asiento. The French West Indies were more productive than the English sugar colonies, and even without the Asiento France was in an excellent geographic position to dispute England for an increasing share of the Spanish American carrying trade. The outcome of the war was therefore to shift French attention increasingly to the south while England's hold on the northern colonial trade grew. However, France initially lacked the financial capacity for a renewal of colonial commercial expansion. Its finances were in chaos, and its commercial enterprises enervated. The aftermath of Louis XIV was a financial deluge: a crushing burden of taxation and a mass of paper currency, bills and bonds on which the prospects of redemption or repayment seemed slight. Three critical problems thus faced France after the wars: (1) revitalization of its commerce; (2) shifting the centre of commercial gravity of such a revitalized empire south; and (3) elimination of the fiscal and monetary chaos. At this point John Law entered French history with his scheme to solve all three at once. Law was the son of an Edinburgh goldsmith who went to London to pursue his chosen career as a professional gambler, applying scientific calculation to his trade with such precision that he was soon heavily in debt. A rich mistress paid his debts, but another mistress precipitated a public quarrel between Law and an English gentlemen that led to a stint in a London prison for murder, followed by escape to the continent where he began making his mark and his fortune at noble gaming tables. He became convinced that the key to reviving French commerce lay in the introduction and proper management of a paper currency, and in 1716 he opened a private bank in Paris. The next year the second part of his plan went into operation, the creation of a great chartered monopoly to control French colonial commerce. The third step was to merge finance and commerce and open up a new colonial treasure house which he claimed to have found in Louisiana. The early history of Louisiana was not one to inspire such confidence in its commercial possibilities. Pioneered by Canadian fur traders based in Detroit, the resource base of the vast Mississippi basin had been a disappointment. Even beaver were in short supply. Finally, interest in the area began to grow at the end of the seventeenth century in the face of rising demand for deer skins, and the possibility of bison skins as a raw material for the French leather

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industry. Over time the strategic possibilities of control of the Mississippi river system were appreciated more fully, leading some to advocate firm French control of the area as a means of blocking English expansion across the Appalachians and as a base for attacking Mexico. Canadian interests, lead by the brothers Le Moyne, d'Iberville and de Bienville, took the lead in initial colonization ventures. The Le Moyne colony in Louisiana consisted at its apogee of a few starving beggars, files du roi, nuns, priests and soldiers. The only prosperous elements in the colony seemed to be the saloon keepers. As expenses to the Crown for the colony's maintenance grew while returns failed to materialize, and as English ambitions in the area grew, the Crown decided in 1712 to farm the colony out to private enterprise. The first major act of the new corporation which took control of the colony was to discharge Governor Bienville and his administration. In his place the company selected Antoine de la Mothe-Cadillac, the old Detroit tyrant who had served his business apprenticeship under Frontenac. Upon his arrival la Mothe-Cadillac found a miserable handful of soldiers and settlers whose most pressing request of the new administration was permission to return home. The tiny struggling colony had barely supported itself by exporting deer skins and Indian slaves and by engaging in contraband trade with the Spanish colonies. Experts sent out to examine the colony's resources had assured the authorities that Louisiana boasted precious metal mines to rival those of Peru and Mexico. Silver, copper, iron, tin, lead and antimony were reported to abound, and cheap water transport would soon enable them to undercut Spain's colonial mining enterprise which relied on slow and expensive mule haulage and long water routes. In reality, only lead and antimony were discovered. The Spanish American trade was trifling, and was constantly encroached upon by officials trading on their own account in defiance of the monopoly. In 1717 the area was ceded to John Law, who planned to make Louisiana the foundation of his Compagnie d'Occident, or Mississippi Company, as it came to be called. The new company received a 25-year monopoly of trade and mines plus the usual perpetual private property rights. It further secured a 25-year monopoly of the traffic in beaver pelts out of Canada, a range of tax exemptions and state subsidies to maintain its fortifications and for presents to the Indians, and the usual chartered monopoly company powers to wage war and make treaties with non-Christian princes, as well as various juridical and commercial rights and duties. The vast Illinois country was detached from Canada, over the objection of that colony's traders, and ceded to Louisiana. In return the company

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was required to populate Louisiana with 6,000 whites and 3,000 blacks. To fulfill the last obligation the company bought out the Company of Senegal, securing a monopoly of the French slave trade the next year. Such a grandiose colonial program required funds. At that point the financial objectives of Law's schemes — the eradication of the French public debt problem — and the commercial objectives began to merge. Law's bank had been successful and its paper circulated widely. Law soon secured a monopoly of the French coinage, and shortly added to it a substantial share of the business of collecting taxes. Then he felt in a position to undertake a massive conversion of the French government debt into Mississippi Company shares, making holders of bills and bonds stockholders in his new company. Impressive though the operation was on paper, it added little to the company's actual cash assets. Not in the least deterred, the company began its meteoric expansion, absorbing company after company until it had obtained a virtual monopoly of French colonial trade (an accomplishment it celebrated by changing its name to Company of the Indies). However, all of these acquisitions meant new liabilities as well as assets. Growth really required something new, from outside the old colonial system, while cash was still urgently required. In 1719 Law created 100,000 new shares and set out to sell them. To boost the issue he tied its fortunes to those of Louisiana, whose commercial virtues he set out to extol. All kinds of ludicrous tales were circulated about the great wealth of the area. It was portrayed as one of the most fertile areas of the world, with a beautiful and healthy climate, with soil that could produce three crops a year including crops of enormous grapes that made exquisite wines, with forests abounding in game and rivers crammed full of fish, with limitless herds of bison whose wool was as soft as that of the finest Spanish sheep and whose meat was more delicate and flavourful than the finest Spanish beef, with flocks of tropical birds of exquisite flavour and magnificent plumage, with great trees dripping with wax and honey which also yielded the finest building materials and dyewoods in the world. Then came tales of mines and precious jewels, of great mountains of silver and gold and throngs of savages willing to yield up heaps of precious stones and metals in exchange for trinkets and mirrors and beads. Graven images of naive savages running toward the Frenchmen to give away their wealth were distributed. For the devout some of these images of redskins heaping up treasure in exchange for trinkets and alcohol were embellished with the legend, "The idolatrous Indians demand baptism." To add credibility to the tales, ten Indians were carried off to Paris where they danced in the Italian theatre and chased stags through the Bois de Boulogne in the

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presence of the King and an admiring court. Soon France was mesmerized by Mississippi, redskins, pearls, gold and great fortunes. It was the era of the Discoveries all over again, with Louisiana appearing in the role of logical successor to Eldorado, Norumbego, Saguenay and the Seven Cities of Cibola. The sole dissenting voice seemed to have been that of the old la Mothe-Cadillac who, angry at having been stripped of his command, demanded restitution for the money he had lost in Louisiana and denied the stories he had had a hand in creating — until he was thrown in the Bastille for sedition. The shares of the company sold at a fantastic rate. Shares with a par value of 500 livres peaked at 18,000. The government took over Law's bank and conceived its own fiscal Eldorado by printing up reams of the paper. The new paper fed the investment boom, especially when Law declared a dividend in 1720 of 40% — payable in paper money printed by his bank. Booming the shares for sale was one thing; maintaining their value was another, and this required the generation of a flow of earnings from the new colonial enterprise. Earnings in turn required that the company exploit the resources of the fabled and wealthy Louisiana, which at that juncture consisted of a handful of desperate and miserable French men and women dumped in an unhealthy and unwholesome stretch of torrid coastal sands, suffering the ravages of commercial monopoly, political anarchy, and periodic famine. Rejuvenation of the colony required first and foremost a settler population to work the undiscovered mines and till the non-existent fields. "Free" immigrants proved scarce. Hence the usual supply of criminals and contrabanders had to be beefed up with the levies of vagabonds and deserters. Asylums and similar institutions decreed themselves to be all too happy to unload their charges of beggars, tramps, pickpockets, swindlers and libertines. The Bastille volunteered some of its detainees, while magistrates were instructed to sentence lawbreakers to transportation to Louisiana instead of the more usual punishment of galley slavery. A royal order commanded the scouring of the provinces most ravaged by the recent wars for unemployed vagabonds. Good fathers or poor widows seeking to unload some debauched, licentious, impious or indolent family member could solicit the King or the police to have the young man sent to the colony where he could expiate his sins and save the family honour. When all of this proved inadequate, gangs of professional kidnappers were organized. Female colonists were recruited in much the same way as male. Law's company made tours of the poorhouses, jails and houses of ill repute turning out vagabonds, prostitutes, pickpockets, larcenists and murderers to join their male counterparts en route to Louisiana.

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Public mass marriages were held on the wharfs prior to departure, with the loving couples handcuffed together — a practical rather than a symbolic act. It is difficult to say what caused the debacle that followed. Perhaps rumours of the true conditions of Louisiana began to gain credibility. Perhaps the deluge of paper finally cracked the structure. Increasing numbers of those who had received their dividends in paper began trying to redeem it. Nor did a parade through the streets of Paris of beggars with shovels on their shoulders, ostensibly en route to Louisiana to dig for gold and silver, appease the crowd. When the rush for redemption began to assume panic proportions, the government stepped in and abolished specie payments. Inconvertible paper became France's sole legal tender. Police were empowered to search homes for contraband stores of specie (unless the occupant was powerful enough to intimidate or bribe the police). In a final desperate act, the Mississippi Company and the bank were formally merged so that the company shares and the bank's notes became interchangeable forms of paper currency. As stock values plummeted and paper fortunes vanished, mobs stormed through the streets of Paris. John Law beat a hasty retreat from France, and the state, after remonetizing specie, was itself on the brink of insolvency again. In fact the Mississippi Company, like its contemporary in England, the South Sea Company, survived the debacle and proceeded to the further development of Louisiana's fur resources, lead mines and plantation possibilities. However, in 1731, a revolt of the Natchez Indians against the company's fur monopoly wrecked it. Louisiana became a royal province, and Le Moyne de Bienville was restored to the governorship to try to patch up relations with the Indians. Recovery of the fur trade was brief, for the outbreak of war in the 1740's ruined it again, and it never revived. Louisiana became little more than a backward and neglected appendage of the French Caribbean plantation system. The battle for imperial advantage in the meantime shifted northward again.

9

Competition for Empire, 1713-1763

THE TREATY OF UTRECHT merely marked a truce in the struggle between France and England for global hegemony. With Portugal, Spain and the Netherlands relegated to secondary roles, and with Germany and Russia still essentially uninvolved in the contest for overseas empire, England and France spent the next century confronting one another in the West Indies, West Africa, North America and India for control of sugar, tobacco, furs, fish, slaves and oriental luxuries. The wars of the eighteenth century differed from those of the previous century in that the stakes were much higher. During the seventeenth century colonies or chartered companies could battle each other without implicating the metropoles directly, but after 1713 colonial trade was so vital to the economic well-being of the mother countries and particularly their great seaport towns (whose taxes made a disproportionately great contribution to the overall public finances) that they could not remain aloof from the overseas wrangles of their fledglings. Instead of the colonies being dragged into war automatically when an issue of purely European interest sparked a conflict at home, colonial troubles could now force the metropoles into war to defend vital economic interests abroad. Yet another factor differentiated the political-economic situation of the eighteenth century from that of the seventeenth. During the years when England and France had quarreled over the Spanish empire's commercial integrity, their empires had been constructed on very similar principles. But after 1713 a major divergence began to manifest itself. With the loss of Acadia and Newfoundland contrasting with the excitement and tremendous wealth of the West Indies, France found its attentions increasingly diverted south toward the tropics. 108

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For Britain, with its rapidly growing manufacturing interests contrasting with the evident pace at which its sugar colonies were being exhausted, the long-term future seemed to point to the north and to colonies of white settlement. But before any fundamental geographic realignment of colonial spheres of influence could take place between the two powers, their interlocked mercantilist systems brought them to blows time after time. Sugar and slaves were still the cornerstones of empire, and the potential for conflict was obvious. With their short life expectancy, slaves were in far greater demand in the rapidly expanding French West Indies than the few French slave trade posts could supply. On the other hand, Britain, in control of the bulk of the sources of slaves, could not market all of its output in its own islands which — except for the newest acquisition, Jamaica — were soon to face the prospect of economic decline. Britain also produced slaves for Spanish and Portuguese America to provide the bullion necessary for the conduct of its far eastern trade; and its own southern mainland colonies demanded slaves for their rice, tobacco and indigo plantations. Britain had the slaves, but France was quickly coming to dominate the world sugar market. The British West Indian planters, likely the single most influential business interest in British parliamentary politics, demanded action against France, and the French planters demanded likewise against Britain. In North America, the fisheries issue remained a burning one. Despite the loss of Newfoundland to the English West Country fishing industry, and Acadia and therefore the Canso fishery to New England interests,the French dry fishery in Cape Breton not only fully compensated but produced such a quality product that it was quickly driving the West Country product out of Mediterranean markets. In the interior, the war for furs and influence with the aboriginal population continued in the north, while in the trans-Appalachian area it became a question of American agricultural expansion versus the continuation of the French fur trade. In India, hitherto of marginal importance to the two protagonists, the stakes mounted quickly as France, then England, abandoned the policy of peaceful trade and made a lunge for territorial empire. The War of the Spanish Succession neither secured for England control of the Spanish American slave trade, nor succeeded in pushing the French out of the Pacific coast trade of Spanish America — both objectives of the South Sea Company, already in its dotage a decade after its creation. In 1738, a South Sea Company ship was boarded by Spanish colonial coast guard officials and the pretext was seized upon by England to launch a war. If it had been a localized conflict, the Bourbon alliance would likely not have been invoked. But

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atop the renewed threat to the Spanish empire came a FrancoPrussian plot to seize control of Austria's possessions in the Netherlands and Italy. That eventually dragged England and France into face-to-face conflict once more. Very little was settled in the War of the Austrian Succession. Spain, allied with France, tried to regain Minorca and Gibraltar and drive the English out of Georgia, all without success. England seized the fortress at Louisbourg and with it Cape Breton Island. France captured Madras. England ravaged French sugar plantations while France did the same to the English islands. The only major territorial transfers of the war were reversed again in the peace when France regained Louisbourg in exchange for returning Madras to England. The major combatants then sat back to await the next major conflict. By the time the Seven Years' War commenced, three major changes had occurred in the pattern of imperial competition. First and most important in the long run (though least appreciated at the time), the French East India Company, in violation of official French imperial policy, had initiated a grab for territorial empire rather than just trading posts in India. Second, the crisis in the English sugar islands had reached the point where a major change in government policy was possible. The imperial demand for sugar for consumption or trade outstripped the English islands' capacity to produce. Instead of merely destroying the rival's production facilities, it was now feasible to actually seize new territory. Third, the North American theatre had assumed a major importance. It was the second and third factors that most directly affected the pattern of conflict from 1756 to 1763.

The Contest for the Eastern Seaboard The progressive marginalization of France in Newfoundland by an English navy heavily influenced by the demands of the West Country ports served, ironically enough, ultimately to weaken the hold of the West Country fishing interest on the island. While the migratory fishermen continued their desperate struggle to block the growth of a resident fishery for nearly a century beyond the end of the War of the Spanish Succession, the impact of the war strengthened the resident fishery sufficiently for it to survive against the post-war assault of the West Country fishermen, not to speak of the lingering ambitions of France and the commercial imperialism of New England. The actual course of the war, as with all wars, improved the economic position of the sedentary fishery as the annual West Country fleet was ravaged by the twin scourges of privateer and press gang. The war too drove the French out of their dry fishery on the south

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shore and opened up that territory for an expansion by the English sedentary fishery. This development was dangerous for the English migratory fishery because the newly opened up area held the best of Newfoundland's limited supply of arable land. If agriculture was added to the fishing industry, the resident population could be secure. Long-term forces to consolidate the position of the settlers were also at work in the post-war period. As the inshore fishery became relatively depleted, the less efficient migratory fishermen concentrated on the bank fishery, leaving the inshore to the sedentary boat fishery. Furthermore, Irish famines assured that over the eighteenth century the Irish gradually displaced the West Country English as the majority of the growing settler population. Finally, and perhaps most important, New England expanded very rapidly after 1713, and with it a trade to Newfoundland that freed the island's settlers of their reliance on the West Country fleet for supplies. The Newfoundland trade was vital to the growing commercial prosperity of New England. The New England ships carried provisions, including the omnipresent rum, to Newfoundland in exchange for fish, which they resold to specialized fish trading ships for cash or for bills of exchange on London. The Newfoundland trade played a vital role in the triangle of trade that provided New England with the English exchange to cover its trade deficit with the metropole in a way analogous to that played by the West Indies. It was equally a source of tension with politically powerful business interests in England: West Country fishing interests joined the British West Indies planters in Parliament in opposing and fearing New England's commercial aggressivity, sentiments that the new French fishery in Cape Breton Island fully shared. The late 1730's and 1740's witnessed growing antagonism toward Louisbourg. The new fort was a greater commercial threat to the New England fisheries and trade than Port Royal had ever been. It was also, despite its logistic problems, an indirect military threat because of its links to the mainland. Despite the nominal loss of the Acadian mainland to England, France still retained the loyalty of the aboriginal people and put it to good use against the New England fishery. Not only were drying crews harassed and driven from shore: at one point Indians seized an English ship and, using its captive crew to operate it, sailed about capturing small fishing boats. The Canso fishery came to a brief standstill for fear of Indian naval assault. New England's opportunity to settle scores finally came during the War of the Austrian Succession. A combined assault of a ragtag army of New England irregulars who signed on in the hope of plunder together with an English naval squadron set sail for the fortress. Louisbourg had two strategic problems: undersupply of food, and

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oversupply of liquor. Provisions sent by the Crown were sometimes too costly for the poor fishermen to buy. The foodstuffs were sometimes adulterated — the flour was rotten and the butter filled with blocks of salt, wood or even iron. Top-level officials were the centre of the dealings in provisions for the garrison and, to prevent competition with the private operators, they used their official capacity to work against the creation of royal stores adequate to serve the population. Nor did Louisbourg officials carry out orders from France to stem the tide of alcohol that threatened to drown or poison the garrison long before the English forces could do their work, for the grog shops allowed officers to pocket part of their companies' pay. Not surprisingly, the Louisbourg garrison was actually in a state of near mutiny when the English fleet arrived. Louisbourg fell, much to the joy of New England, which hoped it would crush French competition in the fisheries and eliminate the threat from privateering raids. Not so contented were the New England troops who survived a winter of hard drinking and disease, for these terms of surrender had guaranteed the property of Louisbourg's citizens against looting. And all of New England — except merchants heavily involved in the contraband trade — was outraged when the War of Austrian Succession ended with England handing Louisbourg back to France. To try to placate its mainland colonies England poured in money to pay offdebts they had incurred in the war, and established Halifax as a naval, military and commercial counterpoise to Louisbourg. But when Louisbourg fell again during the Seven Years' War, the soldiers who seized it took no chances on a repetition of earlier events and razed it to the ground. With the final fall of Louisbourg came the demographic upheaval in Acadia that saw the vast majority of its citizens forcibly deported. The actual process of deportation opened up excellent opportunities for plunder. The commander, General Charles Lawrence, alone collected 20,000 acres of land on which the settlement of Lawrencetown was erected, stocked with seized Acadian livestock. Lawrence's administration was notorious for its embezzlement of public funds. His New England commercial allies were the beneficiaries of all government contracts, including those which involved selling to the Crown stores looted from the Acadians under Lawrence's auspices, in order to provision the ships carrying the Acadians off to exile. Since the goods once seized nominally became state property, Lawrence was overseeing a process of the state paying his friends for the state's own property. The fall of Louisbourg and the expulsion of the Acadians marked the eclipse of French power in northern North America. The gates to New France lay open, and through them an army of conquest shortly poured.

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The Contest for the Continental Interior The immediate after-effect of the Treaty of Utrecht was to leave French ambitions for territorial expansion in America in limbo. Military alliances with the Indian tribes were not only essential to assure commercial relations with them, but also to give France the military strength to maintain and extend its presence in North America. But the Treaty of Utrecht had confirmed the English on Hudson Bay, conceded to them control over the Iroquois and thus of Lake Ontario, and stripped New France of Acadia and the trade of the south shore of the lower St. Lawrence. The fur trade of New France therefore seemed doomed. However, by the 1720's it had recovered and began a spectacular period of expansion, soaking the interior with brandy and other gifts as the government tried to win back the allegiance of the Indian allies. The Indians were exhorted, pleaded with, and bribed to bring their furs to the French posts and their weapons to the English ones, and for a time were openly encouraged to pillage English traders wherever they were found — a policy only reversed after the Indians professed difficulty in distinguishing between French and English traders. War on two fronts against English interests was renewed, and provided the impetus to New France's rush westward across the continent and south to the Gulf of Mexico. France sent its explorers and traders into the far west to draw off the Hudson's Bay Company's supplies, and down the Mississippi to Louisiana to try to bottle up the English mainland colonies behind a chain of fortified posts and a system of Indian alliances. The Hudson's Bay Company initially did little to meet the challenge. Confirmed by the Treaty of Utrecht in its rich territories, it waited at its fur trade posts on the shores of the bay for the Cree Indians to bring the furs. But French traders began penetrating its territory. Moreover, inside England the company found itself in a quandary as its profitability led to demands that the small clique of owners of the company make more shares available to the investing body at large. It was also claimed that the company failed to check the growth of French influence in the interior or to continue the search for the Northwest Passage, impeded colonization, exploited its monopoly position by overcharging, and sold the Indians foreign in preference to British goods. These criticisms prompted the first of several Parliamentary investigations in 1749. While one set of French traders penetrated west as far as the Rockies, another group moved steadily south into the Illinois country and beyond. The first serious impediment to further advance was the Fox Indians, who harassed France's trading partners. French-Fox wars continued on and off until the end of the French regime.

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If the reaction of the Hudson's Bay Company to French expansion was passive, that of the mainland colonies was not. By the 1740's most of the British colonies were short of furs. Apart from the Hudson's Bay company territories, the remaining rich fur-bearing lands were in the hands of the French or Spanish. Only New York continued to prosper, partly through the proceeds of smuggling furs from Canada and partly through the conquests of the Iroquois. Hence while New York tended to be passive in relation to the French presence, traders from Pennsylvania, New England and Virginia began pushing west into areas traditionally part of France's sphere of influence. Moreover, by 1754 the Hudson's Bay Company also broke its traditional policy and began to move inland to counter French influence. The Hudson's Bay Company interests and the fur traders of Pennsylvania and, later, New York were inclined toward seizure of the interior from the French to open up the fur hinterland to English interests. Other business concerns too wanted the area, but for different purposes. The southern plantation colonies producing rice, tobacco and other staples demanded more land to expand the agricultural frontier. They were joined by New England speculators and certain voices in England that saw in the opening up of more land for agricultural settlement a means of precluding the surplus population of the mainland colonies from turning to manufacturing activities in competition with the metropole. At the same time that Pennsylvania traders began penetrating the Ohio Country, Virginia land speculators did likewise, both running up against the presence of fortified French trading posts and Frenchallied Indians. The Virginia speculators were expelled, with George Washington vowing to lead them back. The Seven Years' War, the final contest between French and English mercantilism, thus began with a clash in the Ohio Country and spread around the world. Initially the British made North America the principal objective of the campaign, in the hopes that its fall would secure the North Atlantic trading system to England. But two factors dictated a change in policy. The first was the military success of France in America due mainly to the Indian alliances. Among the major tribes, fears of English colonial encroachments on their lands drove some of those traditionally hostile to France into the French camp. But the Iroquois remained loyal to the English cause and saved New York, if not the rest of British America, in the early years of the war. The one major military success in North America for British arms had been the capture of Louisbourg, and even that "success" had to be tempered by General Wolfe's judgment that if anyone except the English had tried to capture it, the job would have been done in half the time. The second factor causing the English to shift their focus away from

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North America was the changed situation in the Caribbean. French successes elsewhere, such as in Minorca, established a potentially dangerous situation whereby France would demand the return of Cape Breton in return for Minorca, which was important to English commerce in the Mediterranean. Hence the English strategy was to seize sugar islands as bargaining counters to be traded off for Minorca and thus preclude the diplomatic re-establishment of a French military presence in Acadia. To secure islands, both to keep permanently and to trade off in the peace negotiations that would eventually follow, the English shifted attention to the Caribbean and, concomitantly, to West Africa. In 1758 a naval expedition seized Guadeloupe. By 1759 the French slave trade posts in the Senegal River area were taken. By the end of 1761, all of the French sugar islands except St. Dominique were in English hands. In the meantime Canada too had fallen. The rapid collapse of France brought Spain into the war on its side for fear that the British seizure of the French West Indies would clear the way for the British to seize the silver mines of Mexico and control of the Spanish American trade. Spain was quickly defeated, with the British taking Havana, the Falkland Islands and Manila. These last conquests were particularly portentous, for Manila gave Britain its first base in the Pacific, hitherto a Spanish lake, while the Falklands were strategically placed to interfere with the Spanish Pacific trade rounding Cape Horn. At the same time, the East India Company forces under Robert Clive were driving the French out of India and establishing the foundations of English territorial empire there.

The Contest for India While India seemed peripheral to the principal theatres of conflict of the mercantile period — even as late as the Seven Years' War, the British committed three times as much naval strength to the West as to the East Indies — statesmen certainly had not forgotten that it was the fabled wealth of India, China, Japan, and the spice islands that had initially prompted the "Discoveries". India played a particularly important role in the far eastern trade. Not only were Indian goods demanded in the West in their own right, but Indian silks and cottons were essential for trading further east to obtain spices and other products. Early European penetration had been solely for the objective of trade; conquest was neither necessary nor, for most of the period, militarily feasible. The ancient problem of East-West trade was still present. Eastern luxuries such as spices, jewels, fine cottons, silks, etc., were in great

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demand in the West, while the products of the West, apart from guns and ammunition, found few markets in the East. Trade therefore had to be requited in silver. The drain of precious metals, which had plagued Europe at least from late Roman times, got worse during the inflation in western Europe that followed the Spanish plunder of America. The new wealth from the Americas both fueled the demand for eastern luxuries and drove the terms of trade even further against the West. Western commodities became more expensive in terms of silver, and therefore the most profitable cargo one could carry to the far east was Spanish silver. The balance-of-payments problem could admit of several solutions of varying degrees of efficacy. For the first adventurers into the Indian Ocean, the alternative to trade was plunder. However, such an approach to the problem could only work episodically; a steady flow of output required stable trading relations. In 1595 the Dutch East India Company was formed to drive the Portuguese out of the eastern trade. It established a major trading presence on the Indian subcontinent, and control of the main spice producing areas fell to it. The Dutch East India Company, ruthlessly destroying native plantations and crushing revolts, managed to control the spice trade sufficiently that at its peak it recorded profit rates of 5,000%. It was the remarkable profits from the Dutch venture that prompted first England, and then France to establish East India Companies themselves. The English East India Company began business modestly in 1600. While its first trading venture to the Orient yielded a cargo of pepper worth £1 million, it found that it could not sell it because a group of English privateers had just captured a Portuguese spice ship and had sold it to James I who forbade any sales of pepper until he had unloaded his own. A few appropriately placed bribes led to a compromise, and the East India Company was off and running, having learned the essential commercial lesson that the way to a monarch's heart is through his wallet, a lesson that stood the company in good stead in the years that followed. In 1609 the company was granted a monopoly by the Crown of the eastern trade of the British empire forever. What "forever" meant of course was subject to some legal, if not philosophical, dispute. To prevent a loss of its charter the company maintained its close links to the Crown throughout the Stuart period. Both Charles II and James II were shareholders and defenders of the monopoly. The company in turn maintained a steady flow of cash to the Crown, as well as the occasional bribe to potentially troublesome elements in Parliament. But in 1688 times of trouble arrived for the East India Company, as for many other enterprises with royal charters, because Parliament was leaning toward at least a partial opening of the eastern trade. In

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1698 a New East India Company was formed by Whig interests, and it immediately bought a charter from Parliament for a "loan" of £2 million. Ten years of competitive bribery of officials and surreptitious stock raids followed until a grand merger in 1708 produced a greatly strengthened company ready to renew its assault on the India trade, battle the French, and go on to establish a major presence in the China tea trade. The export of bullion to India was contrary to the principles of bullionism and was often used to attack the company. In an effort to meet its critics in the early seventeenth century, the company pledged to search for the Northeast Passage. The rationale was that such a trade route would open up northern markets for English woolens that the company could sell for specie with which to conduct its eastern trade. But a joint venture with the Muscovy Company failed to find the passage, and the East India Company soon turned back to the African route. The reply of company directors also took the form of the enunciation of a more sophisticated version of the bullionist balance-of-trade doctrine. Paraphrasing Richelieu's defence of the French Levantine trade, they said that instead of a blanket prohibition on specie exports, policy should be concerned with the net balance. If the silver sent to India yielded cargoes whose subsequent re-export brought in specie of greater value than their original cost, the initial export of specie should be permitted. In terms of the theory underlying British commercial policy, the acceptance of the mature balance of trade doctrine focusing on net trade balances (rather than being concerned exclusively with one-sided transfers that could come as easily through piracy or tribute payments as by trade), was a major step in the transition from bullionism to mercantilism. Nonetheless, the company's problems were still not over. Once the restrictions on the outflow of bullion were eased the company began bringing back not only spices, but also luxury textiles. This angered powerful domestic woolen merchants, whose protests were simply met by heavier bribes. Not until Brazilian gold began to flow abundantly into Britain and make inroads on the previously dominant role of silver in domestic circulation did the objections against the export of silver begin to lose their strength, though restrictions on the export of specie remained in force for several more decades. When the European traders and their silver first arrived in India they found the still-intact structure of the great Moghul empire, which dazzled the Europeans with its splendour, enormity and wealth. Handicraft industry, manufacturing for the luxury consumption of the nobility and for export, thrived. The merchant class had wide-ranging trading links and a banking system that was in advance

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of anything in Europe. But rot had begun to set in well before the Europeans arrived: a series of peasant revolts spread across the country, while territorial princes asserted their autonomy at the expense of the central authority. The decline quickened in the early eighteenth century when the death of Emperor Aurangezab led to quarrels between aspirants for the succession. Coming at a time when the Portuguese and Dutch presences were in decline, the quarrels provided an ideal context for French and English intrigues. The English East India Company had established trading posts at Bombay, Madras, and later at Calcutta in Bengal, the richest province of India. It shored up its commercial position by intriguing with the native princes to whom it paid tribute in return for protection. The French presence came later. Richelieu had sent missionaries to spearhead the revival of the old overland routes to the Orient. Then Colbert's East India Company ventured round the African cape. In 1723 the French assault on the oriental trades was strengthened. With the increasing incursion of the French East India Company a rival set of trading and military alliances emerged, with the two European powers supporting antagonistic princes in wars in the hope of interfering with each others' trade. During the War of the Austrian Succession a new concept of company interest began to take hold in India. The English company had always been more profitable than the French one and the governor of the French company, Dupleix, conceived and executed — despite the objections of the French government — the idea of reversing the relative profitability by a program of territorial annexation. Expelling the English from Madras, Dupleix went on to conquer an empire whose wealth was drained into company coffers and Dupleix's pockets. Dupleix became viceroy of a vast territory, legally recognized by the Great Moghul, and therefore entitled to half of the net produce of the lands he ruled. An English adventurer, Robert Clive, felt duty-bound to imitate the process. Clive was to play a leading role in the East India Company's transition from trading company to territorial power. Like Drake, Raleigh, Hawkins and even Cromwell before him, Clive was from a family of formerly prosperous independent farmers whose social position and economic status had been undermined by land enclosures. Clive arrived in India as a petty clerk of the company when it was so small and insecure it was still paying rent to the native government and hiring native troops to guard its premises. It was a period when the company often failed to show a profit because many of its goods were being diverted by company servants for private trading. During the War of the Austrian Succession Clive led the English (mainly native) forces in an attempt to recapture Madras. The cam-

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paign was a military failure but a financial success, for it gave Clive sufficient opportunity for plunder that he returned to England at the age of 27 a rich man. However, his wealth was quickly frittered away in such business enterprises as attempting to secure a seat in the House of Commons; and when he ran out of money he returned to India, arriving in time for the Seven Years' War. The Seven Years' War marked a watershed in British imperial history. French power in India was almost completely eclipsed. The subsequent years were a period of unprecedented plundering as the British pillaged temples and graves, and extorted treasure from nobles, priests and merchants. Significantly, one of the first Hindi words to be adopted into the English language was "loot". But even more important in the long run, Clive had conquered Bengal, turning the East India Company from a commercial enterprise into a territorial power. The balance-of-trade problem could now be alleviated. Instead of exporting silver to India to finance the return flow of luxuries to England, the British simply raised the necessary funds in "taxation" and exported the proceeds. The rise of a British territorial presence in India meant, in conjunction with the results of the war on the other side of the world, a revolutionary change in the British conception of empire. That other change was the British conquest of, and decision to keep permanently, France's least profitable American possession, Canada, thus confirming a trend toward a global territorial division begun by the Treaty of Utrecht in 1713.

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The Triumph and Collapse of British Mercantilism

THE SEVEN YEARS' WAR ENDED in almost complete triumph of the British mercantile system over that of the French. In North America the French again were driven out of Newfoundland and the island remnant of Acadia. With the fall of Louisbourg the French fishery was pushed onto the two tiny islands of St. Pierre and Miquelon, which also fell in short order. New France itself collapsed soon after Louisbourg, and with it went the Ohio Country. Britain now achieved near-total monopoly of the American fur trade as well as the fisheries. Elsewhere the victories were equally striking. In the West Indies all of the sugar islands but St. Dominique fell to the British. In West Africa the Senegal River area and control of the French slave trade also passed to them. In India the British East India Company forces expelled the French from their territorial base, pared down their trade posts and then conquered Bengal. The belated entry of Spain into the war only added to the string of British victories and brought within grasp the final prize — control of the Spanish American trade and a major presence in the Pacific. William Pitt wanted to continue the war until the last of the French colonies had fallen and Spain formally ceded commercial hegemony over its colonies to Britain, but was forced from office, and the Earl of Bute, who stood for an early peace and negotiations, took over the reins of government. The bargaining began.

Unequal Exchange With Spain it was straightforward. Britain returned Cuba in exchange for Spain ceding tide to Florida, thus also solving in Britain's 120

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favour the disputed title to Georgia. Manila was also returned to Spain, but the British retained the Falkland Islands as a base for intercepting the Spanish American and Pacific trade. France lost heavily. It had to cede Louisiana to Spain in compensation for the losses Spain had sustained on behalf of France and as a means of Spain protecting itself from English advances in the Caribbean. Britain had resolved to keep Cape Breton and thereby preclude a French military presence in the North Atlantic fisheries. But it ceded back to France the two islands of St. Pierre and Miquelon together with some drying rights on the south shore of Newfoundland, areas that would permit a minor commercial fishery without posing an economic or naval threat to British interests. One slave post was also handed back, but it was clear that the domination of the Atlantic slave trade was to remain in British hands. In India the French presence was reduced to a few commercial posts. A more difficult decision concerned whether to retain Canada or Guadeloupe, the richest French sugar island (apart from the unconquered St. Dominique) for the British empire. In the first three years that Britain held Canada its imports from Quebec were worth a mere £48,000, almost exclusively in the form of furs, while its exports to Quebec were a healthy £426,000. Over the same period Guadeloupe exported over £2 million worth of goods to Britain and absorbed about £475,000 worth of British exports. Guadeloupe thus produced in sugar, cotton, tobacco and other tropical products about forty times the wealth for the imperial trade that Canada's trickle of furs represented. Guadeloupe too fitted into the general presumption in favour of tropical colonies. As a great sugar producer, its surpluses were available for export to Europe to bring specie in exchange. It was also an important raw cotton producer at a time when the British cotton milling industry was on the verge of its great leap forward. As a tropical island producing staples it was likely to remain economically dependent forever, whereas the lesson of temperate colonies was their unfortunate predilection for diversification and competition with the metropole in trade and manufacturing. It was postulated too that Guadeloupe would help prevent just such further developments in the American colonies. As the British West Indies' productivity continued to decline in the face of soil exhaustion, the imbalance that threatened the stability of the mercantile empire grew. The cost of sugar rose, which was not only detrimental to the English refining and distilling industries as well as to the merchants who hoped to make England dominate the European sugar markets, but also threatened the North American empire. The New England colonies found inadequate markets for their livestock, fish, grain and lumber exports, while the cost of molasses for rum for

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the slave and fur trade rose. New England's smuggling trade with the French West Indies was growing. New England's growth could perhaps be balanced by including new and more efficient sugar plantations in the existing empire, whereas the addition of Canada would tilt the balance in favour of the already top-heavy temperate group. If Canada prospered it would be another potential source of competition in manufactured goods; if Guadeloupe prospered it would provide an extra market for British manufacturers. Furthermore, driving the French out of Caribbean sugar colonies (as well as from the North Atlantic fisheries) would undermine the foundations of French naval power. France would lose its peace-time naval reserve, the carrying trade and the fisheries. Last, but certainly not least, the rich export trade of Guadeloupe could be taxed to the considerable relief of a public treasury heavily burdened with the cost of war. Against the evident commercial and strategic virtues of Guadeloupe were pitted the pro-Canada forces. At the time the Board of Trade dismissed Canada and Louisiana together as being of lesser value than Newfoundland. But what the pro-Canada group lacked in logic it made up in political power, for it included the British West Indies planters. Guadeloupe's cheap sugar frightened the planters of the inefficient British islands. The planters leaned to keeping Canada and perhaps Martinique, which had poorer soil but a better strategic location than Guadeloupe. The clothing industry in Britain, apart from the fledgling cotton manufacturers, looked more favourably on Canada as a potential market for woolen fabrics. Canada too as a white temperate colony would likely see rapid population growth whereas the lesson of tropical colonies was that their white population generally fell. The fur trade interest of New York and of the Hudson's Bay Company also favoured retention of Canada to eliminate any threat of renewed French competition. And Benjamin Franklin, speaking for the American land speculating interests, countered the fear of North American manufacturing capacity by arguing that Canada's acquisition would open the interior, leading to a proliferation of farms and thus a retardation of the development of competitive manufacturing in America, at the same time increasing the number of consumers of British industrial products. As Britain industrialized, government policy would increasingly favour colonies that would serve as markets for British goods and as providers of industrial raw materials and wage goods rather than tropical luxuries for re-export. But the debate over whether to keep Guadeloupe or Canada took place at a time when mercantilism was still the prevailing philosophy. The manufacturers, who leaned to the new conception of empire, had little or no voice in Parliament, while

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the West Indies planters did have a great influence and the knowledge of how to use it to achieve desired results. A turning point for the pro-Canada forces came when they won over the Earl of Bute. Once he had been convinced to keep Canada, along with a few small islands like Grenada, but to give back Guadeloupe and Martinique, his fellow Parliamentarians had to be persuaded as well. Bute's private secretary afterwards reported on the success of the operation: it cost £80,000, he said, but the Treaty passed the House. Forty MP's demanded £1,000 each; another 80 demanded £500 each; others got government offices: and then with a thundering 319 to 65 majority, Canada entered the British "family of nations". The decision to keep Canada was to revolutionize the structure of the British empire, for Canada would become Britain's first true interior colony of settlement acquired as a result of explicit policy.

Canada: The Transition Of the new acquisitions to the British empire in the American theatre Canada was the most difficult to deal with, both on constitutional and military grounds. Even with the final surrender of France in North America, Britain's military problems in the area were far from over. In Acadia Micmacs and refugee Acadians waged guerrilla war, and the interior was threatened by a general Indian rising led by the Ottawa chieftain, Pontiac. For some time before the war England and France had engaged in a sharp competition to buy the loyalty of the various interior tribes with gifts. Gifts to the Indians were more than just a material bribe: they had a symbolic connotation as well, acting as concrete embodiments of treaty obligations. While France and England competed for influence the Indians often played one side off against the other, not so much to collect from both as out of appreciation of the strategic importance of having two European rivals for power. When the final struggle broke out, most Indians gave their loyalties to France. But others had responded to Iroquois pressure or British gifts and joined the other side. By the time New France fell the interior tribes were already agitated over English colonial encroachments. The Iroquois, which held many of them in economic vassalage, acted on behalf of New England land speculators to drive some of the tribes off their traditional hunting and farming lands. France, on the other hand, did not threaten their land. Hence the fall of France produced conditions ripe for a general Indian rising, coinciding as it did with the cutback in gifts from the British, gifts which had helped keep some of the bands which

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were disaffected over the land question from overt hostility. It also led to the acceleration of pressure on the land from the American and English speculators and from land-hungry planters and colonists. The end of competition in the fur trade also meant cutbacks in the distribution of gifts of guns, clothing and alcohol that the Indians had come to rely on, at the same time New England traders tried to reduce the prices offered for furs. The Ottawa, who had moved from the Ottawa River south to the central Michigan and Pennsylvania areas precisely to take a leading role in the French fur trade after the fall of Huronia, were most directly affected; and the leadership of the rising came from them. Pontiac however was joined by the Ojibway and other Algonquianspeaking bands of the area. Of the important tribes in the northwestern trade system only the Iroquois stayed aloof. But Pontiac's rebellion came to a rapid end. The French informed him he could expect no military aid from them. Furthermore, the economy of the Indian tribes could not support protracted war — they had to cease hostilities in order to hunt for food to carry them through the winter. And the winding down of hostilities on other fronts permitted the British to step up their forces in America. Inside Canada the English conquest shattered the commercial structure of the fur economy. There had been no indigenous bourgeois class of any significance built up during the French regime: the bulk of the major traders were Frenchmen rather than colonials; and (typical of colonies of the era) even where colonial businessmen did reach positions of importance, they were tied to France by a web of credit and supply relationships that really made them little more than agents of metropolitan merchant houses. Their profits typically were invested in France rather than being used to build up permanent business fixed capital in the colony. Moreover, the bulk of the truly great fortunes made in the last decades of French rule came directly out of the war that culminated in the colony's destruction. Hence when the principal figures left the colony in the wake of the English conquest — some to face Bastille sentences for their organized looting of the public purse — not only had the essential structural tie of dependence been broken, but little was left that could form a foundation for subsequent autonomous development. Into the prostrate colony came military men, adventurers, army contractors, and the general riffraff that follows the trail of armies on the move. Their arrival was followed by a scramble for concessions in the fisheries and the fur trade as well as a wave of purchases of land from the departing French elite. General Murray, the deceased General Wolfe's successor, himself bought five seigneuries. The emergence of an English landed class alongside the remnants of the French

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one formed the basis of a social compromise: merchants put down roots, army officers became a squirearchy, and together they blended at least partially with the French seigneural class and facilitated the transition from French to English rule. The anglophone commercial class that now settled in Quebec had two distinct components. Socially and economically of less significance were the retired British soldiers, non-commissioned or junior officers, who moved into the retail sector — including that favourite commercial pursuit of retired soldiers, saloon keeping. Much more significant was the New England-New York group, first the army contractors and later the fur traders who took over the wholesale import-export sector. General Murray brought many merchants and contractors in his train in 1759-60. General Jeffrey Amherst on his arrival sent out an explicit request for "traders and adventurers" from the New England colonies, promising good markets among the troops and the population which had been cut off from European goods for two years. The army authorities consolidated the position of the new group by handing out contracts and concessions. The military authorities were not simply pawns in the hands of the commercial elite. The officers in charge of the colony were British career officers; the merchants were mainly New Englanders and New Yorkers. At a time when the empire was approaching a state of civil war the national cleavage reinforced the ideological one. Hence a compromise was attempted between the needs of an imperial authority bent on controlling a subjected population and on keeping watch over its restive colonies to the south, and a colonial merchant class on the rise. The result was the Quebec Act of 1774. The usual pattern of British colonial government had a governor (or lieutenant-governor) at the top, appointed by the Crown, and charged with conducting an array of imperial functions, including control of the military, independently of the will of the rest of the government apparatus. To advise the governor and to administer a permanent civil service apparatus an executive council, appointed by the governor, was established. Next came the legislative branch of government consisting of an upper chamber — the legislative council which the governor also appointed — and an elected assembly. It was hardly a model democracy. The governor had sources of revenue that made his conduct in part independent of the wishes of the assembly, and any measures passed by the assembly had to be accepted by the legislative council, then accepted by the governor before they became law. Moreover, the term "election" in the choice of assembly members is a loose one. The franchise was restricted to well-to-do male property holders. Voting was open, by voice at the polls, putting a premium on electoral terrorism as a means of influencing the out-

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come. Corruption was rampant; the governor's executive routinely interfered with the elections, using public money to subsidize servile candidates and invoking the army to try to intimidate the opposition. Despite such constraints the merchant class demanded that Quebec, like its sister colonies to the south, be endowed with an "elected" assembly which could provide a political forum, even if of limited power, for them. But at the time radical republicanism had reached the stage of open insurrection in New England, and the imperial authorities refused to permit an assembly in Quebec. A further retrograde measure was the decision to confirm the existence of the old French seigneural land tenure system. There were several reasons for this decision. It was a more effective means of social control than freehold tenure. The executive branch of government was assured certain revenues from the seigneural system which it could collect without recourse to any votes by an assembly should such be constituted in the future. It helped maintain the agrarianmilitia system as a possible military asset to be used in war-time, including the war that threatened to erupt between England and its older American mainland colonies. And the confirmation of seigneural tenure represented a conscious effort to create a Tory aristocracy in the colony that would form a bulwark against popular agitation in general, and republican agitation from the New England colonies in particular. On the other hand, in a major concession to the merchant community, part of the interior of the continent, the Ohio Country, was attached to Quebec as it had been in the French regime. Montreal was to be reconstituted as the fur trade metropolis of the continent, and the interior preserved as Indian territory free from the encroachment of white settlers from the mainland colonies. It was a measure designed to buy the loyalty of the Montreal merchant elite and to placate the Indians and keep them loyal to Britain at the expense of the Thirteen Colonies. It outraged the mainland colonies, whose fur trade and planter interests alike had seen free access to the interior as the major prize of the Seven Years' War. The Quebec Act was perhaps the final, major step in the American march to insurrection and independence that fractured the British mercantile system at the moment of its final triumph.

The American Mainland Colonies The Quebec Act represented in part an attempt by Britain to reinforce a fundamental political distinction between New France and the British American colonies. Apart from Georgia, which had been

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seized from Spain as a buffer between the Spanish Caribbean (which included Florida) and the American northern colonies, the American mainland colonies were the product of private enterprise and founded during a period of revolutionary upheaval in English politics. This was in sharp contrast to New France where the imperial government has taken a strong leadership position and where the political and legal framework was appropriate to the ancien regime. By contrast the implantation of notions of bourgeois democracy in British colonies helped give each of the colonial economies some degree of individuality. But most important in explaining their political disparities was the diverse nature of their economic bases. These can be grouped roughly into southern plantations and northern mercantile colonies, with a middle group showing characteristics of both. The southern ones were slave plantation economies in which, unlike the West Indies, the planter class was mainly domestic, and the principal staple was tobacco. Virginia was the most important. Its economy, like that of neighbouring Maryland, was geared overwhelmingly to tobacco. The Carolinas produced tobacco, rice, indigo and other tropical staples, also with slave-worked estates. The staple-producing colonies were dependent on Britain for many crucial commodities and services. Britain was almost the sole market for their crop; even if bound for re-export, the staples went to Britain first. Britain controlled the bulk of the Atlantic slave trade, provided the manufactures that the colonies required, and dominated the business of carrying the staples to market. And British money — in the form of long-term credit from British merchant houses — provided the capital on which the plantation economies ran. There were two main points of conflict between the southern plantation colonies and the metropole. The first was the debt question that resulted from the dependence on British sources for operating capital. As the plantations expanded in size, the demand for slaves rose and the debts of the planters deepened. As long as markets were good there was little problem, but when prices for staples fell in London the planters' burden of debt service charges rose. The only way to meet the debt was to produce more staples, which both accentuated the price fall and required more land and fresh soil to replace that already exhausted by tobacco cultivation. By the mid-eighteenth century the plantation colonies were bumping up against the limits of good crop land and eyeing the vast interior from which they were barred, first by the French-Indian alliance, and subsequently by British government policy. The northern group of colonies were not staple producers in the classical sense, but rather farming, fishing and trading communities. Rhode Island was an important centre for the slave and rum trade

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with the West Indies. New York was also involved in rum and slaves, and was the most important centre for the southern fur trade. New Hampshire was prominent as a locus of great forest industries producing masts for the navy, ships for the merchant marine, and wood products for the West Indies. Pennsylvania, apart from its farms, boasted the richest natural resource endowment and was potentially the manufacturing nucleus of the area. Most important was Massachusetts. Boston was the largest trade centre of the empire outside of Britain itself; most of the great New England cod and whale fishery worked out of here. By the end of the era of British rule New England, which Boston dominated commercially, boasted fully a third of the imperial merchant marine. In return for the inflow of British manufactured goods that the growing population of the northern colonies demanded, there was very little they could export directly to Britain. New York with its fur trade was the least affected by the problem of return cargoes, but for New England the search for a source of specie or bills of exchange to remit to London took its traders far and wide, inside the empire and out, constituting the single most serious source of destabilization within the British mercantile system. New England traders were active in Nova Scotia, Newfoundland, Southern Europe, West Africa, the English and French West Indies, and Spanish America, all of which yielded surpluses that could cover the trade deficit with England. In terms of conflict with metropolitan business interests, the most important areas were Newfoundland and the French West Indies. By the end of the War of the Spanish Succession Boston merchants had established permanent storehouses with resident factors on Newfoundland, selling many commodities, not the least of which was rum, and buying bills of exchange and cargoes offish from the sedentary fishing population. Their presence upset the fragile truce that had taken shape in the fisheries, a truce based on the West Country fleet dominating the trade in quality fish bound for Southern Europe while New England ships controlled most of the trade in refuse fish for the Caribbean. Boston's encouragement of the growth of the sedentary fishery — luring fishermen to desert the West Country fleet, supplying the settlements, extending credit to the resident fishermen, and washing the shores and inlets with rum — struck directly at the heart of the West Country's business. It provided Boston merchants with cargoes of quality fish that could be sold to passing ships or transported in their own ships to Europe. In 1718 the English Board of Trade again recommended the depopulation of Newfoundland. Off Nova Scotia, Massachusetts fishermen had long been active, their initial forays dating back at least as far as the 1640's, and the

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French presence there had long been a source of specie from contraband trade. But it was with the establishment of a permanent British garrison and town, Halifax, in 1749 that regular commerce as opposed to fishing and casual smuggling became important. The British government in the early years poured hundreds of thousands of pounds into the building and populating of Halifax and environs. Boston quickly came to control its trade. Hence bills and specie from Britain, spent in Nova Scotia, were siphoned off to Massachusetts and used to cover its deficit with England. But after 1763, with the coming of peace, British government expenditures in Nova Scotia dropped off sharply, causing both an economic crisis to the province and financial problems for Boston, which found that peace had cost it another of its sources of foreign exchange. In the West Indies 1713 represented something of a turning point, for the British islands thereafter began a period of rapid decline in relation to the French ones, at the same time that New England grew rapidly. Because the British islands could not absorb all the timber, grain, slaves, etc., that New England could supply — indeed, had to supply to cover its payments deficit with England — smuggling to the French West Indies accelerated. Britain's success in the Seven Years' War, seizing the West African slave posts while leaving France's sugar-producing capacity intact, had produced fertile ground for New England's contraband traffic. New England derived specie and cheap molasses, vital for American distilleries which in turn were vital for the fur trade, slave trade, and Newfoundland trade. The British islands protested that the New England contraband traffic drove up the price it had to pay for provisions and cut the price it received for sugar, this at a time when production costs on the British islands were rising rapidly. Whatever their economic inefficiency, the planters were politically very powerful. By the time of the American Revolution there were over 70 planters sitting in the British Parliament for country (usually rotten) boroughs. By as early as 1733 their political clout was already sufficient to secure passage of the Molasses Act, placing heavy duties on foreign sugar, rum and molasses. However, the home authorities were reluctant to enforce it, indeed lacked the machinery to do so effectively. The sole importance of the act seems to have been to enhance the under-the-table incomes of a few customs officials. And the contraband molasses trade grew largely unabated. The Molasses Act was replaced by the Plantations Act which attempted to reach a compromise between the needs of New England traders, West Indian planters, and imperial treasury officials. It cut the duty on foreign molasses while raising it on foreign sugar and banning foreign rum. It meant, in theory, that the British sugar planters

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would have a monopoly of the American sugar market, American distilleries would control the home rum market while their molasses imports paid a low rate of taxation, and the reduction of duties from their previously prohibitively high level would expand tax revenues. Still, the molasses duties continued to be a source of colonial discontent, to which a new major trade grievance was soon added. In the midst of one of its combined fiscal and political crises, the East India Company had prevailed upon the British government to compensate it for a partial loss of political power in India by granting it trade concessions in America. These concessions took the form of the Tea Act. Until the act's passage, the company's tea was sold at public auction in London from whence American and British merchants undertook its re-export. But the American traders had also been active in smuggling the cheaper Dutch East India Company tea. Under the Tea Act the British East India Company would get a complete refund on all import duties paid on its teas when re-exported, and the right to export tea in its own ships to America. The result would be to slash the price of its goods and enable it to dump an enormous accumulated surplus on the American market, undercutting the price of smuggled tea. The result was to threaten to drive many American tea merchants out of business. In 1774 New England merchants joined forces with political radicals to attack company tea cargoes and dump them in Boston harbour, the so-called "Boston tea party". If the British government was intent on curbing the activities of the New England traders in the French West Indies and Newfoundland, some other means of covering the area's trade deficit had to be found. One solution would be to develop its own manufacturing base to reduce imports from Britain and possibly even compete with the metropole for the trade of Europe and Spanish America. Colonial output consisted essentially of four classes of commodities. Tropical staples were produced without restriction with the encouragement of the British government. However, apart from some late concessions allowing the direct carriage of staples to Southern Europe, in general Britain demanded the right to be the trade entrepot for colonial produce. Temperate raw materials — grain, timber, livestock — were also produced without restrictions for the West Indies. Manufactured goods fell into two categories. Most manufactures in the eighteenth century were not for trade; they were of too little value in relation to bulk to bear the extra cost of trans-Atlantic freight, insurance and commission charges. These too, the colonies could produce freely. But there was a fourth class of more advanced manufactures, designed for market exchange, local or external, around which a process of industrial growth could take place, and these were the object of

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interference by the imperial authorities. Colonial legislatures periodically passed bounty bills to grant subsidies (often in paper money form) and tax exemptions to private manufacturers, only to have the English Board of Trade disallow them in order to assure the metropole's dominance in the field of manufacturing. Thus, the Wool Act of 1699 forbade the export of raw wool or wool yarn or cloth from any colony, and the Hat Act forbade the establishment of any hattery employing more than two hands in the colony, and banned absolutely the production of beaver hats. In 1750 the Iron Act was designed to encourage the export of pig and bar iron to Britain and discourage the growth of a secondary metal-working industry in America. And in Quebec after the British conquest General Murray was ordered to discourage its industrial development, particularly in textiles, where it might threaten English products in imperial markets. The colony was to be structured as a fur and grain producer. It was also the fear of a colonial manufacturing industry that, at least in part, seems to have dictated English policy toward another French-populated colonial acquisition. After the fall of Louisbourg 10,000 Acadian farmers were rounded up and deported on the pretext of their failure to take an oath of loyalty to the British Crown. The notion of a military threat from a few thousand backwoods farmers seems far-fetched; the real, underlying motives were likely quite different. As long as interest in the Atlantic northern mainland was focused on the fisheries, the Acadian farmers were ignored as insignificant. The seizure of Acadia in 1710 had led to the establishment of the offshore fishery at Canso, which produced a vital product for New England's Caribbean and Mediterranean trade. After 1713 conflict with Louisbourg was acute, but the Acadians themselves were not particularly involved. However, by the middle of the eighteenth century, a new source of economic tension had arisen in North America: land hunger in New England. At the time penetration beyond the Appalachians was blocked, first by the French military presence and subsequently by British government policy. New England's soil was often poor, its population growth rapid; and 90% of its people lived on the land. Blocked from expansion west, one logical outlet was to the north, particularly to the rich Fundy tidelands. The New York Gazette (September 1, 1755) commented: if we effect their expulsion, it will be one of the greatest things that ever the English did in America, for by all accounts that part of the country they possess is as good land as any in the world. In case therefore we could get some good English farmers in their room, this province would abound with all kinds of provisions.

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Whatever urges New England and New York had toward the Acadian expulsion the British government must have felt more compellingly, for the province of Acadia could help restabilize one of the sources of structural imbalance in the mercantile system. New England was already a source of bitter competition to metropolitan interests in the fisheries, the slave trade and the contraband trade to the French West Indies, and it was threatening to become a manufacturing centre as well. Surplus population would lead to the creation of an urban proletariat in New England and therefore lower wage rates, encouraging the development of industry. Given first the French presence in the area west of the Appalachians and subsequently Britain's commitment to keep it as Indian territory, one possible outlet for the surplus population to preclude the development of a low wage proletariat was Acadia-Nova Scotia. Obviously too the population transfer would make the general area more attractive to New England settlers and reduce French incentive to reclaim it in future wars. The large-scale expulsions from 1755 to 1758 created a supply of good farm land which was declared open for speculation and settlement. Groups of promoters were permitted to secure entire townships of 100,000 acres. Individuals could obtain 100 acres plus an extra 50 for each member of his family free of quit rents and other obligations for ten years. Land was handed out to soldiers in lieu of pensions — field officers receiving up to 600 acres according to rank, ordinary troopers 50 acres. British officials continued to encourage New England immigration to check the threatened growth of American manufacturing. But until the Loyalist migration after the American Revolution forced the government to break up the big speculative holdings, the flow of settlers was actually negligible. Given the stultification of native manufacturing, the stapleextracting bias of the southern colonies, and the problem of finding foreign exchange that plagued the north, inevitably all the colonies became ever more deeply indebted to British merchants. The result was a steady drain of specie for rental and interest payments that exacerbated the existing deficit from commodity trade. The consequences were twofold: a steady rise in the level of colonial debt, and a chronic shortage of circulating coin. At the same time the rather primitive infrastructure of colonial government and the quite understandable reluctance of the colonial merchants and landowners who controlled that apparatus to add to the taxes already imposed on them by the metropole meant that the public treasuries were generally short on funds to meet their obligations for defence and development. To grapple simultaneously with the problems of debt, currency shortage and public fiscal requirements, the colonial governments

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resorted more and more over the eighteenth century to issuing paper money. While the paper bills of credit sufficed as currency in spite of their rapid rate of depreciation, and functioned as a means of avoiding taxation because of that same depreciation, their effects on the structure of credit and debt caused problems with the imperial authorities — not least because they gave the colonial governments a tool for subsidizing economic development in directions Britain could not control, and because they seemed to threaten the British prerogative to monopolize the issue of legal tender money. In 1751 paper money was banned in New England by the imperial authorities, and by 1764 the prohibition was extended to all the colonies. After 1765 all duties and taxes had to be paid in specie, at a time when trade restrictions were hampering the ability of New England merchants to obtain specie from the French and Spanish colonies. The move against colonial paper coincided with an effort to raise the level of tax receipts in the colonies. The Seven Years' War had doubled the British national debt; at the same time the expanded empire meant increasing costs for its defence. By 1763 France was already rebuilding its navy in preparation for the next round. Hence the decision to place strong garrisons in the colonies, including North America, and to support them out of the proceeds of taxes raised locally. This was the motivation behind the rejuvenation of the higher taxation provisions of the Molasses Act in the form of the Plantation Act, which was intended to tighten up imperial trade restrictions and expand revenues simultaneously. (So too was the short-lived Stamp Act.) Then, in 1767 new duties on tea and manufactured goods entering American ports were imposed causing the expansion of tea smuggling that threatened to cost the Boston merchants so heavily when the Tea Act was passed a few years later. A final, and decisive, cause of intra-imperial hostility was the question of the fate of the interior of North America beyond the Appalachians. The Proclamation of 1763 had confirmed the area as Indian territory partly to try to abate Indian hostility and partly to divert the flow of surplus population from the thirteen old colonies to Canada and Florida to swamp the existing French and Spanish populations. In 1774 the Quebec Act not only reaffirmed that the area would be closed to white settlement, but also attached it politically to Quebec. The Quebec Act was an attempt to buy the loyalty of the French population, with its militia organization, and also an attempt to rejuvenate the Indian alliance system the French had used so effectively against the colonies. To do so it confirmed the autocratic and aristocratic character of government and land settlement structures in Quebec while shifting the locus of the fur trade back to Montreal. New York fur traders joined Virginia land speculators in

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outrage, while the East India tea debacle and molasses duties brought Boston merchants into the revolutionary ranks along with them.

The Alliance For Progress The American Revolution began as a civil war within the British Empire but quickly turned into a global crisis as France, Spain and the Netherlands joined the rebellious colonies in an anti-British alliance. The adherence of the European powers to the struggle was the salvation of the American colonies' bid for sovereignty, for militarily they were far weaker than Britain. The European alliance was a direct consequence of the same Seven Years' War whose conclusion had precipitated the series of events culminating in the American Revolution. France wanted to regain a stronghold in India, free access to the American market, and a restoration of power in Newfoundland and West Africa. Spain was determined to expel the British from the Mediterranean and the Gulf of Mexico, and to close the Pacific coastal trade of Spanish America to British shipping. The Dutch co-operated with France in an effort to shut Britain out of the Indian Ocean. France was the principal partner with the American colonies, financing a good part of their military effort and contributing to the naval contest. It had initially focused the bulk of its own labours on the West Indies, but the cost and duration of the struggle there led to a shift in tactics. After 1781 most of the French direct effort against Britain was focused on India, where it hoped to foment a rebellion against British rule and commercial control and then itself seize enough territory to yield revenues that would compensate for its losses in the Seven Years' War. In addition France intended to continue its intrigues in Egypt, where it was already planning a canal to the Red Sea to link the Mediterranean to the Indian Ocean and divert the East India trade away from the African route. Britain, faced with an alliance of such dimensions, had to accept defeat. In the Mediterranean, Spain had regained control over Minorca, though the Franco-Spanish assault on Gibraltar had been repulsed. Britain, convinced that the Mediterranean was of little commercial importance compared to the East and West Indies, offered to exchange Gibraltar for Puerto Rico, but Spain preferred to keep her strength in the Caribbean. France gained considerably during the war. The Treaty of 1763 had reduced her position in the North Atlantic fisheries to the little islands of St. Pierre and Miquelon, and even these were lost in the new war. But in the peace, in response to French gains elsewhere, Britain

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returned the two islands and ceded France extensive rights, though retaining formal legal control herself, over the western coast of Newfoundland. France had initially hoped to demand full sovereignty but opted for the compromise to secure a quick settlement that would divide Newfoundland between France and Britain and leave New England, which threatened both metropolitan fisheries, out of the picture completely. In West Africa France regained the Senegal River area, lost in 1763, and put a partial end to the British control of the slave trade to the French West Indies. France made major gains in the Caribbean but since it really needed no extra sugar-growing capacity itself, it traded everything but Tobago, valued as a cotton producer, back to Britain in exchange for concessions in Newfoundland and West Africa. France also made some gains in India, but the prospect of the complete expulsion of the British from India was still a dream that remained for Napoleon to try to actualize two decades later. The American colonies had made the most clear-cut gains during the war. The treaty of peace required Britain to acknowledge their independence and with it a huge loss of population, territory and shipping capacity, throwing into question the whole structure of mercantilism. It also required that the huge fur trade hinterland, the Ohio Country, be ceded — and the Ohio Country was felt by some imperial strategists to be the only worthwhile part of Canada. The fur trade posts and sovereignty over the Indian nations in the Ohio Country were signed over to the American government.

Britain in America After the Revolution But Britain had certainly not given up its hopes for economic and at least partial political control over the mainland areas of North America. As the Industrial Revolution slowly took shape in the latter half of the eighteenth century the demand for markets for British manufactured goods intensified. The St. Lawrence-Great Lakes system of transportation and communication may have ceased to be the key to the penetration of the Ohio Country for British fur traders, but it could be converted into a conduit for British manufactured goods into the areas of more recent settlement beyond the old thirteen colonies. Kentucky and Tennessee depended on the Mississippi, and Vermont on the St. Lawrence-Lake Champlain route for their trade; and this dependence was to be used by Britain as an instrument for fracturing the frail unity of the new American Confederation. Vermont for several years actually refused to join the American Confederation. Its lands were theoretically owned by New York speculators whose titles threatened the squatter population of the state, while its trade

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flowed to Quebec. For the ten years after the American Revolution that Vermont remained tied into the British Navigation Acts, there were periodic negotiations for its annexation to Quebec. Subsequently the new interior states of Kentucky and Tennessee debated signing a commercial treaty with Britain, ceding it a monopoly of their trade if Spain were thrown out of Louisiana and the mouth of the Mississippi thereby opened. They were thus negotiating a status that was to be the prototype of the ideal early nineteenth century colony from the British point of view: politically independent and therefore fiscally self-sufficient while commercially a British captive. Not until the War of 1812 and the consolidation of the American hold on Louisiana was the fate of the interior states truly settled — and even then British intrigues continued until the Civil War. Thus Britain's defeat in North America was far from complete. It had checked the advance of the American revolutionary forces against Quebec, thereby assuring itself control of the St. LawrenceGreat Lakes waterway system as a means of drawing off the trade of much of the American interior. Continued administration of the vast northern waterway system via the Hudson's Bay Company assured control of much of the rest. And even New England had failed to achieve complete liberation from British rule.

Nova Scotia, Newfoundland, and the American Revolution In 1710 Port Royal and its handful of indifferent defenders had fallen before the New England military expedition headed by Samuel Vetch. The soldiers of the attacking force had been promised preference in the choice of land and trading concessions in the territories they conquered. As leader of the expedition, Vetch proceeded to demand taxes and tribute for his own expenses from the conquered population, offering them protection against plunder and freedom to trade with the garrison if they met his demands, and execution if they did not. Despite this promising start, the early history of British colonization of Nova Scotia was a rather erratic one. Land settlement was plagued by old, unsettled claims that the heirs of bankrupt Scottish lairds dredged up. Politically the quarrels of governor and commander, and of Tories and Whigs in England, kept the garrison town of Annapolis Royal, as the capital of mainland Acadia was now called, in chaos. Militarily it was a mess. The troops, ill-clad, malnourished and routinely robbed by the officers and officials, were like their Louisbourg brethren often in a state of drunkenness or near mutiny or both. The fortifications themselves were so formidable as to once be broached, both moat and ramparts, by a wandering Acadian cow.

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Commercially and financially the early years of the British presence were equally unpropitious. Boston was the great commercial metropole of the area; from its merchants came the stores that sustained the garrison, and to it went the flow of furs that the Micmac traded to the Acadians. From it, too, came increasing numbers of New England ships engaged in the two great Massachusetts staple trades, fishing and smuggling. To keep the garrison going in the face of a lack of capacity to generate local revenue military subsidies from Britain were essential. But delays in the payment of colonial bills were frequent, partly due to the standard disruption of communications that war engendered, partly due to the coming to power of a parsimonious Tory government unsympathetic to the Whig-sponsored campaigns in America. By 1718 the conditions in the colony had degenerated to the point that the troops petitioned the Crown that they had been without proper subsistence for six and a half years, that their clothes were rags although they were charged high prices by the officers for them, and that, when they did see their pay, it was in the form of rum, tobacco and molasses from which the officers made a profit. In 1719 their complaints were joined by those of the chaplain who entreated the Crown to order the officers to pay cash instead of rum, so that the troops would not spend so much time drunk. Conditions in Louisbourg during its brief tenure in English hands were much the same. Delays in paying or properly maintaining the colonial troops brought them to the point of mutiny, particularly since the terms of capitulation had preserved the property of the citizens from plunder. The rum peddlers, often associated directly with the officers, seem to have killed more of the New England troops than the campaign itself had done, and they were aided in this project by the ill-equipped state of the garrison. During the first winter, freezing was often averted only by pulling down and burning houses. The second winter the problem was different: finding enough housing for the troops. Mercifully for the garrison the fort was restored to France in 1748, and the next year the construction of Halifax began. The founding of Halifax in 1749 was a watershed point in Nova Scotia's commercial development. It was the first area of the Maritimes (apart from the theoretically non-existent settlements in Newfoundland) occupied by a British civilian population. Its purpose was to provide a military and naval station to counterbalance Louisbourg, to establish domination of the trade routes, to defend the New England coast, and to serve as a stepping stone for the final assault on the French empire in North America. The military and naval character stamped on the town at its foundation long remained the dominant trait structuring its social and economic life. In addition to the population of about 2,000 soldiers and sailors, some 3,000 London

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paupers were brought out in 1749, about one third of whom died of typhus during the first winter, the bulk of the remainder deserting the first chance they had. Within a year half of the original population was lost: in six years the population had fallen from 5,000 to 1,500. This temperamentality of the population base reflected another important attribute of Halifax: business life and therefore the basis of population growth or decline depended on the volume of British military and naval expenditure. Halifax grew up without a resource hinterland of its own to exploit, dependent on the inflow of funds on military account and the trade that accompanied it. Prosperity and the very size of the town depended on a state of war or near-war: peace meant depression; and in times of peace the cream of Halifax's business class would gather in a local coffee house and denounce the government, calling for "loud war by land and sea". Thus, after the construction boom at the founding of Halifax, peace precipitated population decline until 1755, when renewed war brought prosperity and people back. The new boom lasted until the close of the Seven Years' War, during which Halifax was a rendezvous point for part of the British army and fleet operating in the Americas. Army contractors who worked out of Halifax followed the Quebec campaign and enriched themselves in its conquest. Even better things were to come, as the collapse of French power brought Spain into the war in a vain effort to defend its American empire from British ambitions. In 1762 a British expeditionary force seized Havana and plundered 3 million Spanish dollars. One half of the fleet refitted at Halifax and stayed there over the winter. The $400,000 paid out to the crews as prize money brought peculatory bliss to the merchants of Halifax. But the year 1763 brought yet another depression as peace broke out, destroying the basis of Halifax's prosperity. The business class that grew up in Halifax reflected its peculiar commercial orientation. Apart from the port becoming a haven for adventurers, the business population could be roughly divided into two groups according to size and political influence. Most numerous were the saloon keepers (who were often whorehouse keepers as well). This group was frequently composed of retired soldiers and sailors whom the government had tried to settle on farms, but who, like those at Quebec, preferred to live in the city. Groghouse keepers were once estimated at comprising 75% of Halifax's business community. The state of dependence of commercial prosperity for this group on the state of hostilities was evident. When the fleet was in, the dramshops and bordellos thrived; when it was out gloom descended on the business district of Halifax. The rest of the group of "small" businessmen was largely made up of fishing boat captains, living and selling their catch in Halifax, financed by Halifax fish houses, and fishing (or

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smuggling) off Canso. Fish was the only product of Nova Scotia to assume any real importance in the province's external trade. "Big business" in Halifax consisted of a handful of merchants, numerically small but politically strong, involved in one, or often several, interrelated fields of enterprise: piracy, wholesaling of smuggled goods, army and navy contracting, the West Indies trade, fish exporting, and, after the turn of the nineteenth century, shipbuilding. Most of these professions too showed a profound sensitivity to the state of war and peace. In the years before the American Revolution Nova Scotia was merely the northernmost extension of commercial New England, and fitted that region's trade pattern. The merchant elite who came in response to the prospects of profit from the Halifax building boom and the Acadian deportation were largely New Englanders. What was different about Halifax was its military character: the big influx of British government subsidies to construct and then maintain the garrison town, and the military nature of the political oligarchy that ran it. Thus while commercially it was tied to New England, politically and -militarily it was a British power base in the restless northern colonies. As early as 1759 Benjamin Franklin warned that the despotic character of Nova Scotia government would be a model the British would use, if they could, for all of the North American colonies, and that militarily, Halifax was a major threat to American political liberties. For New England the military nature of the colony may have been a political liability, but economically it was an asset. It was the influx of funds on military account that made New England's commerce with Halifax work. New England needed sterling exchange to cover its trade deficit with England; Nova Scotia needed a source of supply of basic requirements, food and rum in particular, which New England could provide. The influx of sterling into Halifax was therefore drained off to New England to help cover its remittances to England. Nova Scotia was also becoming increasingly attractive to New England as a fishing base. New England had not been able to compete with Newfoundland for the European market until it could buy contraband fish from Louisbourg. But Nova Scotia formed an advance base from which New England hoped to break into the European trade. Moreover, its coastline — abundant natural harbours and beaches, and timber close to shore — and its proximity to the fishing banks were added advantages. Though a settler class of mainly British origin was beginning to take shape, Nova Scotia's population of fishermen and merchants were largely emigre Yankees, and Nova Scotia was a scene of some republican agitation. At the time of the Stamp Act the merchants

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burned an effigy of the local stampmaster and hung an old boot in a gallows, a reference to George Ill's favourite, the Earl of Bute. During the actual course of the American Revolution the only British garrison in the province outside of Halifax, at Port Cumberland, was fired upon by Nova Scotia rebels. But revolutionary sentiment was not very strong in Nova Scotia. Unlike many of the American colonies, here there was no great landed planter class deeply in debt to England. Moreover, the New EnglandEngland rivalry over trade within the empire was absent — Nova Scotia had no independent merchant marine. To the extent Nova Scotia merchants aspired to "independence", it would be to free themselves from the commercial tutelage of New England. The Revolution for those so inclined was an opportunity to try to assume New England's role in the mercantile system in providing temperate products and cargo capacity for the imperial trade network. Among Nova Scotia's class of small businessmen, innkeepers were the overwhelming majority — and they hardly constituted a revolutionary profession given that the American Revolution was followed by an upsurge in naval activity in and around Halifax. The Revolution too led to rising land values in the province as the naval presence made it seem much more secure in the eyes of British speculators than the other colonies. Similarly, Nova Scotia's government paper, which in 1774 had been at a 40% discount in terms of its nominal specie value, appreciated as a result of the supposed "loyalty" of the bulk of the population — in contrast to American colonial government whose paper was rapidly depreciating. Finally, the war meant tremendous potential for short-run profiteering — with longrun consequences. The military supply contract business was sufficiently profitable to drain the province of foodstuffs and drive up local prices, a development made all the worse by the drawing off of much of Nova Scotia's already deficient farmer population into the militia. In addition, piracy directed against New England ships flourished. Piracy and the naval contracting business helped lead to the development of a local class of merchants free of New England control and with liquid wealth accumulated and ready for alternative investment after the war, at exactly the point when Britain planned to exclude the Yankee merchants from the imperial trade. Nova Scotia thus was poised to inherit the American role in a mercantile empire that the American secession and the nascent Industrial Revolution had already largely undermined. Further afield, the upheavals of the late eighteenth century actually moved inadvertently to consolidate Britain's hold on Newfoundland despite the apparent setback from the French gains at the end of the American Revolution. The consolidation resulted from the effects of

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the war in counteracting declared policy, and further entrenching the position of the settler population while the Anglo-French accord served to block American aspirations. Newfoundland's prosperity peaked between the mid-eighteenth century and the outbreak of the American Revolution during a period of general boom in the colonial trades, not least in the slave trade and therefore the trade in refuse fish to the West Indies. By 1763 too the French dry fishery in North America was crushed and the French were threatened with complete loss of the Mediterranean market where the dry cured fish were sold. Both resident and migratory fishermen, both the inshore fishery and the bank fishery flourished. Nonetheless the end of the Seven Years' War saw another plan hatched by the West Countrymen and the co-operative governor, Hugh Palliser, to drive out the settler population and to seize the Labrador seal fishery for the West Country interests. Palliser engineered the deportation of some Irish refugees, and was the inspiration behind a new Newfoundland Act in 1775 that banned the bringing of settlers to Newfoundland and instituted imperial subsidies to the itinerant fishery. It was a blow aimed as well at New England, which controlled most of the trade and the money market of Newfoundland, a blow struck just on the eve of the American Revolution. War broke up the migratory fishery, and the share of the catch taken by the resident population rose at a time when the settled population began outnumbering the annual migration. It was a vital conjuncture of events. But from another point of view the island was very vulnerable. War meant the end of New England provisions on which the Newfoundland settlers relied. In 1774, 175 New England trading ships venture to the island; in 1775, 60 came; in 1776, only 3. From that point (officially) all trade with New England ceased as New England vessels turned from trade to privateering off the Newfoundland coast. Food prices rose precipitously; famine stalked the island; and the hapless population, specialists in the production of refuse fish for the slave plantations, were reduced to the desperate point of a diet comprised almost entirely of their own fish. Much of the outports' population moved to St. John's looking for food, work, protection from American raiders, and a passage off the island. British North America was as yet too underdeveloped to replace the Yankee traders in provisioning Newfoundland; and the supply lines with Britain were often disrupted. As a result, a concerted effort was made to till the soil of Newfoundland and raise vegetables, a fact which in conjunction with the evolution of a dominant merchant class would lead to even more vehement demands for the institution of property and commercial law on Newfoundland.

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Commercial law was effectively non-existent at a time when the settler population was heavily in debt to the merchants. The debts deepened steadily through such devices as the merchants forcing the population to buy excess stocks of unwanted goods or face having the original debt called. The absence of legal apparatus meant that debts were collected by force, with the strongest creditor generally successful in seizing the debtor's property. The forcible debt-collection process led to the emigration of debtors, for the alternative of staying in Newfoundland meant either virtual enslavement to the merchant to whom money was owed, or starvation if he refused renewal of the loan: Flight prior to the American Revolution was rendered easier by the traffic in indentured labour that the Yankee captains ran between Newfoundland and New England. Those who did not flee might try to earn money in Newfoundland to settle the debt. Fishing was of course an instrument for deepening rather than alleviating debt; hence the search for cash to pay off debts led to a rash of entrants into the grog vending business. Rum was sold to the migratory fishermen for cash or for barter from stores, homes, or even boats. It was estimated in 1726 that of 420 families permanently residing in Newfoundland (family formation was of course the exception in a society where women formed 10% of the permanent resident population), 65 kept public houses, of which 46 were in and around St. John's. The legal system, such as existed, was under the domination of the fishing admirals, who conducted it in self-serving ways. Their laxity in the face of all but threats to their immediate self-interest meant that violence escalated, smuggling was rampant, and private property was notoriously insecure. Not until 1729 were there any resident government institutions; and then the governor was an autocrat appointed from England without an assembly or even a council, who functioned primarily as commander-in-chief of the armed forces and only peripherally as the administrator of a system ofjustice. Furthermore, such courts and magistrates as were established had no authority over the marine activities of the migratory fishing fleet. In the aftermath of the war the reactionary Lord North, caught up in the tide of resentment against white colonies of settlement, made England's last desperate effort to depopulate the island of its settler population. North instructed the governor to make life miserable for the setders. With official encouragement, the migratory bank fishery underwent a rapid expansion; but in a few years a glut offish caused a collapse of prices and a string of bankruptcies. It was followed by the outbreak of the French revolutionary and Napoleonic Wars, from which the migratory fishery, like so many of the other basic structures of English mercantilism, never recovered.

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Once again the treaty of peace had simply provided time for recuperation before the next round. In addition to the questions of control of the Mississippi, the St. Lawrence waterway system, and the North Atlantic fisheries, British policy to exclude the newly independent American colonies from the West Indies trade was a continued major irritant to commercial, and therefore political relations. The parts of North America which remained in British hands were threats to the commercial development as well as the military security of the new state. Furthermore, for France, secure in its control of world sugar markets, the East Indies, in which the British assumed an everincreasing presence, were the next target for imperial expansion. The potential Franco-American alliance against Britain was further consolidated by ideological ties after the French Revolution. Hence Britain's decision in 1793 to attempt to undermine the Revolution and restore the political and social ancien regime in France, just as it had been attempting to do in Canada, at a time when revolutionary economic changes were in progress that would shatter the ancien regime forever, in England as well as abroad.

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Ill The Age of Industry

Spanish America is free and if we do not mismanage our affairs she is English. Canning, 1824 Free trade means freedom to all the parties concerned, not to two parties at the expense of a third who is kept down by one of them. William Lyon Mackenzie, 1833 It is the business of Government to open and secure the roads for the merchant. Palmerston, 1841 You can form no idea of the manner in which a Colonial Parliament transacts its business. I got them into comparative order and decency by having measures brought forward by the Government, and well and steadily worked through. But when it came down to their own affairs, and above all, to the money matters, there was a scene of confusion and riot of which no one in England can have any idea. Every man proposes a vote for his own job; and bills are introduced without notice, and carried through all of their stages in a quarter of an hour! Lord Sydenham, 1840

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11 The Industrial Revolution and the Colonial System

THE MAIN STRUCTURES OF MERCANTILISM WERE shattered by the American Revolution. In its wake, William Pitt briefly led the forces of trade liberalization, seeking to assure that the newly created United States of America would remain a commercial tributary of the empire. Ranged against the liberals was a powerful array of reactionary business interests buttressed by a political system heavily weighted in their favour. In British politics, the term "bill" was an appropriate one for a piece of legislation in the works, for there was usually a price that had to be paid to assure passage. The old regime of Charles Fox and Lord North, politically allied with George III, ruled through their control of "placemen" and the distribution of bribes and government offices to the members of the House of Commons, and they could rely on the more or less automatic allegiance of the antediluvian elements among the landed aristocracy in the House of Lords. Pitt's economic reforms therefore had to go hand in hand with political changes. First, he stacked the House of Lords with a series of new peerages; second, he abolished a large number of salaried officers of the government who sat in the Commons and automatically voted for the government; third, he banned government contractors from sitting in the House and disenfranchised a number of "revenue officers" who had to vote for a government candidate or be fired. So sweeping were Pitt's reforms that at the end of them fully 25% of the seats in the House of Commons of the Mother of Parliaments were now subject to election (although the voting list was limited to well-to-do males in some old, established communities). But political reform, and the economic reform that accompanied it, soon ground to a halt. As a system of power on both political and 147

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economic levels, British mercantilism attempted to function as if the American Revolution had never happened, until the French Revolution, the Industrial Revolution, and the ensuing wars brought it to an agonizing but inexorable end.

The Mode of Production Through the centuries the groundwork for an industrial revolution in England was gradually put in place. When it came it represented not just a sudden increase in the rate of production, but a revolutionary change in the mode of production itself. The factory system generalized by the Industrial Revolution represented the advent of the age of industrial capitalism that forced the restructuring of the British empire, that shook the existing political and social pecking order inside Britain, and that in its initial stages brought with it social catastrophe for much of England's population. Production for the market, as distinct from household manufacture, was organized in the pre-Industrial Revolution period on three principal lines. For most of the skilled trades, the norm was the artisanal shop in which a master craftsman supervised and trained journeymen and apprentices, and in which one specialized product was produced. Division of labour was rudimentary, and mass production methods generally incompatible with artisanal techniques. When mass production did take place it usually assumed the form of the domestic or putting-out system. This was especially prevalent in the old wool-cloth industry, England's long-standing staple export. The merchant who controlled the process leased raw materials, and often tools as well, to workers, especially in the rural areas. The workers, often entire families, were immobilized in country cottages that formed domestic sweat shops, trapped by debt to the supplying merchant. Division of labour took the form of the materials being moved from one set of workers to another, each performing in turn a higher function on the processing chain until at last the merchant received the final product and undertook its marketing. Thus, while the artisanal system of production was associated with small groups of skilled operators working on a single product usually for direct sale on local retail markets, the putting-out system presupposed mass markets for a basic commodity amenable to subdivision of labour and controlled by a wholesale merchant at both ends. While these two modes of production predominated in industry before the Industrial Revolution, there could also be found some instances of factory-type organization in fields where a mass of labour

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was required for production at a single point in space — mining, shipbuilding and the like. But factory-based mass production was the exception until the Industrial Revolution, at which time the factory system quickly overwhelmed the traditional modes of production. For much of the British population the Industrial Revolution was a social catastrophe. Although the switch to inanimate power sources, long production runs and product standardization meant tremendous gains in productivity, the distribution of these gains largely bypassed the working population. Until the era of mass industrialization, the great bulk of the population lived on the land and from the land, supplementing agricultural incomes with some casual labour. The Industrial Revolution inaugurated a demand for a mass of unskilled labour, a switch in the distribution of population from the rural to the urban centres, and therefore the modernization of agriculture to yield a flow of surplus food to be distributed to the new urban proletariat. The answer to all of these problems at once came from the agricultural revolution that coincided with the industrial one. Lands for commercial tillage were enclosed, at the same time rapid population increase took place. The result was that many among the rural population lost access to the traditional small plots of land. Part of the "free" labour force was reabsorbed as a rural proletariat; the rest formed a cheap labour pool for urban industry. The era of mass industrialization was one of downward pressure on wages, of growing industrial crises, and massive unemployment. For the agricultural population it coincided with a wave of evictions. Within this happy context the appetite of capitalists for accumulation manifested itself in lengthening of the working day, child labour, and the brutality of the early factories, many of which were built in the neighbourhood of prisons and workhouses. While income per family probably rose, it was only because family size itself increased in response to the demand for child labour and because more family members were therefore involved in earning wages; income per head more likely fell. Furthermore, the rural family, dispossessed and converted into urban workers, now had to buy on the market items formerly produced at home and hence might be materially poorer even if its money income was higher.

The Commercial Revolution A fundamental precondition for factory-based mass production was the existence of suitable large-scale markets either at home or abroad. This was one reason why the Industrial Revolution occurred first in the textile industry. However, it was not the old staple export of wool-

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en cloth in which the revolutionary transformations first occurred: rather it was a newcomer, cotton textiles, based not on an abundant domestic raw material but on an imported tropical product. The turning point seems to have come during the Seven Years' War, when supplies from India were disrupted by hostilities. Simultaneously, successes in the Caribbean drove up the demand for slaves as English traders rushed into the French West Indies slave trade. Cotton cloth was, along with rum, firearms and iron products, a vital trade good for the acquisition of slaves. The earliest English cotton factories therefore sprang up near Liverpool, the important slave trading port. At the same time the British West Indies, faced with the unexpected competition of French sugar (from captured islands) even on domestic markets during the war, began switching partially to producing raw cotton. A new trade triangle took shape: raw cotton and molasses from the Caribbean to Liverpool, manufactured into cotton cloth and rum for re-export to the West African ports to be exchanged for slaves to be carried to the Caribbean and sold for sugar, molasses and cotton. Between 1750 and 1770 cotton exports from Britain rose 1,000%, of which 90% of the increase went to the British imperial market — the American mainland, West Africa and the West Indies. By 1790 the demand for raw cotton had outdistanced the producing capacity of the British Caribbean, and the stage was set for the reintegration of the southern American mainland states into the British imperial trading system. With the woolen industry, the essential raw material demanded scarce land in England for its production at a time when European wars increasingly required the conversion of English land to tillage to assure a food supply; and the manufacturing process was controlled vested interests. But the supply of raw cotton was flexible, as an expanding American frontier left behind it a trail of slave plantations. Cotton furthermore was a new industry unencumbered by traditional production techniques or marketing patterns. While the rapid spread of cotton plantations into the American southwest ended any hope of Britain seizing political control of the area, it did ensure that its industrial hegemony would be strengthened. In effect the American Revolution was a vital stage in the development of the Industrial Revolution in England, throwing open for the production of industrial raw materials the continental interior that British mercantilism had tried to keep closed. The southern cotton plantations became as dependent as had their tobacco-producing predecessors on British markets, British capital and British manufactured goods. If the raw material demands of the new industrialism tied Britain into a tropical trading pattern, so too did the marketing of the final output. While Britain's domestic market in the pre-Industrial

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Revolution period was large relative to Western European norms, bolstered as it was by the loot of India, the profits of the slave trade, the spoils of the Americas, and the returns from its early success as a trade entrepot and wool exporter, its wealth was very unevenly distributed. The wealth of the East India Nawabs, West India planters, and Liverpool slave traders could sustain only a limited demand for a mass-produced commodity like textiles. Nor could the working class be much relied upon. While the dispossession of a great horde of agricultural population that formerly sustained a large part of its needs by domestic manufacture meant their integration into a market economy as an urban proletariat, they were collectively too poor to purchase all of their own output. The result was to further increase the importance of colonial markets. The period from 1689 to 1815 was virtually one prolonged war for colonial empire. While the objectives of wars were mercantilist, they had industrial consequences, since they ended (apart from the brief check during the American Revolution) in British victory, British imperial aggrandizement, and the control by Britain of large colonial markets, which grew even larger in the early nineteenth century. They also necessitated reconsideration of British colonial and trade theory. During the brief Pitt reform era, the essential, even if implicit, principles were the switch from prohibition to protection in commercial policy, and with it the notion of reciprocal tariff reductions between trading partners. The liberal theorists argued that trade, not dominion, should define Britain's relations abroad. At the time, Brazil was the principal source of raw cotton for British manufactories; Portugal therefore exported Brazilian cotton to Britain but refused to permit a return flow of finished products, since they would compete with Portugal's East Indian imports. Manchester and Glasgow factory owners pointed out to the Portuguese that Portugal paid in specie for Indian cotton, and that the exchange of Brazilian raw cotton for Manchester finished cloth would eliminate that drain. But the Portuguese were not swayed by this argument. Nor were the most powerful elements in the British business establishment. Though the mercantilist counterattack was strong and successful, the very progress of the industrial revolution forced some modification in commercial policy. From the time of George III on, the concept of an informal empire built on economic hegemony without formal political ties gained steadily more adherents. Colonial policy therefore became increasingly concerned with trading posts rather than plantations or colonies of settlement. Free ports at Jamaica and Trinidad were to serve as bases for breaking into the Spanish American trade, the Bahamas likewise for Cuba; and Halifax, Nova Scotia and St. John, New

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Brunswick for the American Atlantic coast. At the same time, Britain challenged the Spanish hold on the Pacific and tried to keep control of the St. Lawrence as a means of tapping the trade of the American interior. The flow of trade envisaged in these arrangements, however, was still one way — the mercantilist notion of commercial advantage measured by trade balance surpluses still prevailed. British goods based wherever possible on imperially supplied raw materials were to go to foreign markets with no presumption of the desirability of a return flow. The political triumph of notions of reciprocal gains from trade had to await the advent of full-scale industrialization.

Investment in Industrial Development The industrial transformation also required a radical change in the traditional patterns of investment behaviour. Direct investment of the accumulated wealth of the old colonial system was typically in traditional lines of endeavour. "Gentlemen" were expected to invest in landed estates; they also refinanced overseas business, especially during the great colonial trade boom of the eighteenth century, put their money into government bonds and — frequently the most lucrative investment of all — bought seats in Parliament. As long as the returns from these established patterns were steady, the old aristocracy tended to avoid risking their wealth in new ventures, such as mills and factories. Socially, therefore, the Industrial Revolution had to be associated with the rise of a new entrepreneurial class from outside the traditional business elite. Fortunately in the early years of factory enterprise the fixed capital requirements were low, and hence so too was the need for outside investment. Because of the relatively small scale of fixed investment required, the main problems of early industrialism could be solved by men of modest means. Small local country banks, often set up by industrial entrepreneurs themselves, were one source of capital. Suppliers who advanced goods on credit were another important source of short-term funds. Fixed capital could be acquired by taking in new partners or borrowing within the tightly knit family structure that gave much of early industry the character of family enterprise. While all these were important sources of financing, especially in the formative stages, on-going requirements for accumulation were met overwhelmingly by self-financing, by ploughing back profits into the enterprise. Such a development was abetted by the fact that the new industrial class was composed of men from outside the traditional social elite who had imbued doctrines of thrift and self-help and eschewed luxury consumption.

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But the reliance on self-financing meant that profit margins had to be kept high. The only way to assure these profits was to slash labour costs. Wages fell, the working day lengthened, child labour proliferated. The larger the share of national income frittered away by the old elite, the less available for investment in plant and equipment by the new elite, and the greater the need to push down wages. Hence for the industrial classes the Industrial Revolution was a social catastrophe, just as it was for the agricultural population whose dispossession went hand in hand with the rise of the new industrial order.

12

Competition for Empire, 1793-1832

THE NINETEENTH CENTURY, the industrial century, belonged to Britain, whether its working population liked it or not. France, its chief rival in the struggle for mercantile empire throughout the previous century, was left behind. Throughout the eighteenth century France's colonial trade actually grew faster than England's as its sugar islands flourished — until the Seven Years' War. Britain's success in that war and in regaining economic control even of areas it lost politically in the counterattack of the 1780's was the real difference between them. Britain's colonial market was larger, and growing. France's empire was still based essentially on the production of tropical staples, especially sugar, for re-export to Europe. The contest for empire between Britain and France continued throughout the latter part of the eighteenth and early part of the nineteenth century with only periodic pauses. Whatever the shifting alliances and the changing patterns of war, the basic antagonism remained constant, as did the pattern of French triumph in Europe and English victory in the colonial sphere. But unlike earlier conflicts, the two points were inextricably interrelated; and economic factors, particularly the capacity to disrupt the enemy's commerce, were recognized to be at least as important as purely military considerations in deciding the final outcome. France, especially under the later direction of Napoleon, aimed at closing the European market to British goods, breaking up the British West Indies trade, wresting control of India, and encouraging the American mainland to complete its revolution by seizing control of the St. Lawrence-Great Lakes and Mississippi waterways systems. Loss of Britain's principal markets and its carrying trade would drain its specie supply, undermine its 154

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public and private credit and therefore its ability to wage war and finance an anti-French alliance in Europe, and engender heavy unemployment, thus speeding the course of social revolution inside Europe's principal bastion of reaction. The first few years of war saw a stalemate in Europe, and the action switched to the Caribbean. Despite enormous losses on both sides, the early Caribbean contest was indecisive. Napoleon then switched the focus again, this time to India. Checked there in turn, France redoubled its efforts inside Europe, hoping to seal it completely from British products, thus destroying the source of foreign exchange Britain used to finance the military effort of its allies and to buy timber for shipbuilding from the Baltic. By crippling the English re-export trade in colonial products to Europe — through depriving it of markets and of the capacity to build the ships to carry the goods — France hoped to render England's victories in the colonial sphere empty of value. But while British exports no longer made their way to French ports, France in turn found itself blockaded. France's own colonial trade dried up in the face of British victories overseas and naval power in the European theatre. Its great seaports went into a long-term decline. By 1806 Napoleon's victories in Europe were as complete as his defeat elsewhere. He had seized northern Germany and the old Hanse ports, driving Britain out of the Baltic trade, thus cutting off important markets for its manufactures and hitherto vital sources of timber and grain. Then, to plug up his Continental System completely, in 1807 he invaded Iberia. Britain responded by seizing control of the trade of Spanish and Portuguese America, and in 1808 almost all of the French West Indies and French West Africa fell to British forces. Napoleon's Continental System was initially a great success. British exports to Europe did indeed collapse, though energetic smuggling kept it from being total. When Europe was closed, Britain looked increasingly to the colonial market, both its own and the captured French, Dutch, Spanish and Portuguese areas. But while some relief was found in exports to South America it was not enough, and British control of the Spanish and French colonies had meant a pileup in Britain of sugar, tobacco, and other colonial staples also without re-export markets. The drain of specie to finance the imports of grain and timber threatened the solvency of the British financial system. Lack of markets spread unemployment throughout the industrial regions and sparked the Luddite riots. But the victory for the Napoleonic strategy came too late. Russia's decision to break from the Continental System in 1810 led to Napoleon's invasion and the consequent eclipse of his military power in Europe before he could capitalize on Britain's economic difficulties. While Napoleonic France ceased to be Britain's principal antagonist

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for overseas empire, the struggle to settle the question once and for all had destroyed the underpinnings of the mercantile systems of both states, particularly their Caribbean foundations.

Sugar, Slaves and Empire One of the central aims of Britain's war strategy was to recapture control of the world sugar market that it had held from the time of the Seven Years' War until the Franco-American alliance broke it two decades later. While the American war of independence led to a major, if brief famine in the British West Indies, the French islands underwent phenomenal growth; and France after 1783 recovered its position on the Senegal River enabling it to provision its own islands with slaves. By 1791 French sugar cost less than a quarter of that of Jamaica. Furthermore, while wars disrupted the flow of supplies to the British islands, American traders moved into the gap left in the carrying trade of the French and Spanish ones, using their neutral status to continue to move French and Spanish colonial produce to European markets in the face of the English blockade, and supplying these islands with slaves. Hence the naval disasters that befell France early in the war did not cripple its colonial trade. One possible strategy for Britain was to seize the French islands once and for all. The French revolution presented both an opportunity and, because the revolutionary forces also opposed the slave trade, an incentive. The struggle between revolutionary and monarchist forces soon reached France's colonies, at once destabilizing them and alerting the British to the threat of the spreading revolutionary contagion. A secessionist movement in St. Dominique, encouraged by the British, was stopped by a rising of slaves and a French revolutionary army, and the surviving white planters fled to the Spanish and English islands. The British response was to attempt to seize St. Dominique, both to secure it permanently for the empire and to try to prevent the emancipationist infection from spreading. A revolt in Jamaica in 1795 was met with vicious reprisals, the deportation of "Maroons", the Black Jacobins who had risen against Britain, to Nova Scotia, and a renewal of the campaign against St. Dominique. Six years of war succeeded in destroying much of its productive capacity. St. Dominique, the jewel in the French imperial crown, had been economically ruined. Britain intended to keep it that way; economic recovery of the island would have meant simultaneous recovery of the French sugar trade, for Napoleon in 1802 had decreed the reimposition of slavery. The British seized the rest of the French West Indian islands, cap-

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tured the Senegal River area, and in 1807 abolished the slave trade. Since St. Dominique needed 40,000 new slaves a year, abolition of the slave trade would block the island's commercial recovery. It also struck a blow at the American carrying trade, which was a second major preoccupation of the British strategists.

The Unfinished Revolution The role of New England merchants and shippers in the British imperial trading system, particularly with respect to the commerce of the sugar islands, had been a major exacerbating factor in the economic tensions that precipitated the American Revolution, and continued to vex Anglo-American relations after it. The withdrawal of the Thirteen Colonies from the empire had taken with it a third of the imperial merchant marine, causing acute problems of supply for the West Indies, and throwing into question Britain's largest single market for manufactured goods as well as its source of supply of tobacco, rice and other re-exportable staples. How to reconstruct the empire was a major preoccupation of British politicians. Some worked for the establishment of a reciprocal trading arrangement with the newly independent states. Principal among the doves seeking liberalization of the Navigation Laws in favour of the United States were the powerful West Indies planters, normally among the most strident in their demands for strict rules governing imperial trade. The change in heart was not due to ideological mellowing, but to the disruption caused by the loss of American supplies. The planters were joined by manufacturers who recognized the importance of the United States market. The hawks were the carrying trade interests happy to see the end of Yankee competition, the West Country fishing industry, and the authorities in the colonies of British North America that had remained loyal and now demanded a financial quid pro quo. Canadian witnesses before the Committee on Trade stressed its potential as a supply base to replace the departed colonies and extolled the possibilities of the St. Lawrence waterway system. It was a natural outlet for all the timber cut in the area, including the Lake Champlain region, and therefore commanded the trade of Vermont. It was said furthermore to have great grain-producing potential once Loyalist farmers were settled there. Thus they visualized the supply base of the West Indies simply shifting northward, as the fur trade had done, with the empire otherwise carrying on as before. The decision in 1783 was in favour of the hawks: the United States was to be excluded from the imperial carrying trade, although Ameri-

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can goods were still deemed necessary for the West Indian trade since the remaining North American colonies were not yet able to replace them. Britain felt it could keep control of the United States market for its own manufactures while excluding American shipping from the imperial carrying trade. American goods would find Caribbean markets through British North America which in turn, particularly through the St. Lawrence system, would serve as a conduit for the return flow of British manufactures into the American interior. American grain from the new farm states between the Alleghanies and the Mississippi, as well as American timber from Vermont, would have to pass through the St. Lawrence system. The American south would continue to export its staples to Britain for re-export. British political control, though informal, would follow the continued economic subordination of the south, the western interior, and Vermont through British control of the markets, credit and transportation systems on which they depended. New England would be isolated. The strategy failed. American manufacturers had developed their businesses during the de facto protection afforded by the NonImportation agreements prior to the war of independence, and by the disruptions to trade during and just after the war. They demanded further protection from British imports. The various states too were desperately in need of revenue, and both politicians and businessmen agreed on the desirability of stopping the drain of specie to Britain that America's adverse trade balance was causing. The result was the passage by many states of tariff restrictions on British trade. In 1789 a stronger central government was formed with the power to control the western interior and formulate a common policy toward economic relations with Britain. Vermont opted for the American federation. The St. Lawrence turned out to be of little value as a trade conduit without extensive and expensive canals. And the interior question too was soon settled in America's favour. The outbreak of the French Revolutionary wars led to a further souring of Anglo-American commercial relations as Britain harassed neutral shipping to impede French colonial trade. But a temporary truce was inaugurated with Jay's Treaty of 1794. In return for an American commitment to stop further discrimination against British goods, settle outstanding debts, and compensate the Loyalists for losses during the Revolution, Britain agreed to withdraw its military presence from the Ohio Country, open up the West Indian trade to some American ships of low tonnage carrying fish and other foodstuffs for the slaves, and grant some concessions in the British imperial far eastern trade. A further commercial concession was made in 1797, and Anglo-American commerce grew quickly until by 1803 the Unit-

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ed States once again absorbed a third of British exports and dominated the carrying trade to the West Indies. At that point economic relations between them began to deteriorate once more. The problem was an old one: to maintain its level of purchases from Britain, the United States had to trade with the French and Spanish Caribbean as well as the British islands. Britain maintained a military alliance against Napoleon inside Europe by exporting funds in the form of bills of exchange which American traders acquired by selling in Europe Spanish and French colonial products: the bills in turn would be remitted to Britain to cover American imports. Hence maintaining its level of purchases from Britain required that the United States also maintain the French and Spanish colonial trade that Britain was trying to stop by destroying French and Spanish shipping and blockading their ports. The British merchant marine was angered over the growing American control of the Caribbean colonial trade, while the British government saw its economic blockade being sabotaged by the use of neutral American ships. Hence in 1804 American ships were again banned from the British West Indies, including the captured French and Spanish islands — by 1807 the British West Indies constituted virtually all of the islands except the prostrate St. Dominique. At the same time shortages of seamen led to the British press gangs intensifying their depredations on American ships in search of British sailors fleeing the delights of His Majesty's service. With Napoleon's Continental System virtually complete the British responded by stepping up their own blockade and imposing further restrictions on neutral shipping. The American response began in 1806 with the Non-Importation Act to attack British exports to the United States, and it was followed in 1807, with Jefferson and a more pro-French party in power, by the Embargo Act. Together they aimed at depriving Britain of its most important customer and of one of its most important sources of raw cotton. But it was the United States itself which would suffer the most. A massive commercial depression hit the New England ports (which were anti-Jefferson in any event), only partially alleviated by the rapid growth of smuggling, particularly to Florida, to Passamoquoddy Bay in New Brunswick, and into Canada along the old Albany-Montreal contraband route. Halifax in particular became a thriving centre of the West Indies trade based on smuggled American products. While the American retaliatory measures did cause a cutback in British exports just at a time when the Continental System was beginning to bite, the British partly compensated by seizing commercial

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control of Spanish America. Unable to extract concessions from the British, the United States repealed the Embargo Act. In 1812 the United States embarked on a new strategy against Britain: war. The War of 1812 had a number of objectives, apart from retaliation against the harassment of American commerce. It aimed at extracting permanent commercial concessions in the West Indies, at consolidating militarily the earlier sale of Louisiana to the United States by Napoleon, and at taking control of the St. Lawrence waterway system. Its results did not meet these expectations. The crisis in the American carrying trade got worse as the British navy blockaded the ports from New York on south — leaving New England open for illegal imports into the United States and for the movement of American goods to Halifax for trans-shipment to the West Indies. Though the U.S. did secure final control of the interior by consolidating its hold on Louisiana, the St. Lawrence system eluded it. Furthermore, the question of American trade to the British West Indies was still not firmly and finally solved, though in the long run the question itself lost importance as the British West Indies continued to stagnate while the centre of imperial gravity moved east.

India and the Rise of Industrial Capitalism While the diplomats hammered out the final terms of the Peace of Paris that ended the Seven Years' War, terms that presaged a farreaching change in Britain's concept of economic empire, events on the other side of the world had already begun the process of shaping that new empire. Like Columbus before him, Robert Clive was an unconscious revolutionary whose sole ambition was the very modest one of plundering a continent and returning to the metropole to squander the take. The Bengal campaign seemed to do the trick. In addition to a personal stock of wealth that he acquired as his share of the immediate loot, he transformed the nature of the British presence in India. The actual acquisition of a territorial base in India eliminated the classical mercantilist dilemma, and hence represented a milestone on the road to the complete overthrow of the mercantile system itself. The traditional problem of East-West trade had been the balance of payments, the fact that eastern trade demanded an outflow of silver from the European metropole. Bullionism had sought to completely block the exodus; but the East India Company pamphleteers had propagandized that the crucial variable should be the net balance of bullion flows, and in so doing had articulated one of the major theoretical differences between bullionism and mature mercantilism. However, even while the India trade ceased to cause a net drain, with the yield in specie on the sale of cottons and silks in Europe more than

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covering the cost of their acquisition, the China trade remained a problem. The conquest of Bengal in 1757 provided the key not only to eliminating the net drain of specie from Britain for the China trade, but even produced a situation in which the India trade could be conducted with little or no movement of specie from England at all. By becoming a territorial power and a feudatory of the Moghul emperor, the East India Company acquired the right to raise tax revenues inside Bengal. The tax receipts would be used to purchase silks and cottons for export to England, thereby eliminating the need for remittances of specie to India, and part of the tax proceeds in silver could be sent to China to cover tea purchases there. Then, during the Industrial Revolution, an even more advantageous arrangement emerged. The shift of focus from the West to the East Indies signaled the transition from mercantilism to industrial capitalism in Britain, from the economy of sugar and slaves to that of cotton. Up until 1813 India continued to run a trade surplus with Britain, exporting its luxury cotton fabrics and other coveted products and importing few goods in exchange. But the end of the war with France found the cotton industry in a massive depression. To stave it off the East India Company monopoly was abolished and India thrown open to a flood of cheap machine-made Manchester cotton, swamping the Indian artisanal cotton producers. In the period before the end of the Napoleonic War India absorbed no British cotton goods at all: to the extent the colonial markets were essential for the industry they were West Africa, the West Indies, and, especially after 1807, the Portuguese and Spanish colonies. In 1815 India took 6% percent of British cotton exports; in 1840,22%. By 1873 fully 60% of British cotton exports went to India. In response to the paradoxical reversal — India, the provider of luxury cotton for re-export during the Age of Mercantilism transformed into India, the principal market for cheap machine-made cotton in the Age of Industry — the Indian balance of payments went into deficit. Weavers as a class were wiped out in India just as they were in England by the rise of industrialism. While Indian luxury cotton products did not completely vanish from trade, they were largely displaced from their traditional markets by the rise of Manchester and the subsequent development of a continental European industry. China in fact became the most important single market for Indian cottons as the East India Company responded to its loss of trade monopoly in India by pushing its commerce further to the East.

Long-Term Effects of the Industrial Revolution Mercantilism was predicated on the struggle of England and France for control of Spanish American trade and silver, and for dominance in the European market for luxuries and tropical staples — furs, In-

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dian cottons, sugar, spices — that would yield specie in return. While mercantilist enterprise stretched from the spice islands of the far east to the Spanish Main, its foundation was in the West Indies. The rest of the empire fitted itself around the Caribbean plantations which in turn were molded to further metropolitan political and economic objectives in Europe. By 1815 all that had changed. For Britain the primary impetus to change came from the Industrial Revolution. Even during the Age of Mercantilism colonial markets for metropolitan manufactured goods were of steadily increasing value over the eighteenth century. But during the Age of Industry the market question became dominant, and the largest market available was India. During the mercantile period, when India yielded luxuries and fine cloth such as cotton for re-export, the port of trade defined the limits of European presence: when the Industrial Revolution took firm root, the drive for territorial power, already begun in 1757 in a search for a way to reduce the drain of specie from the metropole, became paramount. It also meant the inevitability of the phasing out of the old chartered monopoly company, first in trade and later in government. The shift from the West Indies to the East Indies simply reinforced the decline of the British Caribbean. New tropical sugar-producing areas were opened up throughout the nineteenth century, and the sugar beet, promoted by Napoleon during the period of blockade, took root in European agriculture. The British plantations were increasingly incapable of competing for the re-export trade in tropical staples to Europe that had been so important to mercantilist strategy, and were being reduced to little more than an unwelcome burden on the British consuming public which soon cast them adrift. As markets, the sugar islands with their impoverished black populations were regarded as largely useless. Next to India the most important new markets for British goods were the white colonies of settlement. The United States continued to be of major importance, and along with it came a changed attitude toward Canada and Nova Scotia. The uprooted peasantry and displaced artisans flowed across the Atlantic — mainly to the United States but also to British North America — where they were welcomed as a potential market for British manufactures. Furthermore the new colonies of white settlement became producers of industrial raw materials, of timber and grain and potash, for the British industrial machine. In the Age of Mercantilism the raw materials of the temperate northern colonies were destined to flow to the Caribbean to aid the production of tropical staples for re-export to Europe; now they flowed to Britain to sustain the spread of industrialization that produced the manufactured goods for Indian, South American and

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North American markets. Mercantilist notions of self-sufficiency flew out the window: Britain depended on the colonies not for luxuries for re-export, but for its daily bread — for grain as well as timber and raw cotton. The Industrial Revolution and the concurrent Napoleonic Wars drastically altered the British financial system as well as its external commercial relations, and in complementary ways. Certain changes were already taking shape over the eighteenth century. Just as Spain and France were drawing closer together in that century, so were England and Portugal. At the same time, England's commercial involvement in the East Indies grew. Silver drained out of England to cover its trade deficit with India and China, while Brazilian gold flowed in via Portugal. Brazil's economy, formerly dependent almost entirely on sugar, in the early eighteenth century turned largely on gold. The amount of gold coined by the English mint increased rapidly while silver fell. By mid-century Brazilian gold was being supplemented by the plunder of India. Gold was too valuable in relation to size and weight to function as lower-denomination money; hence as silver left the country, bank paper increasingly replaced it. Over the course of the eighteenth century England moved increasingly to a gold standard system. In 1816 the gold standard was formally adopted — English paper money would exchange freely for gold at the rate of £3 17s lOd per troy ounce. Silver, the metal that long embodied the very soul of mercantilism, was reduced to a token, used only for small change and in strictly limited amounts. And all controls over the import and export of precious metals vanished. The freeing of the British capital market from restrictions on gold and silver movements was an important chapter in the dismantling of mercantilism. It also had its overseas manifestations. During the Napoleonic Wars Amsterdam, the European financial centre, was overrun by French forces, and the stage was set for the transfer of the status of world financial metropole to London. One of London's first functions was to intermediate the flow of subsidies from the British government to its European allies. To fulfill this task the British government turned to certain merchant houses who were used to international exchange and financial dealings, thus paving the way for the rise of the merchant banks, of which the Baring Brothers, Glyn, Halifax, Mills and Company, and the Rothschilds were the most important. After the war these banks moved easily into the business of negotiating the movement of private British investment funds abroad. In short order, Britain became the principal source of long-term overseas loans for governments and business alike. Symbolic of the new order and the passing of the old, bills of exchange, denominated in

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sterling and ultimately redeemable in gold, soon replaced the Spanish silver dollar as the standard instrument of international commerce. For Britain's great rivals (apart from the United States, which undertook a campaign of continental conquest that shortly gave it the economic strength to again challenge Britain), the outlook after the wars was much less satisfactory. The French Atlantic trading system had been shattered. Areas of Western Europe formerly dependent on the Atlantic economy were pastoralized, and the great French seaports declined. Inside the continent industrialization, often supported by British capital and skilled labour, became oriented initially to continental markets, in contrast to Britain's dependence on India and the Americas. For Spain there seemed very little left. The Napoleonic invasion of Iberia had led to Britain seizing commercial control of the Spanish overseas empire. After the wars Britain encouraged their political secession. In 1822 Brazil declared its independence from Portugal, and a long string of Spanish colonial breakaways also occurred. Into this political vacuum came Britain, eager to keep control of the Spanish and Portuguese colonial markets of South America along with an array of formal possessions swollen by war from 26 to 46 in number, and finally ready to make the far-reaching changes in colonial policy necessary to accommodate them.

The Transformation of Imperial Commercial Policy Two conflicting tendencies wracked English political life in the immediate post-war decade. On the one hand industrial supremacy and the new economic power of the manufacturing class meant a demand for internal and external trade liberalization and access to political power by the new economic elite. On the other hand social ferment engendered by both industrialization and the infusion of new political ideals from abroad led to a reinforcement of the politically reactionary instincts of the old social elite. Given the old elite's hold on the instruments of political power, the ascent of the middle classes to political control and the resultant transformations of the colonial system came only after a long and bitter struggle. The sharp deflation that followed the Napoleonic Wars forced drastic reconsiderations of the principles of foreign and imperial commercial relations. In 1820 Alexander Baring (Lord Ashburton) laid before the House of Commons a petition on behalf of a group of London commercial figures arguing for free trade as the best means of penetrating the Spanish American market that revolution was throwing open to British trade. The premises on which the mounting tide of

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free trade agitation were based stood in dramatic opposition to those of mercantilism. Rather than emphasizing the desirability of accumulating stocks of specie through a favourable trade balance, David Ricardo and his fellow political economists argued for the need for "equal" exchanges of commodities — for the export of British manufactured goods in return for importing raw materials and food from abroad. Since trade was to be an exchange of equivalents, bullion became unnecessary — in fact, a trade balance surplus was actually an indication of the very opposite of accumulating wealth, for it represented exports of real commodities with no compensating return, and thus was tantamount to an interest-free loan to foreigners. Countries and colonies could hardly be expected to import British manufactures unless they could sell an equal "value" in raw materials and food. Given the British industrial lead, free trade would mean that the configuration of trade would automatically assume the desired mix — the exchange of manufactures for raw materials without mercantilist-style intervention in the international division of labour. British industry needed markets abroad and cheap sources of raw materials and labour. Cheap labour in turn required cheap food. Hence it was necessary that protection or preference for domestic or colonial primary products be reduced and eventually eliminated. In a sense, liberalization of trade was a by-product rather than an outgrowth of the rise of the middle classes to power. Tariffs meant much more than protection to industry: perhaps more importantly, they meant revenue for government activities. And over the period of wars the volume of government activity had grown astronomically. The public debt reached awesome proportions by the standards of the day, most of it held by the landed gentry and old mercantile elite. Thus the Corn Laws and similar pieces of protective legislation not only directly maintained the current incomes of the landed gentry from rents, but served as a tax on the consumption of the masses (and thus the labour inputs of the manufacturers) to pay interest on the public debt held by the same rentier class. The drive by the middle classes to cut tariffs and curb government spending represented an effort to shift the burden of taxation necessary to maintain the public debt off the manufacturing sector and onto whoever else could bear it, and to curb the future growth of debt. The same drive to reduce government expenditure and hence taxation dictated a degree of colonial self-government sufficient to induce the colonies to tax themselves for their own maintenance and to assume full responsibility for their own debts. Prior to 1832, the most significant period of economic liberalization came during the brief ascendancy of the "liberal" wing of the Tory Party after 1822. Guided by William Huskisson as President of the

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Board of Trade, the principle of commercial reciprocity and colonial preference was firmly embedded in British overseas trade regulations. Prodded by the pressure of manufacturing interests and equipped with a new body of dogma by which the interests of a small class could once again be foisted off as the interests of the nation as a whole, important measures of trade liberalization were put into practice. In 1815 about 1,500 acts regulating colonial trade were in force, in addition to a myriad more restricting the movement of labour and capital equipment. In 1822 many of the restrictions on trade were abolished. The Navigation Acts were modified to open up direct trade from Spanish America, to eliminate the discrimination against the Dutch which had been the chief object of the old Navigation Laws, to loosen the system of enumeration of commodities, and to allow imports into Britain from anywhere regardless of the country of origin of the goods. In 1823 a general move to end tariff discrimination was made. In place of monopoly, Huskisson imposed colonial preference — half way to free trade. The objective of the reforms was to make industrial Britain the general emporium for world trade, rather than the entrepot for particular specialized colonial products. To ease the glut of labour, laws prohibiting the emigration of artisans were repealed. For a while, during a rather short-sighted and excessive burst of liberalizing zeal, the laws effectively banning trade unions were also lifted — but this mistake was quickly rectified. The opening of Spanish America and the freeing of trade coincided with, and helped to accentuate, a speculative mania in company promotions which came to a noisy end in 1825. The progress of liberal reform also came to end at that point in time and did not regain momentum until after 1832 in the wake of the first Reform Act. Under the terms of the 1832 Reform Act, the formerly unrepresented industrial areas which had grown rapidly under the impetus of industrialization secured a major slice of political power in the House of Commons, though their influence was watered down by the device of greatly expanding the number of country MP's at the same time. However, the real political revolution came not from the admission of industrial capitalists or their representatives to the House of Commons per se, but from the fact that as a result of the Reform Act political power effectively shifted from the House of Lords to the House of Commons, where the nouveau riche might sit and deliberate on their own best interests. The East India Company nawabs, the West Country mercantile interests, the West Indies planters all saw their power and influence circumscribed. Subsequently economic liberalization followed the progress of political reform throughout the empire, not least in British North America.

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The Atlantic Seaboard: From Mercantilism to Industrial Capitalism

IF THE TRANSITION FROM MERCANTILISM to industrialism was a difficult one for Britain, involving as it did far-reaching changes not only in its industry, commerce, and financial system but in the political order as well, it was all the more difficult for the northern colonies. Britain remained the initiator of change, and therefore retained some control over the rate and direction of the transformation; the colonies, on the other hand, had little choice but to await the latest vagaries of British policy, and adapt as best they could, given their limited degree of political autonomy.

Newfoundland: The Achievement of Colonial Status Of all the British American possessions, except perhaps the West Indian colonies to which it was organically linked, none was more typical of the Age of Mercantilism than Newfoundland. Its great fisheries had been a battleground of the Atlantic powers during the high tide of bullionism, and one of the major flashpoints of Anglo-French relations from the mid-seventeenth century to the Napoleonic wars. It had been coveted as a source of strategic materials — fish and marine oils — for the home market, for re-export in exchange for specie, and for the feeding of slaves. It had long been lauded as a cornerstone of naval power, maintaining in peace-time, at no expense to the government, a reserve of ships and trained sailors. Hence the transition to industrialism, which involved the jettisoning of the old precepts on which English policy toward Newfoundland had long been based, inevitably struck hard at the socioeconomic fabric of Newfoundland. 167

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The impact of the Napoleonic war, like all previous wars and for the usual reasons — privateers, press gangs, skyrocketing insurance costs — hurt the migratory fleet, driving many out of business permanently. In 1792, 270 vessels, mainly bank fishers, came to Newfoundland; in 1817, 50 arrived, and by 1822 a mere 15. In 1823 the migratory fleet took only 5% percent of the total catch. The disturbance of war was all the greater because it coincided with a general period of stagnation for the English North Atlantic fishery. The British West Indies were in economic decline; the American Revolution cut Newfoundland's main link to the French Caribbean; Danish and Norwegian competition in European markets grew steadily; Spain and Portugal raised their tariffs on dried fish; the population of Southern Europe was increasingly shifting to meat as incomes rose and meat production improved; even the Pope was accused of attempting to subvert the Newfoundland fishery by too frequent indulgences during Lent. A minor respite came when the British again seized St. Pierre and Miquelon and expelled their population, thereby destroying the last centre of the French dry fishery. But French armies then overran Italy, Spain and Portugal, sealing off the Mediterranean market, while the British abolition of the slave trade in 1807 threatened the potential growth of the Caribbean market. At the same time the Nova Scotia fishery grew in importance at the expense of Newfoundland. While the general disruptions and steady decline of markets hurt all aspects of the Newfoundland fishery, it was the migratory fishery that suffered most. The war also saw rapid population growth on Newfoundland, not only in St. John's but in the outports as well. Between 1793 to 1815 the island's population doubled. Immigration was still the chief source of population increase. The immigrants tended to be English escapees from press gangs and Irish refugees from English political terrorism. The smallest but socially most powerful component of the population increase was the influx of agents and partners of West Country merchant houses who came to Newfoundland to conduct their business directly on the island because of the disruption of normal trade flows. Over time many of these agencies developed into local merchant houses and their principals became the backbone of the island's commercial elite. They also displaced the operations of the New England merchants forced out of the Newfoundland trade by the American Revolution. Thus Newfoundland broke free of its commercial ties to Boston and reinforced those with England, while at the same time it saw the position of its settled population confirmed. The West Country migratory fleet, that archetypical institution of English mercantilism, had been replaced by the permanent branch house of an English

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commercial enterprise as the main instrument of imperial economic control. Population growth plus the breakup of supply lines led, as during the American Revolution, to an effort to develop agriculture. With the failure of mainland British North America to produce much of a food export surplus, and with England increasingly preoccupied with its own problems of domestic food supply, the island found itself facing potential famine. Soaring food prices led to a collapse of real wages. The governor began admitting American ships: this was contrary to the Navigation Laws and was bitterly fought by the West Country interests, intent on preserving the relics of their trade monopoly. Then in 1807 American supplies were reduced by the Embargo and shut off completely in 1812. In desperation the population, with the active encouragement of the island's governor, redoubled its efforts with patchwork plots of vegetables. This development introduced a political and legal quandary. The official encouragement of agriculture required some sort of implicit guarantees of property rights, and property rights had to lead to proper legal and governmental institutions. The development of agriculture certainly invited the population to regard land as private property, something contrary to the body of legislation governing Newfoundland. Even more important for the ultimate resolution of the property issue was the rate of growth of the urban population in general, and St. John's with its class of merchant princes in particular. Since it had the only harbour that could be effectively fortified and protected against war or pirates, St. John's remained the principal port, and hence the urban population concentrated there. As the town and its population grew in commercial importance, wharves and warehouses spread along the waterfront, while behind them and up the slopes sprang numerous dwellings interspersed with fish-drying racks and wandering livestock. Clusters of wooden shanties were constantly threatened (and frequently engulfed) by fire. It would have been difficult to erect more permanent structures given the poverty of the population and the insecurity of private property. Sir Joseph Banks, observing the scene, remarked, "For dirt and filth of all kinds, St. John's may in my opinion reign unrivaled." By 1815 10,000 were people crammed into the town, which lacked municipal government institutions to service their needs. There was no fiscal basis, much less a legal one, for a municipal government. St. John's, a town that was not a town, was an appropriate capital for a colony that was not a colony. The growth of mercantile enterprise led to pressure for legalization of property holding. All manner of leases, sales and mortgagings occurred without legal registration and therefore without title to the

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land on the part of the leaser, vendor or mortgagee. On top of this came the growth of absentee "landlords" who did not "own" the land yet collected rent upon it from their seats of retirement in England. Accumulating mercantile wealth and the attendant growth of warehouses and shops demanded security of title and with it, a proper juridical system to enforce it. In Newfoundland as elsewhere in the British empire, the war ended with a crash. The 1815 slump led to a collapse of not only cod markets but also those for seal oil and salmon, Newfoundland's other major products. France and the United States were back in open competition, and many countries reacted to the post-war crisis in 1815 by raising tariffs. Yields of cod fell at the same time prices did. Wages were down 50%, and in the same year the spring seal hunt was a failure. Food riots occurred in St. John's, and social turbulence spread through the outports as the population faced the prospect of starvation. A plot by Irish immigrants to rebel and seize control of the island was foiled when a priest informed the authorities. In 1816 fire swept St. John's; in 1817 another fire destroyed warehouses and food stocks. To further embitter the plight of the population, these were years of unusual cold. Then, on top of all the other problems, came the post-war influx of Irish paupers. This tide of human refuse of the industrial revolution arrived packed like cattle in the immigrant coffins that plied the timber trade between Britain and North America, rife with typhus which spread quickly. Not even half the newcomers found work, and what work there was often provided little more than was needed to pay off the passage. It was also strictly seasonal; winter saw many of those lucky enough to have found work again unemployed. Order was kept in St. John's by armed vigilante groups of wealthy citizens intent on protecting their property. In 1816 a resident governor was appointed, and some efforts to clean up the administrative situation began. In 1818 the judicial system was reformed, and security of private property for the few who had any was introduced. The judicial system was a logical first postwar target in light of the weakness of property guarantees and the confused state of commercial "law" during a period of depression, debt and bankruptcy among small firms. Finally, in 1824 Newfoundland became a colony: the old acts giving power to the West Country interests, prohibitions on settlements, and impediments to private property holding were swept away. For the propertied classes of Newfoundland it was a great victory. For the destitute, who made up the great bulk of the population, it made little difference. In 1825 Newfoundland celebrated the first anniversary of the achievement of colonial status with another massive depression. That the British government should have so readily acquiesced in the political transformation of its oldest trans-Atlantic possession af-

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ter two hundred years of concerted effort to keep it in economic vassalage to the West Country interests reflects once more the death of mercantilism and the structural changes that went with it. Newfoundland cod was no longer vital to British imperial trade. The West Indies were becoming increasingly marginalized, and therefore the importance of keeping a secure source of slave food greatly diminished. Nor was the cod any longer an essential instrument for attracting specie. Gold had replaced Spanish imperial silver that cod once procured for the British monetary system, and Brazilian gold was more easily obtainable with English cotton textiles than with Newfoundland cod. Finally, the increased emphasis on professionalism in the British navy — a development stimulated by the navy's disastrous performance during the American Revolution and the early part of the Napoleonic wars — obviated the old (and exaggerated) "nursery of seamen" argument for keeping the West Country fleet going. From an imperial point of view, the old migratory fishery, and the political structures it had engendered on Newfoundland, was now largely irrelevant.

The Fourteenth Colony For imperial strategists facing the shambles of the first empire after the American Revolution, the main problem was finding a way of replacing New England as a base for provisioning the sugar colonies and as a source of certain strategic materials such as marine mammal oils and masts for the navy. A second problem was that of assuring the primacy of British manufactures in the growing market of the northern and middle colonies where white settlers formed the great bulk of the population. Both of these problems had in theory been solved by the triangle trade pattern, but by the late eighteenth century the triangle was breaking down. British ships often went in ballast to the West Indies instead of first calling at New England with cargoes of manufactures: New England ships took control of the carrying trade of American supplies to the British West Indies, and supplemented it with the contraband trade of the French and Spanish islands. Hence to some of the reactionary clique which held power in Britain in 1783, the secession of the thirteen American colonies was an opportunity to rebuild the triangle on which success of the old mercantile system was premised. In 1783 the United States was declared to be a foreign country with respect to the operation of the Navigation Laws. The rump of British North America was to replace New England; but only partially.

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After 1783 Nova Scotia lay in excellent position with respect to the reconstruction of the imperial triangle. Unlike New England, it had no independent merchant marine. Furthermore, given the pre-1776 formation of a London-Halifax commercial link, and its strengthening after the rupture of Nova Scotia's trade ties with Boston, British merchant houses could control the flow of trade at the same time as British shipping lines carried it. Thus Nova Scotia's role would be as a resource base and entrepot for a more tightly centralized imperial trade network than existed before the Revolution. Perhaps most important of all from the point of view of imperial strategy, in British North America officials answerable to the British government still by and large ran the government. While colonial assemblies existed, most power was vested in the executive branch, and the executive controlled most of the colonial revenues and expenditures. Thus colonial tariffs, subsidies and expenditures could be manipulated to assure that the economic development of the colonies could be molded to imperial requirements. By the time of the outbreak of war in 1793, the effort to reconstruct the mercantile system was an evident failure. The United States retained the upper hand in the West Indies trade either through its own ships smuggling with the open connivance of the colonial officials or through the flow of American goods to Nova Scotia for trans-shipment. And the supply crisis that followed the outbreak of war forced the official readmission of American shipping to the West Indian trade. Nova Scotia also found its hold in the fisheries, particularly the lucrative business of supplying refuse fish as slave food to the British Caribbean, challenged. Inside Britain the forces that had long favoured reconciliation with the rebel colonies continued to agitate against the abortive policy of restriction, and one of their objects of attack was Halifax, the military and supposed commercial counterweight to Boston. Edmund Burke had opened the Whig attack as early as 1780 when he pointed out that up to that date £700,000 of British taxpayers' money had been lavished in Halifax's construction and fortification, as well as an unknown amount for stores and provisions. The turning point came after 1807 when the coincidence of the Jeffersonian Embargo and the Napoleonic Continental System produced ideal conditions for Nova Scotian trade. The American competition in the West Indian carrying trade dried up; blockaderunning and piracy flourished; and many imperial legislative changes cemented the new boom in place. The British West Indian governments granted bounties on imports of fish from Nova Scotia and Newfoundland and a general trade preference to Maritime products. Maritime coastal cities became free ports, open to neutral

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shipping and freed of imperial trade restrictions. Halifax's export trade to the British West Indies doubled between 1808 to 1811, and it began trading directly to the Mediterranean. In addition, imperial and provincial trade bounties stimulated agricultural development for the export trades. This prosperity saw twenty or thirty top merchants and officials pile up great fortunes in the period after 1807, while the mass of the population was so destitute that in 1811 25% of Halifax's population drew poor relief. Then in 1812 came a commercial cornucopia in the form of the Anglo-American war. Even in a city and a province whose prosperity had always hinged on the existence of a state of armed hostility, the War of 1812 was a war to remember. Free-spending sailors, soldiers and paroled prisoners of war were turned loose in Halifax. Wages climbed as unemployment fell — 1,600 men were employed on the docks alone. Rents doubled or trebled as both urban and rural real estate values soared. Purchasing power was further buoyed up by the high living of officers (largely from wealthy families because of the prevailing practice of buying commissions) and officials who demanded not only local produce but luxury imports as well. The far-flung import trade which their demands helped stimulate caused Halifax's trade links to spread to exotic eastern lands, while the general war prosperity coupled with uncertainties in normal communication brought with it the establishment in Halifax of branches of London, Liverpool and Glasgow commercial houses. Just as in Newfoundland and New Brunswick during the same period, the migration of British commercial houses to the province during the wars consolidated the imperial trade connections. The export trade to the British and the captured French sugar islands continued to grow. While high war-time prices stimulated farming and fishing, the goods in the export trades were still largely imported from the United States. Since American ships were blocked from carrying timber, grain and fish to the West Indies, the American products simply went in Nova Scotian ships, and Halifax became a great entrepot. Smuggling of American goods for re-export into the province had been a long-standing practice in Nova Scotia, alternately legalized and banned, but seemingly with little effect on the volume. Customs officials even supplemented their incomes by selling fake passports to Americans to permit them the privileges of British subjects in trade. The islands of the Bay of Passamoquoddy along the undefined New Brunswick-Maine border became the haunts of pirates, deserters, criminals, absconding debtors and smugglers from both sides. From towns along the Bay of Fundy, small boats that could easily elude customs officers and, loaded with gypsum which was in demand as fertilizer in New England, set out

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for Campobello Island, returning with loads of tea, cotton, rum and leather goods. This entrepot-cam-smuggling trade provided goods for more than just Nova Scotia's Caribbean trade and its domestic market. Nova Scotia blockade runners engaged in a profitable trade carrying American stores to Wellington's armies in Spain. While the British fleet kept American shipping bottled up in New England ports, Nova Scotia merrily imported redundant American naval stores to resell to the British ships keeping the American ships idle, or to the privateers preying on those American vessels that remained active. There was even a trade importing American grain for re-export down the St. Lawrence for sale to the British armies battling American troops in Upper Canada. Halifax too became the great entrepot for British goods exported to the United States (in contravention of the U.S. Non-Intercourse Act) through the Bay of Passamoquoddy. Nova Scotia had an implicit peace treaty with New England to avoid war by land to keep the entrepot trade going, but it had no such understanding by sea, and its shipping made the most out of the opportunities that resulted. Considerable fortunes could result from piracy, and some prominent merchants switched part of their capital into the business. The following advertisement from the Acadian Recorder of 1813 speaks volumes about the structure of Halifax commerce during the war: NOW OR NEVER All able bodied SEAMEN and LANDSMEN willing to serve His Majesty, and enrich themselves are invited forthwith to enter for His Majesty's Ship TARTARUS, Captain John Pascos, fitting with all expedition to take MORE American Indiamen; she will be ready for sea in a few days. Those FOND of pumping and hard work had better not apply — the TARTARUS is as tight as a bottle; sails like a witch — scuds like a Mudian, and lays to like a Gannet — has one deck to sleep under, and another to dine on — Dry Hammocks, regular meals, and plenty of Grog — the main brace is always spliced when it rains or blows hard — A few months more cruising just to enable her brave Crew to get Yankee Dollars enough to make them marry their sweethearts, buy farms, and live snug in the Peace that is now close aboard of us. Halifax February 16,1813 GOD SAVE THE KING Licensed privateers operating out of all five Maritime provinces, but mainly out of Nova Scotia, plundered many American ships during the war. One lucrative source of trade resulted from Halifax

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petitioning the Crown for permission to sell back to the United States the goods seized by Halifax privateers. For Halifax's business community, 1815 was a black year. Prices, rents and wages all came tumbling down as piracy and the war-time British government expenditures ceased. American competition reemerged in the West Indies trade and in the Atlantic fisheries. To make matters worse, three years of crop failures led to near-famine, necessitating government relief expenditures at a time when government revenues were collapsing. Food prices soared while wages were subject to the downward pressure of heavy unemployment. Merchants and shipbuilding interests reacted to the fall in trade by an assault on wage levels: in the 1815-16 session the Assembly outlawed combines of masters as well as those of journeymen and general workers. In 1819, to further add to the distress, the imperial government shifted the naval squadron headquarters to Bermuda, throwing many in the docks and shipyards out of work. The root of Nova Scotia's post-war economic problem lay in the fact that despite the rapid expansion of its shipping and the accumulation of commercial capital during the Embargo and war periods (and to some extent also because of them), the province still did not produce a surplus of grain, timber and other products (apart from fish) for export to the Caribbean in competition with cheap American supplies. Commercial expansion in Nova Scotia was not matched by the development of local productive powers, as the postwar agricultural crisis attested. Produce for export had still to be drawn in good measure from the United States, and direct access of American shipping to the West Indies would therefore destroy the Nova Scotia trade. Commercial prosperity therefore tended to reflect inversely the state of Anglo-American commercial relations. In 1830 an Anglo-American trade settlement led to the United States securing a dominant position in the West Indies trade. Nova Scotia's hopes for a revival of the old mercantilist trade triangle were dashed. The old imperial system of trade was gone forever and Nova Scotia was forced to pay more attention to its internal resources for economic survival. Some industrial progress was evident in the 1820's. This was partly due to the conjunction of an influx of cheap labour, the immigration of some skilled craftsmen, the dismantling of some of the trade regulations that had assured to British manufacturers primacy in the colonial market, together with the willingness of the colonial government to grant some financial aid to new projects that would help diversify the economic base of the province. Financial incentives were given out to the fisheries to promote exports and help countervail American encroachments, to two iron smelters, to the South Sea

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whale fishery, and to encourage a sugar refinery. Shipbuilding and its attendant developments — sawmills, rope walks, chandlery shops, etc. — grew steadily. Other small-scale industries emerged in response to agricultural diversification (grain, flax, and woolen mills) or to the growth of an internal market for ordinary consumer goods. But the most important industrial ventures to emerge in the period were shipbuilding and the mining of coal. For a long time Britain had discouraged Nova Scotian coal mining, but two factors intervened to change imperial policy. One was the hope of defraying part of the cost of governing Nova Scotia through royalties from the mines, royalties which had the important additional advantage of being payable directly to the executive branch of government and therefore bypassing the assembly. A second factor was the American Revolution. Because of the military's requirements for coal, some army officials secured permission to work the deposits on a short-term basis. From the mid-1780's to 1827 the colony's Governorin-Council handed out a series of monopoly leases to favoured individuals and firms. The miners themselves were chiefly Irish refugees who were worked fourteen hours a day and were paid mainly in the form of credit at the company store. In 1825, the greatest stock exchange frenzy since the days of the South Sea Bubble swept London, fed by the success of the liberation movements in Spanish America and its consequent opening up to British economic penetration. Mining shares were particularly in favour. While gold and silver led the parade, a few companies with more modest ambitions did succeed in organizing. One of these was the General Mining Association, originally geared up to search for copper in the Americas. In 1826 King George IV, in an effort to restore the sagging fortunes of his spendthrift brother the Duke of York, made him a present of all the unceded mines in Nova Scotia. In turn the Duke of York in exchange for a share of the profits signed the title over to a firm of London jewelers who were at once his principal creditors and the principals of the General Mining Association. In 1828 the GMA contrived with the lieutenant-governor of the province to have its monopoly extended even further to include some Cape Breton and Pictou mines that had already been ceded to others, and the stage was set for thirty years of political and economic storm, with the issue of the GMA monopoly caught up in the more general battle for responsible government and the politics of public as well as private finance.

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New Brunswick and the British Timber Trade The Nova Scotia in which these developments were taking place was a considerably smaller piece of territory than that acquired by Britain in 1710. At the end of the American Revolution Britain undertook to divide old Acadia into several distinct political units, partly in order to quarantine certain strategic pieces from the incipient republicanism of Nova Scotia's emigre Yankee merchant class. Thus Cape Breton, with its coal reserves, was administered as a separate province until 1820; Prince Edward Island was created as Britain's last old-fashioned proprietary colony and its lands handed out to a group of absentee proprietors to whom the British government owed re"vards for political services; and the mainland was divided in two pieces, one part renamed New Brunswick and destined to serve as a bastion of Loyalism and an imperial timber reserve. For the new settler population of British North America, anxious to develop a staple cash crop to accumulate capital to invest in the long process of farm improvement, the great timber stands of New Brunswick seemed to be the answer. Britain had an enormous appetite for timber from overseas in the eighteenth and early nineteenth centuries. Wood, converted to charcoal, was the most important industrial fuel. While British coal mines were extensive, generations of exploitation had exhausted the easily worked seams, and not until full mechanization through steam-powered pumps and winches was achieved was it economically feasible to exploit the deeper seams. Hence the demand for charcoal continued to rise during the early years of the Industrial Revolution. Wood was also the principal building material for residential and business uses, for homes, factories, and all manner of furniture and appliances. It was moreover in great demand for shipbuilding. Demand for the timber was assured, but for a long time British North America was an insignificant supplier. Britain had long relied for the vast bulk of its everyday needs on the Baltic producers, favoured by an obvious advantage in transport costs and also by many decades of business association with British timber merchants. And for certain specialized products, particularly masts for the navy, Britain relied on the New England colonies. The situation began to change after the American Revolution cut off Britain from its traditional source of specialized woods, especially for masts and wood by-products like turpentine and potash (used by Britain's burgeoning textile industry as a bleaching agent). The British government's immediate response was to search for alternative sources of supply within the remaining colonies and within Vermont, still independent from the new confederation of freed colonies.

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It was for its potential as a source of pine for masts and potash as well as for controlling the flow of trade along Lake Champlain that Britain was so anxious to keep Vermont out of the newly formed American state. The American Revolution had decimated the imperial navy and merchant marine, shattering the carefully nurtured myth of British naval supremacy. In reality its fleet was rotten with material and psychological corruption well before the event, and the massive losses in the war forced a drastic rebuilding program. After the revolution and the integration of Vermont into the United States the imperial mast trade switched over to exploiting the pine stands of New Brunswick: indeed the presence of the strategic pine reserves in the area was one major reason for the decision to create a separate province and for separating it and its Loyalist population from the still-suspect emigre Yankee merchants of Nova Scotia. New Brunswick's prime forests stood near rivers with no rapids or waterfalls of consequence, and hence timber, once cut, could be floated easily to an ocean harbour for loading. For nearly twenty years New Brunswick enjoyed a virtual monopoly of the imperial mast trade, and became the happy hunting ground of timber merchants disguised as colonization agents who seized control of great tracts of land and sent in gangs of cutters. They quickly decimated great pine stands, with a view not just to hauling the trees to market but also to prevent them from falling into the hands of their competitors. So great was the carnage that even before the Napoleonic Wars the British navy was forced to begin developing sources of supply from Lower Canada as well, although New Brunswick still dominated the business. The British timber supply was enhanced during the early period of the wars with France by Jay's Treaty, which opened the border between British North America and the United States for a flow of American timber en route to Britain. From New Brunswick the protests were particularly vehement as Maine timber moved down the province's rivers to British and British West Indian markets at the same time the readmission of American ships to the West Indian carrying trade shut St. John out of the business. Moreover, the Baltic still possessed an enormous cost advantage through geographic proximity, the prior investment of British capital in the trade, the accumulation over many decades of the necessary fixed capital, and the existence of powerful vested interests in Britain that favoured continuation of the Baltic connection. To the extent that New Brunswick timber, apart from pine masts, reached British and imperial markets before 1807 in the face of Baltic and American competition, it was in part because costs of production were kept down by depleting stands

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of timber nearest to harbours, cheating the farmers who cut it, and defrauding the Crown of stumpage fees. Then in 1807 Napoleon's Continental System sealed off the Baltic, and the price of timber in England shot up 300%. In 1806 only 7% of Britain's timber came from British North America: in 1808 it was 61 %, and continued to climb until it peaked at 76% in 1830. The shift in sources of supply was mainly at the expense of the timber industries of Norway and Prussia. At first the switch was due to the immediate crisis which forced British timber merchants to put their capital into the trans-Allan tic timber trade, but by 1811, with the Baltic reopened, the vested interests in the British North American timber business secured a substantial colonial preference in Britain's timber tariff, assuring the profitability of the capital invested in the business even in the face of the renewal of Baltic competition. From 1807 to 1825 the growth of the British North American timber trade was phenomenal. The largest component of the traffic came from New Brunswick, including Maine timber drawn through the provincial river system to its timber ports. Soon New Brunswick was supplying nearly twice as much timber as the rest of British North America combined. Quebec came next and its economy quickly came to depend almost as heavily as that of New Brunswick on timber exports, both its own products and the American timber that came along the St. Lawrence or the Lake Champlain-Richelieu River route. Just as in New Brunswick, the flow of American timber into Quebec for re-export was bitterly resented by local timber-cutting interests, and in response to the oversupply crisis of 1825 a law was passed requiring that all timber shipments bear a certificate of origin. If the certificate was not produced, the timber would be declared foreign and not admissible to Britain at the colonial preferential rate. One result of the law was to give another source of income to the customs officials who obligingly turned a blind eye to the American products. Since all that was required to get the certificate of origin was an oath that the timber was colonial, the law also called into being a class of professional perjurers to complement the absence of effective control on the part of the customs officials. Because timber was a bulk commodity whose value per unit volume was low, the trade could bear little overhead cost; hence ships that had outlived their usefulness in other lines of business, that had become too leaky or dangerous to carry valuable cargoes, were consigned to the timber business, sometimes in such decrepit condition as to require chains wrapped around the hulls to keep them from breaking apart (though some did anyway). They were complemented by a species of colonial-built ships that were really glorified timber rafts, built as cheaply as possible specifically for the carriage of timber

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and sometimes broken up and sold as timber at the end of their first voyage. Those ships that remained in the trade had to search for a return cargo — and found it in coal, salt, and sometimes pauper immigrants who were packed into the holds formerly inhabited by colonial timber. It was a British-dominated operation. From Britain the capital to finance the operations came and to Britain the output, and most of the profits, flowed. Even when colonial firms did eventually become well established in the business they had to set up an agency in Britain, and the agency often came to assume the role of head office. British capital took more the form of commercial credit than direct investment in producing facilities. Production of square timber — the wasteful process of squaring off a log and discarding all the cuttings — was undertaken in New Brunswick by small gangs of axemen, usually headed by a local farmer. The producer received an advance of merchandise — tools, provisions, rum, etc. — in the winter in return for a guarantee of delivery of a specific amount of timber in the spring. The merchandise for which he became indebted was valued at the prices prevailing at the time of the advance, and bore "interest" at 35 to 40% per year. On the other hand the timber he brought back in the spring was credited against the earlier debt at the price prevailing on delivery. Any fall in the price of timber between contract and delivery time had to be absorbed by the lumberman. After 1807 farmers took to the woods in great numbers, denuding large areas without authorization since they were beyond the reach of legal restraint. Farming was bleak in New Brunswick. Even before the timber trade began, the generally poor soil and high costs of improvement meant many farmers were fugitives from the sheriff. Only high protective duties could have saved New Brunswick's farm sector, and such duties were precluded by the political power of the timber merchants. Since the merchant elite also ran the general import business, they profited on the sale of imported provisions to the lumbermen, and hence were loath to see both the income from sales of merchandise and the assured flow of lumber from the displaced farmers threatened by a viable agricultural economy. Timber was the most immediately saleable staple export and virtually the only one the merchants, who had their own debts to cover in Britain, would accept from the farmers who owed them money. The large number of indebted farmer-lumbermen, without legal protection or effective organization, faced a small clique of politically powerful lumber merchants who could both set the prices of the advances of provisions on which the lumbermen relied for survival, and manipulate the prices paid for the lumber. The farmer rarely saw cash: transactions of debt and credit took the form of bookkeeping transfers in the

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merchants' books. The debt-bondage, book credit system guaranteed the flow of timber unless the producer decided to exercise the only other option open to him. The flow of economic refugees from New Brunswick to Maine, where wage work was available and the lumberman could begin again free of debt, increased whenever crises of overproduction gripped the industry. Falling prices meant the main burden would be shifted onto the producer, who found his revenues falling while his debts grew through the accumulation of arrears of interest. Since the bulk of the square timber was in demand for construction in Britain, economic activity in New Brunswick followed the ebb and flow of building activity in England. Minor crises hit in 1815andin 1819,and a massive one in 1825 produced another major exodus to the United States. In the aftermath of the 1825 collapse a combination offerees began to transform the New Brunswick timber industry. New Brunswick's share of the British foreign timber market had reached its peak at 43%; thereafter an increasing share of British North America exports came from Quebec and eastern Ontario. Agitation inside Britain for a reduction and even a complete elimination of the preference granted colonial over Baltic timber had been growing since the deflationary crisis of 1819, and powerful merchants with debts to collect in the Baltic were actively lobbying against the North American trade. Conditions inside New Brunswick too were changing. The heyday of the grab-and-run operation was over. The place of square timber in the Atlantic trade was threatened increasingly by "deals", sawn planks of a uniform size whose production involved much less waste, and whose reception in the British construction industry was more favourable. However, deals involved a major change in the mode of exploiting New Brunswick forest resources. Unlike square timber which could be produced by a few men armed with axes and oxen, deals required sawmills and a settled labour force. Fixed capital in the form of sawmills and equipment had to be accumulated. Often the impetus came from American skilled craftsmen and capitalists who moved north with their skills and equipment to take advantage of the British market. Along with the emergence of a class of small-scale capitalists owning and operating sawmills came an industrial proletariat working under their orders. Sawmills too required an assured supply of logs and therefore welldefined cutting limits, and hence spelled the end of the era of freeroving axemen. Timber merchants who controlled the former through the debt-peonage system cared nothing for where the cutting was done or how the producers might trespass on each others' spheres of influence, so long as the timber arrived in the spring. With their

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overhead costs to meet, sawmill capitalists had to have an assured supply of timber and stands where they possessed legally unimpeachable cutting rights. But the forest resources of the province were nominally under Crown control and about 80% of the total acreage was still Crown land. The rise of an indigenous lumber industry and the struggle to assure provincial control of the resource base therefore went hand in hand; and, paralleling developments in Newfoundland and Nova Scotia, both had repercussions on the pattern of development of the provincial political and financial system.

The Politics of Transition The transition from mercantilism to industrial capitalism in Britain affected the politics of Newfoundland, Nova Scotia, and New Brunswick in roughly similar ways. For Newfoundland the prosperity of the fisheries had peaked about the time of the Seven Years' War, and thereafter declined. As mercantilism gave way to industrialism the importance of the North Atlantic fisheries in imperial trade diminished, and the West Country fleet found itself with an evershrinking share of a falling market. As the settlers in Newfoundland grew in numbers and economic importance relative to the migratory fleet, a political revolution accompanied the economic one. The establishment of a permanent governor, courts and other trappings of bona fide government in 1824 inaugurated a new source of conflict. The most powerful group on the island were the importexport merchants of St. John's, who wanted to preserve the island as a fishing station, to get rich in the business, and to retire to England leaving the management of the firm to a partner or a son. This group in general opposed internal development of the island's resources for fear it would divert activity away from the fishery and interfere with their trade monopoly. Taking the opposing point of view was a rising middle class of professionals and resident merchants along with prosperous small fishing boat captains in the seal oil and salmon fisheries, who agitated for agricultural and general internal economic development, for road building into the interior and the granting of land for farming, and — not least — for a system of proper municipal institutions. St. John's could still be described by one observer in 1824 as "uniting many of the disgusting scenes of Wapping and Billingsgate with the additional filth that numberless hogs and dogs create." Moreover, the judiciary remained a crude and corrupt one. And most important from the point of view with those with real stakes in the island, the colony had no assembly. In their agitation for elective institutions they were opposed by some of the more powerful princes of the St. John's wholesale trade.

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The petitions of the reform interests in Newfoundland for the granting of elective institutions and the development of the imagined resources of millions of acres of interior land met with little response until 1832, when the mounting concern to ease the imperial burden on the British taxpayer by making the colonies responsible for costs of their own government finally led to the granting of an assembly for Newfoundland. The move outraged powerful St. John's merchants, who feared an assembly controlled by the reform interests would undertake local development projects and pay for them by taxing the import trade the merchants controlled. But the demands of the British taxpayer for relief prevailed. Thus did Newfoundland find itself launched into the age of liberal democracy. The situation in Nova Scotia was somewhat more complex, for its trappings of representative institutions dated back to the founding of Halifax. However, the effective role of the governor and his appointed council, at the expense of the elected assembly, generated increasing political agitation as a division between old and new wealth, between a business group tied into the old colonial system and one demanding liberalization and reform, deepened in Nova Scotia much as it did in Newfoundland. Given the prior existence of formal governmental institutions in Nova Scotia, the conflict there was waged essentially over control of the public purse. Public finance in British North America continued to be complicated by the existence of two levels of authority. The British government appointed a set of officers for the colonies who collected custom duties levied by Parliament and enforced the Navigation Laws: these officials were paid directly from the revenues collected by the imperial authorities in the colony, and hence operated directly under the aegis of the executive branch of government. The colonial government — the assembly and council — could impose any additional taxation it wanted, subject to the ultimate approval of the imperial government, and it could spend it on development or the maintenance of its own bureaucracy. Thus both revenue sources and spending responsibilities were divided by level of government, with the higher level exercising ultimate control, and with the dividing line between the functions exercised by the two levels subject to political dispute. Agitation on the part of the colonial assembly for an expansion of its sphere of authority heated up the 1820's under the impetus of unilateral decisions by Britain to alter and liberalize the schedule of imperial duties. Since the imperial duties were directly appropriated by the executive for salaries and other purposes, they were often used for rewards for imperial service, and thus, reformers insisted, bore no relationship to the responsibility or difficulty of the office to which they were nominally attached. In short, the colonial politicians took in-

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creasing exception to having their tax monies used to maintain Crown-appointed placemen, particularly at a time when the imperial government was determined to liberalize trade, reduce the preferred positions in imperial trade customarily awarded docile colonies, and cut its own expenditure in Nova Scotia. During the 1820's the imperial authorities tried to unload all the burden of civil spending responsibilities onto the territorial and casual revenues, the revenues which the Crown obtained directly from land sales, mineral royalties, fines and forfeitures and the like. By 1835 the inflow of funds from Britain for civil purposes had completely stopped: all civilian spending was financed within the colony and largely spent in ways over which the assembly had no control. Among the evident manifestations of the reform interests' agitation for responsible government were demands for breaking the coal mining monopoly of the General Mining Association, for provincial control over land sales, and for breaking the financial monopoly exercised by prominent members of the executive branch in their publicly supported private business activities. A widespread reform of colonial government institutions in the 1830's finally swept away the old structure. The "reformed" governmental institutions were open to a new, emerging business elite of Halifax — comprised of wholesale merchants, shipbuilders, shipping company proprietors and timbermen who were demanding the end of the monopoly privileges, both political and economic, wielded by the old clique of "Loyalist" businessmen who had gathered around the governor. In New Brunswick, the old order was also increasingly under siege with the decline of the square timber trade, the rise of the deals industry, and the increasingly insecure position of New Brunswick exports in the British market — prompting demands for economic liberalization and diversification and, paripassu, the diminution of the old Loyalist clique of timber barons who controlled provincial affairs and forest resources simultaneously. Until 1831 the Crown relied heavily on timber royalties as the source of government revenue from the resource base of the province. However, it was virtually impossible to enforce the fees. Furthermore, the policy of making land sales only to settlers, and not to timbermen, quickly foundered, since if the settlers were not in fact timbermen in disguise they were soon driven into timbering by economic necessity. To increase the revenues accruing to the executive in 1831 a system of sales of Crown land was inaugurated, with a deliberate policy of favouring big outside interests who had the capital to buy the lands, swell executive revenues, and exploit the resources. The result was a frantic scramble for acreage. American lumbermen in particular

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rushed to secure forest properties, though not in their own names. Under the law no foreigner could own land; hence professional frontmen — politicians, lawyers and merchants — began acting on behalf of the American lumber interests. In addition, a lot of Crown favourites grabbed land to exploit the timber themselves or made deals with the American capitalists. The scent of the spoils to be had also brought British promoter John Gait into the province with a scheme for a Nova Scotia and New Brunswick Land Company. While Nova Scotia refused co-operation, a clique around the lieutenant-governor of New Brunswick and a group of prominent British political figures proceeded with their end of the operation. Chartered in 1831, the "colonizing" company proclaimed its objectives as the relief of distress in Britain, the expansion of British markets, and the encouragement of patriotism. The real motives were to grab the best timber lands and give the executive more fiscal independence of the assembly, and it was accordingly awarded half a million acres to be paid for at 2s 3d per acre. The company began advertising for settlers in Britain, claiming it had built houses and planted crops on the farms. When the settlers arrived they found neither houses nor crops nor roads. The new arrivals were pushed into timbering to survive, both to pay for provisions advanced to them by local merchants and to pay back their debts to the company. The company soon defaulted on its payments to the government and was wound up. Agitation for political reform (which, on one level, translated into a demand for the open plundering of the public domain by the colonial timbermen who crowded the assembly and railed against the influence of the old British timber houses in the executive) continued to grow. A de facto monopoly exercised by the Cunard firm of Nova Scotia shipbuilding magnates was broken in 1833, and in 1837 control of all Crown land was ceded to the legislature at a time when the industry was entering another massive and protracted depression, from which it would never recover. For the next four years the whole of the Crown domain was theoretically opened on terms of cheap annual leases. That had the effect of reducing the executive's fiscal power, doubling the assembly's financial resources, and setting off an orgy of legislative spending that soon saw the new revenues frittered away and a heavy debt burden contracted. "Responsible" government was making its debut in a British North America transformed by the advent of large-scale industrialization in Britain.

14

The Contest for the Continental Interior, 1763-1821

THE END OF THE SEVEN YEARS' WAR left Britain seemingly triumphant in another of the cardinal objectives of mercantilist policy and mercantilist warfare, securing control of the North American fur trade and the Indian alliances that went with it. But once again American independence, by precipitating the decline and ultimate collapse of British mercantilism, assured a kindred fate for the great staple trade that had been responsible for the opening of the continent to European commercial penetration. At the same time the Industrial Revolution forced the reorientation of economic activity in the interior of British North America in diametrically different directions: furs gave way first to timbering and then to agriculture. The aboriginal population that had depended on the natural ecology now under siege was marginalized by the growth of white settlement. The fur frontier thus shifted further west, awaiting yet another assault from the forces of colonialization and agrarian settlement a few decades later.

The Fur Trade in Transition Until the early nineteenth century furs and the fur trade remained the backbone of the Canadian export economy, even if British military expenditure often produced an even larger infusion of cash into the pioneer economy. While the Proclamation of 1763 had in theory separated the Ohio Country from Canada, it nonetheless had confirmed its character as a fur trade hinterland. Given the natural advantages Canada had in terms of a pool of skilled labour and a long string of 186

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posts to facilitate communication and transportation into the interior, and given too the traumatic effect Pontiac's rebellion had had on the New York trade, American fur merchants began moving to Montreal to exploit the fur trade from there through the established communication and alliance system. The movement was slow initially, for the bulk of the activity was still in the area south of the lakes, more accessible from the New York trade centres. Moreover, commerce with Europe was more efficiently conducted through New York than Montreal. However, the situation changed with the passing of the imperial tariff acts of 1767. The centre of the fur trade increasingly shifted north, a move completed after the Quebec Act officially confirmed Montreal as the fur trade metropolis of North America and the American Revolution destroyed the New York trade's access to the London market. The British conquest of New France had driven a wedge between the merchant houses of France and their affiliates in Canada, which were cut off from their sources of credit and supply. The newly arriving Scottish, English and American merchants were able to squeeze the remaining French merchants to the margins of the commercial structure they had built up, as London firms took over the business of marketing furs in Europe and shipping trade goods to the colony. A few small Canadian firms did manage to form commercial links with smaller London houses to secure credit and goods, but these firms were confined to the southwest fur trade, a trade that was encroached upon by the American colonies and finally wiped out in the war of 1812. The flourishing Northwest trade had become the almost exclusive preserve of the anglophone merchants. With the backing of the London houses, the ultimate font of capital and commodities and the final distributor of furs to market, a handful of anglophone merchants based in the colony thus quickly took control of the general wholesale import-export trade, the main centre of socioeconomic power in a colonial economy, while the francophone commercial group became increasingly marginalized in the retail trade sector or as junior partners. The fur trade structure consisted of four parts. At the bottom were, as of old, the voyageurs, francophone workers paid sometimes in cash but often in kind and often too in debt, who were born into the business as their fathers had been and their sons were destined to be. Further up the socioeconomic ladder were the traders, sometimes actually wintering partners sharing in the profits, sometimes working for wages, sometimes operating nominally independently on the basis of a credit line from a merchant. The traders who actually conducted the exchange with the Indians were a mixed bag of French and English, old timers in the trade and new. Highest on the scale in the colony were the Montreal merchants, controlling the wholesale import-

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export trade of the colony, advancing goods on credit to the traders, and shipping the furs off to London houses. Some of the latter merchants were former traders who had accumulated substantial sums in the interior — Simon McTavish, the Frobishers and McGillivrays from among the first generation of British traders. But in general traders and merchants formed two distinct classes. There was little prospect of social ascent by the anglophone traders to the merchant class, and virtually none at all by francophone traders, especially given the rapidity with which francophone merchants were losing ground. At the top of the structure stood the London houses, advancing credit and marketing the output.

Monopoly and Competition The Montreal merchant houses spurred many trading ventures whose mode of competition with each other in the interior took on less the form of competitive bidding for furs than of efforts to bribe Indians to abandon and perhaps attack their rivals. Under such conditions, in the absence of government regulation, it was inevitable that some sort of groping toward private regulation would follow shortly. The earliest form of organization in the trade was the creation of partnerships of Montreal merchants, followed by efforts to divide up the interior into spheres of influence to minimize bloody rivalries. However, concentration in Montreal did not eliminate all of the interior trade wars. Not only did the traders, who took the concept of cutthroat competition quite literally, continue to decimate each other, but encroachments on Hudson's Bay Company territory opened up yet another source of bitter and sometimes bloody conflict. Several factors interacted to finally impel the Montreal merchantprinces of the fur trade to organize a co-operative cartel. The American Revolution had disrupted the Canadian fur trade and initially permitted major gains by the Hudson's Bay Company. But in 1782 a French naval assault ravaged the company's trade while smallpox did likewise to the Indians in its system: goods were lost, and the credit advanced to the Indians who had died of disease had to be written off. The company was ripe for a Montreal assault. Furthermore, when the American Revolution ended, the Montreal merchants were driven to associate out of need for a common lobby to try to prevent Britain from ceding the Ohio Country and their communications routes to the United States. In addition, the end of the war brought with it a drastic deflation. At a time when the prospects of a major campaign against the Hudson's Bay Company demanded access to sufficient supplies of capital, a pooling of

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merchants' resources was logical. Finally, the terms of the treaty of peace and the ceding of the Ohio Country to the United States as well as the exhaustion of furs in some southwest areas made it obvious that over time more and more Montreal firms would be pushed out of the southern trade and increase the pressure in the northwest. In 1784 the North West Company was organized, thereafter controlling much of the interior fur trade activity operating out of Montreal. Equipped with the goods that the merchants had imported on credit from England, the annual North West brigade set out from Lachine in large canoes, each bearing eight to ten men, their baggage, 600 pounds of biscuit, 200 pounds of pork, 3 bushels of peas, and 65 packages of trade goods, along with the necessary repair and working utensils. The load was so heavy that the canoes often had their gunwales within six inches of the water. At Grande Portage the freight was transferred to smaller canoes which were then paddled or portaged into the interior. The round trip was 3,000 to 4,000 miles, crossing 60 large lakes and countless rivers, over 200 sets of rapids, plus another 130 other places where portages were necessary. The voyageurs on the long hauls would be worked up to twenty hours per day paddling or carrying the huge burdens over portages, and they reputedly consumed about eight pounds of fresh meat or twelve pounds of pemmican per day to keep them going. The result of such a healthy, active outdoor life in harmony with nature was that they were usually unfit for further service by age 40 — though in fact most would have retired before that age. Once in the interior the trader's work, commercial and diplomatic, began — manipulating tribes, blocking one set of coalitions, fostering another, invoking petty jealousies, dividing clans and deposing chiefs, all the while keeping one eye on the trade returns and another on his own scalp. In addition the trader supervised the establishment and/or operation of the trading posts themselves, including the vital job of assuring a food supply through hunting or trade. The competition between rival Montreal groups and the contest between the North West Company and the Hudson's Bay Company wrought important changes to the pattern of aboriginal economic activity. The Hudson's Bay Company trading system worked through Cree and Assiniboine intermediaries whom the Nor'westers had to bypass to make direct contact with the producers of the pelts. At the same time the demand for food, especially meat, to maintain both companies' interior activities opened up new economic functions. While the Ojibway and woodlands Cree remained fur hunters and traders, the Assiniboine and plains Cree assumed the job of providing food for the fur traders. The North West Company soon found its difficulties with the

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Hudson's Bay Company compounded by events to the south. Under Jay's Treaty of 1794 Britain agreed to remove its troops from the fur trade forts of the Ohio Country and, although in theory the American west was to remain open to Canadian traders, in practice new competition from American traders pushed the Canadian ones steadily back north. Early American administrations had paid little attention to the fur trade, but that began to change with the advent of Thomas Jefferson to the presidency. Jefferson linked his dreams of westward expansion of the United States to the business organizations of John Jacob Astor, whose ambition it was to monopolize the fur trade. Together they conceived the strategy of driving the Indians across to the western side of the Mississippi and pushing the Canadian traders out of the conquered territory. John Jacob Astor was the son of a German butcher who migrated to New England in 1763, becoming first a baker's apprentice, then a peddler, then a clerk for a fur trading firm. By 1786 he had established his own fur stores and a network of interior trading posts. The actual trading operation was small and incapable of meeting the competition of Canadian traders: most of the furs he sold he had to acquire in Montreal. He therefore set out to establish independent sources of supply, establishing with Jefferson's support the American Fur Company whose energetic destruction of rival traders brought it by 1810 all the way to the Pacific coast, lured by hope of a China trade. For a time Astor, while undermining small Canadian trading operations in the Ohio Country, co-operated with the North West Company. Even the War of 1812 did not initially disturb the the relationship. Astor's agents colluded with the British forces during the early part of the war, warning the British governor at the border posts of the outbreak of war before the neighbouring American force found out, and thus permitting them to surprise and overwhelm the American forts. In return the British forces provided safe escort for Astor's furs to Montreal, from whence the North West Company then arranged for them to be smuggled into New York along the old Montreal-Albany contraband trade route. However, when Astor turned his ambitions to become the richest man in the world into a plan to seize the Oregon Country, relations with the North West Company began to sour. In 1813 the Nor'Westers attacked his forces and seized his Pacific headquarters, Fort Astoria, putting an end to his project for a fur trade to China. In the long run however, the rise of the Astor organization spelled the end of the Canadian southwest fur trade. From the time of Jay's Treaty until the end of the War of 1812 Canadian traders were progressively squeezed from the area, increasing the pressure on the Northwest. These developments were all the more disturbing to

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Montreal commerce insofar as they came at a time of general crisis for the fur business. Since 1793 wars and revolutions had continually disrupted European fur markets. The best market left was China, where the East India Company monopoly was an obstacle to trade. As prices fell in Europe the prices paid to the traders were cut, and efforts to pass the reductions onto the Indians met with hostility. The Indians persisted in their insistence on a fixed standard of trade. To them the diplomatic, military and commercial aspects of their relations with the white traders were inseparable; and any attempt to alter the terms of trade in response to market conditions abroad constituted a diplomatic and military affront. Yet if the reductions were not passed on, the traders might simply pile up greater debts to the merchants. In the end only the large could survive. And among the large were firms like Forsyth, Richardson and Company, forced out of the southwest trade into that of the northwest and therefore into competition with the existing North West Company. Problems for the North West Company were compounded shortly by the desertion of one of its principal members, Alexander Mackenzie, who in 1793 had been the first white trader to cross British North America to the Pacific coast. The trip had whetted his ambitions to create his own fur trade empire in the far west and to break into the China trade. Since McTavish, Frobisher and Company, the backbone of the North West Company, had established their own trade link to China the year before, and since Mackenzie's ambitions not only conflicted with theirs but required an overt alliance with the Hudson's Bay Company to permit the peaceful transit of their territory, Mackenzie's break was inevitable. In 1798 he linked up with Forsyth, Richardson and Company of Montreal and Phyn, Ellice and Inglis of London along with a few small Montreal firms to form the XY Company, also known as the New North West Company. Open war in the northwest followed, a war exacerbated by the fact that each company tried and failed to reach an accommodation with the Hudson's Bay Company. The wars therefore went on on three sides at once, until 1804 when the two Montreal firms were forced through weakness to merge. The consolidation and strengthening of the North West Company was a necessary prelude to a renewed offensive against the Hudson's Bay Company. Conditions in the wild west intermittently saw clashes of armed gangs of traders and Indian allies, burning and looting of posts, the molesting, robbing and murder of competitors' workers and allies, or even of the company's own if they flagged in their enthusiasm or showed signs of contemplating desertion. The British government empowered the lieutenant-governor of Lower Canada to send justices of the peace into Indian territory with the power to bring malefactors back for trial. Nor'Westers sometimes had themselves

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appointed justices of the peace and went into the interior to arrest independent traders or Hudson's Bay Company employees.

The Combatants Organizationally the two powerful firms that faced off in the lakes, streams and forests of the northwest and sometimes in the court rooms of Montreal were quite different. The Hudson's Bay Company was a highly centralized incorporated company, with an imperial charter of monopoly and a Court of Directors located in London. As was the norm among the chartered companies, the bulk of its shareholders were passive rentiers who left the real decision-making power to a tightly knit group of London financiers and merchants. Its links to the City of London meant that the company had very good financial resources. It had built up reserves of cash and liquid investments during good times and it also had excellent relations with bankers to tide it over bad. In fact the trade wars by 1806 had crippled it to the point where dividends were being paid out of capital and the stock began to depreciate, but the situation was stabilized by selling off investments and borrowing from the Bank of England. Its organization in the trading interior reflected that of London. Hudson's Bay Company staff was composed of salaried officials and indentured servants directly under orders from the Court of Directors back home, who traditionally ran a set of fixed posts on the shores of Hudson Bay near the river mouth waiting for Cree traders to convey furs down to them. Not until the North West Company traders ventured into the area, made direct contact with the producing tribes, and drew off much of the prime fur supply did the Hudson's Bay Company officers themselves venture into the interior — where they found themselves at a distinct commercial and diplomatic disadvantage against the skilled Nor'Westers. Until the very end of the struggle, the Montreal company consistently exported a substantially greater value of furs than did the Hudson's Bay Company. But revenue from exports alone meant nothing. Profits also depended on costs, not only the pay of company workers and the cost of trade goods, but also transportation and capital costs. For the Hudson's Bay Company transport costs were kept low by its access to Hudson Bay, which provided a simple means of supplying its posts direct from London by sea without much need for long canoe voyages into the interior. Its capital costs were also low, not only because goods turned over faster as a result of its more rapid communication line, but also because it had privileged access to credit. Hence despite its lead in trade, the North West Company's organization and location meant it was at a cost disadvantage to its London-based rival.

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The North West Company was organized quite differently from the Hudson's Bay Company. Rather than a chartered and incorporated company, it was a partnership of many firms, merchants and traders whose term was strictly limited and whose shares were not transferable through an open market. The fact that it was a partnership of fixed term made it difficult to build up cash reserves. It also lacked central direction and was vulnerable to internal wrangling over spheres of influence and division of profits. Furthermore, it did not have access to long-term external finance, but functioned on the basis of trade credit extended from its London principals to Montreal merchants and from them to the interior traders. These interior traders were equally distinct from their Hudson's Bay Company analogues. While the wage workers of both were indentured servants, the actual traders were salaried officers in the case of the Hudson's Bay Company, and partners in the enterprise in the case of the Montreal firm. This practice meant that the set of wintering partners of the North West Company not only had a profit incentive for performance in the interior, but also had a voice in the conduct of company affairs. They had their own distinct headquarters at Fort William at which matters of trading policy appropriate to the season's conditions could be determined, in contrast to the rigid structure of command of the London company. This flexible interior structure was the key to the North West Company's early success in the trade war. But the advantages in terms of flows of furs that the aggressive interior policy yielded the North West Company were offset in the long run by its rival's advantages in terms of transport and capital costs and political power. The Selkirk Dynasty The Hudson's Bay Company that emerged triumphant from the trade wars was quite different from the one that began them. In particular, the war-time period saw the rise of Thomas, Earl of Selkirk to a position of dominance. Thomas Selkirk inherited the Selkirk title and estate at a time when enclosures and evictions were tearing Highland society apart and when Ireland was again ravaged by famine and disease. The Irish Rebellion of 1798 had been suppressed; with Ireland starving, its population persecuted politically and religiously, and its industries languishing, Selkirk in 1802 came up with a plan for the forced transportation of Irish political agitators to British North America to be settled in the Lake Winnipeg area, where they would help assure

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British control of the Mississippi River system that Jay's Treaty threatened to lose for the empire. But the British government refused him land for the scheme, since to grant it would constitute de facto repudiation of the Hudson's Bay Company charter. Selkirk's next philanthropic plan involved his native Highlands where he, along with other so-called improving landlords, was busy turning the clan lands into sheep runs and evicting the tenantry, many of whom either died in Britain's wars fighting for liberty, democracy and the sanctity of private property, or starved to death at home. Selkirk decided to turn his own evicted crofters to good use and asked for a grant of land and a monopoly of mineral rights on the north shore of Lake Superior and Lake Huron. Again the British government refused assent, partly in opposition to any plan that would, in the midst of the Napoleonic Wars, deprive it of cannon fodder. Finally in 1803 he did successfully launch a colonization project, this time involving a tract of land in Upper Canada and another in the eastern peninsula of Prince Edward Island which had been conveniently cleared of its Acadian inhabitants several decades before. The PEI colony was regarded as a success by his Lordship (though the tenantry may have had other opinions), but the Upper Canada one was a financial flop. On balance this great philanthropist found himself with an asset he reckoned as worth £10,000 on which he had spent triple that sum. In 1806 the armed conflicts in Europe and the British-American northwest had caused the Hudson's Bay Company's stock to begin to slide on the London exchange. A complete suspension of dividend payments pushed it down even further. North West Company interests led by Alexander Mackenzie and Edward Ellice, principal partner of Phyn, Ellice and Inglis, started buying. Selkirk, who had married into a Hudson's Bay Company family in 1807, joined them. But the very different objectives of the two sets of interests caused an irreparable rift. Mackenzie and Ellice were looking to take control of the Hudson's Bay Company to secure for them a clear route across the west to the Pacific in order to prosecute the enormously profitable China fur trade at a time when European fur markets were in chaos. Selkirk wanted to plant a colony of settlement that would at once accord with his emigration schemes and improve the profit position of the Hudson's Bay Company by cutting its supply costs. Since Selkirk's agricultural colony would be planted in the Red River area at a place that would break up the communication line of the Montreal-northwest fur trade, it fundamentally conflicted with Mackenzie's scheme for a western fur-based empire ruled from Montreal. The turning point in the struggle came in 1811 when the Hudson's

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Bay Company granted Selkirk a land area five times the size of Scotland for a fee of five shillings. Selkirk set out to populate it with displaced Highland crofters. It was ideally located to supply the posts of the Hudson's Bay Company that had been set up deep in the interior in response to the competition of the Montreal traders. The establishment of the colony would cut the supply costs of these posts by eliminating the need to convey provisions upriver to them from the bay. It would also threaten the North West Company's own supply line. Selkirk's would-be colonists were freighted out to Hudson Bay and marched into the interior. Then, in a flagrantly provocative act, they were taken to a spot within sight of a North West Company post for a formal ceremony of taking possession of the area. Selkirk's agreement with the Hudson's Bay Company required that he supply 200 servants a year to the company and develop an agricultural colony. The settlers he brought out to fulfill both conditions were not given title to the lands they worked; were forbidden to engage in trade or to distill more alcohol than they could personally use; and had to buy all their requirements and sell all their produce at the company store at prices determined by the company. They were of course pawns in a cynical and often bloody game, deliberately placed in such a position as to maximize the hostility of the Nor'Westers. In 1813 the governor of the Red River Colony forbade the export of pemmican from the area, striking at the supplies of the North West Company and the personal livelihood of the M6tis who provided them. In 1815 the Metis struck back, breaking up the colony and forcing the colonists off to Upper Canada. That winter the Nor'Westers cut off the supplies of the Hudson's Bay Company and starved sixteen of its servants to death in the Peace River area. In 1816 Selkirk planted a new colony and bolstered it with a contingent of Swiss mercenaries. Securing for himself title of justice of the peace, he seized Fort William, the wintering partners' headquarters. The North West Company in turn produced their own justice of the peace and a warrant for Selkirk's arrest. In the ensuing legal battle the Montrealers laid against the Hudson's Bay Company and its colony 5 charges of robbery, 6 of grand larceny, 9 of stealing in dwelling houses, 5 for riot and pulling down houses, 3 for false imprisonment, and 1 for assault and battery. In return the Hudson's Bay Company laid 42 charges of murder or complicity in murder, 18 of arson, 9 of burglary, 16 of robbery, 9 of stealing in boats on navigable rivers, and 7 of malicious shooting. While the Nor'Westers won the legal battle — only one light sentence was passed on any of them — it lost the war. It had been badly weakened financially, and further debilitated by a quarrel between

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the Montreal merchants and the wintering partners over the division of profits. Both Mackenzie and Selkirk died in 1820, paving the way for a final merger in 1821. The flexible internal structure of the North West Company was attached to the centralized and London-based financial administration of the Hudson's Bay Company in an ideal kind of union from the point of view of prosecution of the trade. But it also meant the end of Montreal's fur trade, and of that city's first great transcontinental economic empire. The backbone of the St. Lawrence economy was already shifting to lumber and wheat, in the service of the British industrial system, and the dissolution of Canadian fur trade marked the close of another chapter of British mercantilism in North America. Furs had been the quintessence of mercantilism in its Canadian context. They formed a luxury staple that was ideal for reexport from the metropole to European markets, and were produced by an existing aboriginal economic system with which European mercantilism could form an unequal partnership. Indians were confirmed as the most important commodity-producing group in the colony, and the primeval nature of the geographic setting was left intact. But with the end of the fur trade, profound changes in both the significance of the aboriginal economy and the nature of the landscape itself followed. As the economic activities which had tied the aboriginal population of central and eastern Canada into a Eurocentric commercial web declined, and as private property relations triumphed over aboriginal notions of possession circumscribed by use, the aboriginal role in the society and polity shrank. The aboriginal socioeconomic system became an impediment to intensive exploitation of the natural resource base; private property in land, alien to the fur economy, became the norm. Indeed, the very forests which made the fur trade possible became the cardinal objects of economic exploitation. As the forests began to be cleared, the land was surveyed and alienated, and other preparations made for commercial farming. The stage was set for an infusion of white immigrants.

15

Emigration and Colonization, 1763-1841

DURING THE MERCANTILE PERIOD the European powers often took the economic systems that were already in place in the territories they came to control as a given, merely adapting their productive capacities to produce for world markets. But the Age of Industry demanded colonies that could produce industrial raw materials and absorb increasing amounts of metropolitan manufactures. The shift from mercantilism to industrial capitalism in the metropoles would therefore have profound effects on the structure of production and exchange in the colonies. Agriculture played a central role in the evolution of most colonies. Agricultural products figured heavily among the set of desirable colonial products; agriculture was the most reliable industry available for quickly building up a large white settler population that could absorb British manufactures in increasing amounts; and agriculture held out the greatest promise for turning the hordes of castoffs of the Industrial Revolution in Britain into self-supporting producers and consumers elsewhere in the empire.

The American Phase, 1763-1815 The 1763 Proclamation established the Appalachian mountains as the frontier between white and Indian lands, but the American colonies never respected it. The encroachment of land speculators after 1763, with the French threat removed, led to increasing tension between English colonies and their long-faithful Iroquois allies and the tribes the Iroquois controlled. In 1768 William Johnson, the Indian Commissioner and chief dispenser of trade patronage and presents, 197

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together with a group of colonial land jobbers, forced the Iroquois to cede large amounts of territory in New York and Pennsylvania. But Johnson was married to (among other Indian women) the sister of Mohawk chieftain Joseph Brant, and he played on the family connection to keep the Iroquois on the British side as the American Revolution approached. Brant was able to keep the Iroquois loyal to Britain during Pontiac's rebellion, but this would prove more difficult in the revolutionary war. The legacy of land encroachment coupled with the decentralized character of the Iroquois Confederacy led some, including the Oneidas, to declare for the rebels while others, like Brant's Mohawks, faced with a direct American threat to their lands, sided with Britain. The split meant the effective end of the Confederacy. In the aftermath of the war even the loyal Mohawks were sold out by the British, and both pro-British and pro-American tribes had their lands seized by New York-based speculators. As a result some were forced west and others, particularly the Mohawk, moved north. While the Iroquois were a nation of farmers and on the surface should have been able to coexist with the spread of white agricultural settlement, there were basic antagonisms between Indian and white farming that precluded peaceful coexistence. The Indians did not raise livestock — they had no tradition or techniques for doing so, nor did they possess either the capital or the incentive to acquire them. The forests yielded game which provided meat and clothing. But white commercial agriculture destroyed the forests and decimated the game, rendering the areas it exploited incompatible with aboriginal economic society. Indians therefore were either pushed out, or sold out for a pittance and moved on. In the aftermath of their defeat by the American rebels and their European allies, the British attempted to use Brant and the Mohawk to regain effective control of the Ohio Country as a bargaining centre in the diplomatic and commercial negotiations to follow. Loyal Iroquois and their vassals were sold arms in exchange for furs at the interior posts still under British control, and were encouraged to use the arms against the American frontier settlements. Twice American armies were mauled. In 1792 the United States tried to outbid the British for Brant's allegiance. Brant subsequently attempted to get the tribes to agree to American demands to move further west, but the chiefs rejected his overtures and accused him of accepting a bribe. A new American military expedition followed. With Jay's Treaty then under negotiation, the British military authorities in the interior refused aid. The result was the obliteration of some groups, and in its wake came a general surrender of land. Brant then led the bulk of surviving Mohawk to the Grand River

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area of southern Ontario. However, Brant sold most of the land grant his people received to white speculators for a sum that was never paid, and the Mohawk land base shrank again until it was reduced to one little reservation beside an Ontario industrial city that ironically bears the chiefs name. The eclipse of the Iroquois nation that for over a century and a half was perhaps militarily the dominant single factor affecting the political destiny of half a continent was one more milestone in the inexorable march of mercantilism into oblivion. As the Iroquois moved north so too did the United Empire Loyalists. Some were genuinely American Tories carrying the remnants of their personal wealth with them, though the bulk come out of other motives. One large group, numbering about 30,000, moved to the Maritimes where New Brunswick was created as a separate loyalist province to insulate the newcomers from the contagion of Nova Scotia republicanism. Jamaica and the Bahamas similarly became refuges for Loyalist southern planters and their slaves. American farmers also migrated in large numbers to the rich soil of Upper Canada. Unlike those in the Maritimes and the Caribbean, few of the newcomers to Canada seem to have had a loyalty to anything British beyond the free land. Their arrival created a problem similar to that which had led to the division of Nova Scotia. Landholding in the Province of Canada in 1774 had been confirmed on a seigneural basis in the hope of building up the loyalty of the French population, or more particularly of the seigneural class, and thus to create an ideological and military buffer against republicanism. To handle the new influx of anglophone farmers in 1791 the Province of Canada was divided. Upper Canada was made an area where freehold rather than seigneural tenure was the rule, and both provinces were granted some semblance of elective institutions. The result of these early population movements was that by 1812 85% of the population of Upper Canada and almost as much in the Maritimes was of American origin. Some British immigrants had also arrived, but they were relatively few. British official policy discouraged emigration for fear of losing their military and industrial reserve army. Those that did come arrived mainly in clans or septs from Ireland and Scotland to form farming communities in the Maritimes, or else came out as individuals whose objective were generally to get settled into an urban business. This last category was composed of bankrupt gentry or adventurers, members of merchant families sent out to mind the family firm's colonial affairs, or retired officers seeking a landed estate in North America where they could pretend to a social status they did not possess at home. But the mass of the population that came in the period before 1815 was American. After 1815 that changed dramatically.

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The Big Push Several principal factors explain the torrent of paupers that poured across the Atlantic from Britain in the early nineteenth century. The late eighteenth century had seen rapid population growth in the rural areas. Population growth initially was not a social problem: it could be absorbed into early industry which was labour intensive, or into the army. At the same time these demographic changes were occurring, the pace of land enclosure was accelerating. Again, in the short run there was no great problem: much of the displaced peasantry could be reabsorbed as a rural proletariat, and others into the army. But in the post-war period three factors went to work simultaneously. The capital intensity of industry was rising, exterminating the artisanal class without reabsorbing the excess labour in the factories. The end of the wars meant the sudden discharge of masses of manpower into the labour force. And a glut of agricultural products sent prices plummeting, curtailing sharply the demand for farm labour and encouraging even further land aggrandizement. Until the middle of the eighteenth century Britain was a net wheat exporter in normal crop years. However, as the Industrial Revolution and population growth proceeded Britain became a net importer, until by the turn of the century it drew fully one fifth of its food from Europe, especially the grain ports of the Baltic. War and external vulnerability led to official concern over the grain supply and to the Corn Law of 1804 which set a target price of wheat: if the market price exceeded the legislated target, duty-free import of corn was permitted. This legislative structure remained essentially intact for the next 42 years — only the target level of wheat prices changed. The landlord class was very powerful in Parliament prior to the political reforms of the 1830's. The Corn Laws, which were passed in theory to keep the price of wheat from rising too far, really had the target price set so high as to provide a substantial level of protection to the domestic producers. Once the high price of wheat was assured, the expropriation of the small-holder population and the consolidation of large, capitalist farms could accelerate. One of the most important factors facilitating the destruction of small-scale farming was the English system of poor relief. From 1795 to 1834 the rate at which poor relief was doled out was tied to the price of bread: if wages fell below the subsistence level measured in terms of a certain amount of bread, then the population would get an income supplement from the poor rates. The poor, to qualify for relief, had to register and remain in their own parish. The result was that the farmers, who were the chief body of property holders, were taxed to

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provide for the relief of the distressed population. The taxes were steeply regressive, so in effect poor farmers paid to maintain the population of tenantry evicted by the large landholders. The subsidy to wages was a windfall to the local industrialists, who could push their wage rates below subsistence with impunity since the poor rates would supplement them enough to keep their work force alive. For the small property holder the burden of maintaining the poor rates was another factor driving him out of business, particularly after 1815 when agricultural prices collapsed while the number of poor relief recipients rose. As early as 1803 1,234,000 of a total English population of 8,870,000 drew relief. By 1817,84% of local government budgets were literally being eaten up by the poor, and the local authorities began looking urgently for ways of shoving the human waste off to the colonies.

Emigration from England Along with the agricultural upheavals, industrial distress was growing. Technical change in industry, in particular the substitution of capital for labour, decimated the ranks of skilled workers. Wool weavers as a class were being virtually obliterated, and the ranks of unemployed weavers were swollen after the war by demobilized soldiers and displaced Irish peasants. Wages were not enough to maintain a minimum standard of decency: for many unskilled workers who had jobs, only poor relief, when they qualified for it, supplemented their wages sufficiently to prevent starvation. If they could not get poor relief they starved too, more slowly perhaps than the unemployed, but just as inevitably. Meanwhile, industrial distress was also growing, and riots resulting from famine were threatening the foundations of English society. Technical change in industry, in particular the substitution of capital for labour, decimated the ranks of skilled workers. Wool weavers as a class were virtually obliterated, and the ranks of unemployed weavers were swollen after the war by demobilized soldiers and displaced Irish peasants. The wages of those lucky enough to be employed were not enough to maintain anything resembling a minimum standard of decency: for many unskilled workers who had jobs, only poor relief, when they qualified for it, supplemented their wages sufficiently to prevent starvation. If they could not get poor relief they starved too, more slowly perhaps than the unemployed, but just as inevitably. For a long time the British Parliament put obstacles in the way of emigration. It feared the loss of cannon fodder and the possibility that skilled workers (and machinery) migrating to Europe or America

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would facilitate the development of competitive industry. But government attitudes did gradually change. The mercantilist obsession with population size was appropriate to an era of demographic stagnation but made little sense at a time when population growth, evictions and unemployment threatened social upheaval. A new view began to take root, that the excess population of Britain could be diverted to the colonies where it would work the farms, mines and lumber camps to produce raw materials for the metropole while at the same time absorbing British manufactured exports. "Systematic colonization", as the new theory was known, conceived of a self-sufficient empire built on colonies as sources of raw materials, as markets for metropolitan manufactures, as repositories of surplus population, and, not least, as a place where surplus capital could be invested. Not only were wage rates falling below subsistence, but the development phase of industrial capitalism seemed to have ended. Falling profit rates in the face of excess capacity and glutted markets threatened to divert British capital into building up competitive manufactures in Europe. Better, thought the advocates of systematic colonization, to divert surplus capital as well as labour to the colonies and channel it into complementary rather than competitive pursuits. Colonies and the metropole could once again complement each other admirably: the colonies had huge tracts of empty or emptied land, but lacked people and capital, while the metropole had a surfeit of both. Furthermore, the ample land of the colonies would enable the population leaving Britain to move into agriculture on the basis of the family farm, and thus avoid the possibility of the creation of an industrial low-wage proletariat abroad. It remained only to find a price for Crown lands which would assure that the land would be accessible to the immigrant population after a few years of wage labour. The result would be to assure a revolving fund of labour for public works as the newcomers attempted to save to buy this land, while the relative accessibility would preclude the emergence of a permanent proletariat. Crown sale of lands would also assure control over the spread of settlement, and prevent a wide dispersal of the population that would hamper development. Finally, land sales would generate the public revenues to sustain the colonial governmental apparatus at no further cost to the British taxpayer. Despite the credibility this theory was gaining, there was initially little in the way of systematic emigration from England. After 1815 the collapse of wheat prices and the rising burden of the poor rates pushed many skilled farmers abroad, but the lure of free land took most of them to the United States. Most of the skilled factory operatives who had any savings and therefore some choice about

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where they went also moved to the U.S. For the unskilled pauper population, emigration was often precluded by the Poor Laws themselves: better to stay in the parish and have subsistence guaranteed than to risk passage aboard one of the immigrant-coffins that plied the Atlantic and an unknown fate on the other side. This and other legislative restrictions tended to curb the volume of emigration from England for some time. From Scotland and Ireland, it was another matter.

Emigration from Scotland Scotland was the main source of immigrants into British North America in the early nineteenth century. From the end of the Napoleonic Wars until the 1830's some 39,000 British emigres arrived in Nova Scotia alone, of which 22,000 were Scottish, 13,000 Irish, and only 2,000 English. The Scottish emigres generally arrived without cash, utensils, or much above the bare minimum of personal effects, and found neither jobs nor land freely available. The Lowlands of Scotland closely resembled northern England in socioeconomic conditions. This region had widespread industrialization and well-developed commercial farming. The same factors that prompted the movement of northern English workers and farmers to the colonies were at work in the Scottish Lowlands, but more intensely. Industrial conditions were worse than in England in the postwar period; the wages of skilled artisans sometimes dropped below the starvation point; the Scottish cotton mills, geared as they were to a higher-quality output, could not match the shoddy English products in seizing the Indian market. Scottish factory workers began therefore to join the migration of weavers and farmers to North America. On top of the Lowland exodus was that of the Highlands and the western islands, particularly the Hebrides. Emigration from the Highlands began in 1745 following the collapse of the Stuart cause and the repression that came after. A crisis in the Highland socioeconomic system accompanied the English abolition of the clan organization to wipe out the political power of the Scottish lords who led the resistance. At the top of the clan system were hereditary chiefs who nominally owned the land and delegated its administration at a nominal rental to a class of tacksmen. The duty of these tacksmen was to keep a large population of tenantry on the land who could be called upon in time of war. The objective was to maintain the maximum possible military population, and it was from the clan organization that the Stuarts drew much of their strength.

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English destruction of it came in two phases. First, landholding was commercialized and the tacksmen rendered redundant: tacksmen were common among the early Highland exodus up to 1783. After 1783 it was the peasantry itself that left, as the landlords responded to commercialization by enclosure. Lands whose tillage had been the livelihood of the members of the great clans who supported the lords in war and politics, now became pasturage for the sheep that maintained the lords at peace and play. As population growth and subsequent war-time demand drove up the value of land for wheat cultivation in England, the sheep-farming frontier shifted north to the Highlands. While enclosures began before the Napoleonic Wars, these wars had two effects: they accelerated the pace of enclosure and eviction, and they hid the resulting problem for a while by providing an alternative livelihood for the Highland farmer-soldier. In 1815, the discharging of soldiers drawn from earlier decades of enclosure and eviction into the civilian labour force was therefore a major social disaster for the area. British laws facilitating enclosure made the situation of the peasantry even worse during the immediate post-war period. The legal cost of securing an eviction in Scotland was reduced to one quarter its English level. Faced on the one hand with the threat to social order posed by the starving and desperate, and on the other by the return from investing in the commercialization of agriculture, "improving" landlords like Lord Selkirk even found it profitable to subsidize the emigration of their own tenants. If the tenantry resisted eviction the British government was again on hand to help. In 1820 the Duchess of Sutherland had about 15,000 people, some 3,000 families, on her estates; that year they were evicted — hunted down by British soldiers, their villages burnt, and their lands enclosed for sheep runs. A total of 794,000 acres of clan land was thus cleared, and in exchange the tenants received a total of 6,000 acres, two acres per family, near the sea where they could conduct a herring fishery. When the fishery became valuable they were evicted again. Part of the remnant were later dumped in Prince Edward Island and Cape Breton, living off charity until they could find work logging or mining or as tenants on some other landlord's land.

The Exodus from Ireland Irish agriculture, industry and political life was equally affected by the wars and revolutions of the late eighteenth and early nineteenth centuries. Ireland, with fine soil and one of the mildest climates in

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Europe, had a level of poverty and social distress unmatched elsewhere in the continent. It was also a hotbed of revolutionary agitation: the American Revolution came close to setting off a sympathetic Irish one, and the French Revolution actually did. The Insurrection Act was in force for most of the period between 1796 and 1823 to deal with revolutionary political activity. The post-war slump hit Ireland with particular severity, and emigration was massive. From the time of Cromwell, Ireland had been treated as simply another plantation economy in the empire, and its economic life structured by legislation to fit into the imperial schema. Industry was often prohibited and agriculture encouraged. Over the course of the late seventeenth and early eighteenth centuries Ireland was the most important provisioning point for ships in the Atlantic trade, and its salt beef and pork went to Newfoundland and the West Indies. In the late eighteenth century the agricultural base began to change in response to the Corn Laws and rising wheat prices. As with English agriculture, a shift from pasturage to tillage occurred, but with one vital difference: wheat was too valuable to be fed to Irishmen. An export trade to England grew rapidly even in the face of some import restrictions, and from 1806 Irish cereals began entering England completely free of trade restrictions as part of the English strategy of replacing the threatened Baltic sources. It also entered England in response to more basic social forces: the absentee landlords who ruled Ireland's destiny from their mansions in London saw the grain trade as a means of collecting cash rents. Irish wheat would be sold in England, and the proceeds pocketed by the landlords. As prices of wheat rose, so too did rents: once again the benefit of the Corn Laws and the war-time shortages went disproportionately to the rentier class and not to the producers. In 1815 prices collapsed, but rents stayed high. The distress deepened with the flow of returning soldiers and more evictions. After the 1815 wheat price-collapse, landlords had increasing difficulties in collecting rents; Parliament's response was an act that enabled tenants to be evicted quickly for a cost of about £2, whereas in England it cost £18 and required on average a twelve-month legal battle. The act also gave landlords the power to seize tenants' crops in lieu of rent and sell them on the tenants' "behalf, keeping the rent plus "costs". This clause predictably led to landlord rampages, seizing wheat and potato crops, livestock from those that had any, and household furniture. The tenant would then be evicted. A thorough landlord would burn down or flatten the homes of the former tenants to insure against their return. The dispossessed began their search for an alternative means of subsistence. Their first stop in search of work or charity was the cities,

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especially Dublin. The charity had to be purely private, for there was no Poor Law in Ireland to parallel the English Speenhamland system until well into the nineteenth century. After the Irish cities, the next stop was England, to exacerbate further the existing level of economic distress among the working class. Then finally came the journey across the Atlantic.

The Emigration Trade If the miseries of the evicted Scottish, Irish and English peasantry and displaced artisans were not already sufficient, many were ready to make them worse, notably those associated with the mechanics of operation of the most tragic population movement since the peak of the Atlantic slave trade. In the eighteenth century a pauper who could not afford regular passage would secure it by indenting himself. The captain of the ship would carry him free of charge, and then sell him in the colonies. Specialized merchants grew up, putting up the capital, enlisting the indentured servants, arranging for their transportation, and then having them auctioned off in the American ports. The traffic in indentured servants died off during the twenty years of war and blockade that disrupted shipping services from 1793 to 1814. It sprang up again briefly after the war, but soon the supply of destitute and desperate was so great as to cause a glut on the market, and the trade died out. But by then another even cheaper way of transplanting the derelict population had come to light. In 1807 the closure of the Baltic by Napoleon's Continental System not only hastened the pace of evictions by encouraging capitalist farming in Britain to replace Baltic grain, it also provided the means of transplanting the evicted population abroad. The Baltic was also the principal source of British wood and wood products, and after 1807 came a rapid growth of the timber trade from British North America. Since the ships carried payloads in only one direction, they had an incentive to pack their holds full of paupers instead of ballast on the outvoyage. The timber-immigrant ships acquired a reputation as being the worst afloat, and they sometimes failed to stay that way. Referred to as immigrant coffins, these ships would load as many immigrants as could pay the fare. Conditions got so bad that the British government took action to regulate the trade—in the interests of the timber ships. Up to 1817 ships could carry one passenger per five tons of weight: after 1817 ships to the United States still maintained the one-per-five-ton rule, while ships to British North America could carry one passenger per one and a half tons. The effect was to divert the bulk of the hapless to British North America. By

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1819 some 70% of the emigrants arrived at British North American ports, even though their ultimate destination was the United States. The rule also assured that transportation to British North America would take place under the most cramped and desperate conditions. There was actually little need for legislative interference to assure that result. Many emigrants were already at the margin of existence. At the seaports some were robbed by the shipping companies who lied about fares, conditions abroad, and passage time. Ships would deliberately delay sailing to force emigrants to spend their money at boarding houses owned by the company. Captains were known to understate the length of the voyage to ensure the emigrants would not carry enough food, and therefore would be forced to buy from them at extortionate prices in mid-voyage. Efforts to clean up conditions were blocked by the shipping companies. On the other side, American governments looked with less than open delight at the flood of misery that threatened to wash ashore. The heavy initial influx of paupers led to some states laying heavy taxes on their arrival or even barring them outright. Massachusetts and Pennsylvania passed statutes that forced ship owners to post a bond to ensure their passengers would not be a public charge for their first two years in the state; only the able-bodied and relatively well-todo immigrant was wanted. The result was to divert the flow of invalids, cripples and idiots along with the poorest to British North America. And of those that landed on the British side of the border, the most able-bodied often went on to the United States by land. A 1846 survey, made before the Great Hunger spilled its cargo of human refuse into Canada, showed that Canada already had a larger percentage of idiots and invalids, of mentally and physically handicapped than anywhere else in North America or Europe where comparable data were available. Along with the destitute came disease that did not differentiate between newly arrived and established settlers, though of course mortality, as always, was higher among the poor. In 1827 800 of Halifax's 11,000 inhabitants died of typhus. In Quebec City in 1828 1,500 died of cholera. The hospitals were overflowing and the excess was sent upriver to Montreal, where panic erupted. Even boatmen on the St. Lawrence fled in fear, and river traffic ground to a halt for several days. In 1832 another cholera epidemic hit Quebec. Gradually, facilities for handling the deluge of paupers began to take shape. A quarantine station was established, and poll taxes on arrivals to help finance relief measures were imposed, over the vehement protests of the shipping companies and emigration societies in Britain. But in 1847 came a new influx that swamped the facilities that had been set up. Even before that date the problem of what to do with the new

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arrivals, how to convert them from a charge on the public purse to productive members of the society, was a pressing one — and remained difficult to resolve. For between the potential settlers and the seemingly limitless supplies of land available for settlement stood the land speculator and aspiring colonial landed aristocracy eager to make their incomes match their social pretensions.

The Great Divide Prior to 1815 the bulk of the immigrants into Canada demanding land were Americans, supplemented by groups of disbanded British soldiers. Even before the loyalist influx into the rich agricultural areas of southern Ontario, a steady trickle of land-hungry farmers and speculators were putting pressure on the Indians to sell and move on. In 1784 the handing out of great tracts of land to loyalists began, with its objective the creation of a colonial aristocracy, similar to the seigneural class of Quebec, as a bulwark against republicanism. It was complemented two years later by a system of military land grants which had the dual purpose of providing an alternative to cash pensions to disbanded soldiers and of building up a military reserve, free of maintenance costs, for possible future use against the American states. Among the grants made was a gift of 13,400 acres to Benedict Arnold. In 1791 the military regime gave way to civilian government, the province of Canada was divided into two separate jurisdictions, and the mechanisms for dispensing land changed accordingly. The governor and his executive council in each province were given control of the distribution of the unceded lands, apart from clergy and Crown reserves. They undertook the job of distribution with three objectives in mind. The first was to create a colonial class of great landlords, on whom the governor would draw to staff his councils. The second was to assure to the executive branch of government fiscal autonomy from the assembly — the revenues from Crown land sales, stumpage fees and mineral royalties would go directly to the governor-in-council for disbursement, particularly since British North America followed British rather than American precedent and reserved to the Crown all timber and mineral rights to alienated lands. The third was to reward loyalty by handing out land to political favourites, not least themselves. Thus, in Upper Canada great tracts of land went to political lackeys of the governor, and bona fide settlers coming later had to buy prime land from these beneficiaries of political largesse. LieutenantGovernor Milnes of Lower Canada gave himself 48,000 acres and handed an additional 12,000 to each of his councillors. Friends and

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relatives of the executive secured another 100,000. The chairman of the land committee of the executive council gave himself two townships: the chief justice of the province, who should have been in charge of detecting and prosecuting land fraud, got one township. Over Milnes's four years in office some sixty people received a total of 1.5 million acres of land in the lower province. Patterns of immigration and land settlement changed after the Napoleonic Wars. Before the War of 1812 Americans had been the chief settlers and had qualified for land ownership by the taking of an oath of allegiance: after it, grants to Americans ceased and efforts to block their settlement were instigated, much to the chagrin of the speculators and to the established American settlers who began to fear for the security of their existing grants. At the same time that further American settlement was blocked, the waves of British immigration were about to begin. The American emigres had been skilled farmers and often possessed some capital, but this was not the case with the immigrants from Britain, many of whom were urban craftsmen with no experience in farming and little or no capital. After the loyalist phase had ended new methods of land alienation were introduced, but the results were much the same as before. In 1818 the "location ticket" system was initiated. Persons to be given land were at first only given a ticket granting entry rights to a 200-acre plot specified in the ticket. Only after four acres were cleared and a house built would the settler's land be legally granted. But the system too was manipulated by speculators with the open connivance of officials. The regulations were modified to permit anyone, not just the owner, to perform the settlement duties. Paupers were hired by wealthy landowners to slash and burn four acres on each 200 and throw up a log shack. The conditions of the grant having technically been met, the landowner would collect the title for the land, the pauper would be out of work, and the area was left to grow over again. Land could be purchased on installment, with the inevitable problems of collection of payment and recovery of interest arrears. Sometimes timbermen would pay the first installment, strip the land of merchantable wood, and move on, leaving a tangle of undergrowth and strippings that made the area less fit for settlement than it was before. Furthermore, handouts to officials and political favourites continued on a massive scale, and with them the pace of land aggrandizement. In Upper Canada each executive and legislative councillor automatically received 5,000 acres, plus another 1,200 for each of their children. Magistrates and barristers found their salaries supplemented by grants of 1,200 acres. Then too came the enormous gifts to government agents who agreed to undertake large-scale colonization, and rarely did — without it affecting their accumulation of land.

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After 1825 land policy was increasingly shaped by the twin notions of revenue and systematic colonization. As population increased the demand for public works rose, making it imperative that the government find new revenue sources. At the same time pressure from the assembly by reform interests encouraged the executive to search for independent revenue sources — from land sales and stumpage fees in particular. Furthermore, pressures inside Britain after the Napoleonic Wars for easing the tax burden led to the cutting back of subsidies to the colonies, forcing them to meet more of their public obligations from local sources. Moreover, some of the colonial reformers recognized the harmful effects on settlement, and therefore on the development of the colonies as dumping grounds for Britain's surplus population and manufactured goods, that the early scramble for spoils had produced. These notions were expressed in the formation of land companies which were given charge of the Crown reserves of the two Canadas in order to assure some coherence to the settlement process and to help assure the fiscal independence of the executive from the assembly. The idea of turning colonization and development over to a few great companies made some sense from a social and economic point of view, as well as from the political one of the ruling elite. The wild lands required a great deal of capital investment, both infrastructural for roads, irrigation, drainage, etc., and productive capital for mills, fences, irrigation, drainage and livestock. These requirement were well beyond a level the pioneer settlers or their community could immediately bear. Hence either the government provided the infrastructure and some of the fixed capital, or a land company did. Not only did the company invest in social overhead capital — to be repaid in the form of profits from increasing land values — but it provided, in effect, mortgage monies by buying land from the government and selling it by installments to the settlers. The first of the land companies was the Canada Company, the embodiment of the schemes of John Gait and the money of a group of wealthy English gentry. The company had favourable terms of payment for the best land in the province, was backed by solid wealth in Britain, and found itself the recipient of a highly desirable class of settler with farming skills and capital. Nonetheless it frequently pleaded pending bankruptcy to get the government to reduce its payments, and cheated when it could. The flow of public largesse to the company led the Reform Party to charge that the government was merely an administrative arm of the company. In Lower Canada a similar operation was undertaken. John Gait and a group of British gentry together with the governor of the province, his council, and prominent Lower Canada merchants and

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financiers, promoted the British American Land Company to exploit the lands of the Eastern Townships. As with the Canada Company, all the revenues from the land it bought would be paid directly to the executive branch of the government. Unlike the Canada Company, however, the deal was put through at a time when the agitation for responsible government was reaching a crisis point. The contract concluded in 1834 produced outrage in the assembly, and assured mounting woes for the company before it had a chance to stabilize its position economically or politically. Then came the crash of 1837 and rebellion against British rule, which led to an almost complete cessation of immigration. The company's stock tumbled on the London exchange, and in 1838 the British American Land Company passed into insolvency. By that time much of the damage had already been done. As early as 1825, 3.5 million of 8.5 million acres of non-seigneural land in Quebec had already been ceded. Despite the fact that only 5% of that land granted had been developed, much of the remaining unceded land went to the new monopoly company. In Upper Canada, the situation was as bad. In 1825 Upper Canada had a population of 150,000; it had made land grants totaling 8 million acres exclusive of the clergy, crown, school and Indian reserves. By 1838 the population of the colony had risen to 400,000, yet only 600,000 acres, or about two per new settler, were disposed of to settlers. Nor were the public revenue facets of the land policies successful. Excepting the "sales" to the Canada Company, the Upper Canada government by 1838 had given away forty times as much land as it had sold. And by that date at least 4.5 million acres, including much of the prime agricultural land in British North America, lay idle in the hands of speculators. Despite some successes by the Canada Company, the legacy of past profligacy was a heavy one. Settlement could only have been hindered by land aggrandizement, by the speculative withholding of prime land, and by the fact that the resulting prices were higher than equivalent land in the United States. Favouritism and corruption were rampant. Political supporters would be rewarded with grants of town and mill sites, and a settler would find that the location of his grant depended on his social status and political influence. Moreover, the interspersing of settlers with clergy- and Crown-reserved land not only made church and state the biggest speculators in Canada, but also, by scattering settlement, made collective efforts by settlers to develop communal institutions all the more difficult. That agricultural and communal development did take place is a tribute to the dedication and labour of the ordinary settlers in the face of obstacles assiduously placed in their path by the combined efforts of politician, capitalist and cleric.

16

Finance and Politics in Canada, 1793-1841

IN SPITE OF THE OBSTACLES resulting from the great land grants that preceded the main influx of overseas immigrants, an agricultural economy did take shape in the province of Upper Canada and was, especially after the Napoleonic Wars, increasingly drawn into a transAtlantic exchange network. As in contemporaneous developments on the Atlantic seaboard, the agricultural frontier was shaped by the triple forces of the Industrial, American and French Revolutions. The first of these assured the opening of Britain to the bulk staples of timber and wheat, which unlike their fish and fur predecessors required the transformation of the natural ecology of the area and an accompanying demographic revolution. The second and third assured that in the two pieces of the old province of Canada, political agitation of a liberal-democratic character would accompany the economic transformation and increasingly challenge the old structures of political and economic power imposed on the area by a moribund mercantilism. Nowhere were these tensions more clearly manifested then in the fiscal and financial system

The Changing Nature of Montreal Commerce The 1790's were years of stress and readjustment for Montreal big business, of fur trade wars, of American commercial competition, and the disruption of the normal flow of trade that the fur trade wars produced. The outbreak of European war and the British government's consequent desire to reduce its military expenditure in America by effecting a rapprochement with the American state led in 1794 to Jay's Treaty. Under its terms, American shipping was readmitted to 212

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the British West Indies trade and Britain turned over the fur trade posts in the Ohio Country to the United States in exchange for compensation paid to Loyalists who had been stripped of their property during the American Revolution. The British government's objective was at least in part financial: it needed money to maintain its force of troops in Canada, which averaged 6,500 from 1784 to 1794 and were largely stationed in western posts; it had to pay for "presents" to maintain the Indian alliances; and it bore the financial burden of the subsidies needed to establish Loyalist communities. Surrender of the western posts would cut the military costs, including the expense of Indian "presents", and the American government would assume part of the costs of resettling Loyalists. While the reopening of the West Indies trade to American ships was a matter of relative indifference to Canadian business, other clauses of the treaty were not so innocent, particularly the proposed surrender of the western fur trade posts. The losers would be the Montreal fur traders, who could no longer rely on the British government to cover the cost of the Indian "presents" which had cemented a commercial as well as a military alliance with the producers of furs, and who would be progressively squeezed out of the southwest trade. The treaty forced Montreal capitalists to look to more diverse interests than the fur trade for their returns. One such alternative was in Vermont. The Vermont trade in lumber and potash was second only to furs in the value of cargoes it provided Montreal business to pay for their imports of rum, sugar, molasses, tea and British manufactures. Both, however, were much less important than British military expenditures as a source of foreign exchange earnings for the Canadian economy. Since the bulk of these military expenditures went into the upper province with its growing Loyalist population, Montreal merchants soon began to eye Upper Canada as a potential commercial fiefdom. Indeed, the real threat of Jay's Treaty in the long run was the possible end of the bonanza of British military expenditure it promised. Fortunately, that took more than two decades to come to pass.

Agrarian Problems in Upper Canada During the early period of Loyalist migration the Upper Canada farm community depended heavily on local government officials for subsidies to establish farms and villages, and on local garrisons for markets for their output. Since the bulk of the subsidies were paid in goods and services, the only possible source of cash was the military demand for the farm produce. But between the settler and the soldier

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stood the army contractor. This merchant-contractor imported rum, tea, dry goods and hardware from Montreal and sold them to the settlers. In return he received their grain and livestock which he sold to the garrison, being paid chiefly in bills of exchange drawn on the imperial treasury, which bills he sent to Montreal to cover the costs of his imports. Initially the commerce with Montreal was largely a oneway flow, for the costs of transportation were too heavy to permit exports. As settlement spread, however, an export trade in flour and potash to Montreal and beyond to Britain via the Montreal merchant houses emerged. With the flow of goods along the St. Lawrence now moving two ways and the extension of the limit of settlement deeper into the back country, the structure of commerce changed. Goods and credit moved from Montreal to Kingston, and from there into the other wholesale trade centres of the province. In turn the wholesaler granted goods on credit to the country merchants who dealt directly with the settlers and who fulfilled the roles of bankers as well as retail merchants. The settlers were typically in debt to the country merchants who had extra-economic means by which to enforce the debt-credit structure. As an early leader of reform agitation put it, "The shopkeepers are Justices of the Peace — they have the means of extortion and the power of enforcing payments. They are first the criminals, then the judges." The effects of the War of 1812 on the Canadian agricultural frontier were many and complex. It transformed the markets for Canadian produce. The southern fur trade had already been in decline since Jay's Treaty, and the war killed it. The effects of the loss of the southern fur trade supply business was compounded a few years later by the loss of the northwest trade as well, as the merged North West and Hudson's Bay companies switched their North American supply base to the Red River colony. In addition, the American market south of the lakes was lost, first by the immediate effects of the war, and on a more permanent basis by the development of the American agrarian frontier there. Exports to Montreal also ceased. In their place came a greatly enhanced garrison demand which not only absorbed all the local surpluses but reached the point where by the end of the war the British armies in Canada were surviving on American grain via Halifax and American beef smuggled across the Ontario border. The injection of purchasing power that military demand represented helped to monetize the economy. Cash flowed abundantly, albeit mainly in the form of paper promissory notes, known as "army bills", issued by the military authorities. One long-run effect was to help prepare the way for banks, bank notes, and a system of paper credit. But the boom in the garrison supply business had other effects as

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well. Until the war the Upper Canada agrarian frontier had been a fairly equitable society: there were rich people and poor people, but the distinctions were relative rather than corresponding to rigid class lines. The great majority of the income-earning population seem to have been property owners, the operators of small family farms, and an agricultural or rural proletariat was virtually absent. Poverty was certainly far from absent — as the presence of poor relief facilities and jails attested — but it was not chronic. Class differentiation and social ossification, while certainly not imputable to the war alone, appear to have been facilitated by it, as accumulated wealth from the war confronted a post-war flood of pauper immigrants from Britain. Perhaps most important of all the effects of the war in the long run was the partial sealing of the Canada-U.S. border. The British hold on Canada had been confirmed militarily and would now be consolidated both demographically and commercially. In the wake of the war the London-Montreal-Upper Canada trade nexus resumed operation, supervising the flow of grain out of and manufactured goods into the province. With the decline and the eventual fall of the Montrealbased fur trade, the Montreal merchant elite made the transition from mercantilism to the commercial structures of the Age of Industry by switching their business activities increasingly into the Upper Canada agrarian frontier. In 1815 Britain passed the Corn Law, designed to protect British landlords who had overextended their investments by expropriating the smallholder class and enclosing their land. Canadian wheat, including American grain coming in for re-export, was permitted entry only when the market price in Britain exceeded a certain level. While 1815 itself was a crisis year for grain sales, the next few years saw a resumption of inflationary conditions and grain prices rose. Shortages in Britain stimulated Canadian exports until the great collapse of 1819, when wheat tumbled to half its former price. In 1820 excellent harvests in Britain and the United States not only shut Canadian produce out of British markets but saw the dumping of American grain inside Canada, precipitating even further price falls. Farmers began demanding protection from American produce, and were opposed by Montreal merchants who wanted the maximum export surplus possible. It was a manifestation of the classical form of class struggle in early staple-producing economies, with the independent commodity producer ranged against the merchant, just as in the Newfoundland fisheries and the New Brunswick timber business. The objective was to turn the terms of trade in favour of one class at the expense of another. And, as with the Maritime colonies, the political struggle manifested itself in an effort by the Assembly, where small businessmen and independent commodity producers could make

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their influence felt, to expand its power at the expense of the merchant elite who crowded around the governor and controlled the councils.

Agrarian Problems in Lower Canada While Upper Canada was a pioneer society, Lower Canada's agricultural economy was centred in an area where the infrastructure for a developed farm sector had been laid in place during a century and a half of French rule. Land had been cleared and improved, and through generations of experience the population had acquired the skills appropriate to new-world agriculture, to both the physical conditions that constrained the supply and the market conditions that determined the demand. The technology may have been primitive by Western European standards, but it worked and worked well as long as demand was stable. In the late eighteenth century there was a sharp rise in the export demand for wheat. The effects of population increase and urbanization in Britain were compounded in 1807 when Napoleon severed the Baltic grain supply, forcing Britain to turn increasingly to British America. Upper Canada held out the best long-term prospects, but its underdevelopment limited its efficacy. Hence the farmers of Lower Canada were initially well-placed to respond to rising demand by intensive wheat cultivation. However, even during the Napoleonic Wars the British market for Canadian wheat was far from stable, and after the wars the market was briefly glutted. Moreover, Upper Canada's better climate and newer soil gave it a long-term advantage in wheat export over Lower Canada, whose agricultural economy shifted steadily toward mixed farming for a domestic market. While an expanding local market could displace the export market to some degree, it carried certain long-term disadvantages. It cut the Quebec agricultural economy off from direct contact with the nineteenth century world food market, from the foreign exchange earnings that only export staples could produce, and from new agrarian technological developments, which usually advanced most quickly in the export-staple crop sector. It also meant a growing disarticulation between the political-business objectives of the province's anglophone elite, tied to the British-centred Atlantic commercial economy, and the francophone agrarian sector and the professionals and smaller business interests that serviced it. As in Upper Canada, the emerging tension spilled over into debates on the evolution of the financial sector.

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217 British Precedents

Two long-standing institutions personified the operational principles of mercantilism in the English financial system. One was the legislative barriers to the free import and export of silver and gold. The second, closely related, was the monopoly power of the Bank of England, especially its domination of the business of printing and circulating paper money. During the early stages of the French Revolutionary wars a flight of specie to the Continent and a run on the Bank of England forced the government to suspend the redemption on demand of Bank of England notes into specie. At the same time inflation accelerated and the foreign exchange value of the British pound depreciated. This combination of circumstances generated a heated controversy among English financiers and political economists, one which continued for several decades after the war and had echoes well into the next century as well as conditioning British official attitudes toward colonial financial legislation. The opponents of bank monopoly and of the power of the Bank of England, together with those of the industrial class who were arguing for free trade, bolstered by some of the most prestigious political economists of the day, insisted that the inflation and devaluation were caused by excessive amounts of paper money in circulation. Led by David Ricardo, they argued that banks should be forced to keep their notes always freely convertible into specie, and thus restricted in volume to a fixed multiple of their cash reserves — the lower that multiple, the better. In effect Ricardo and his allies argued for the dismantling of all controls on the export and import of precious metals, for the breaking of the control exercised by the Bank of England on the British money market, and for the imposition on banks of the "discipline of the market" in the form of an automatic gold standard. With a rigid link between paper money and gold reserves, and the free entry and exit of gold, the supply of paper money would rise and fall automatically with the state of the British balance of payments. Thus any loss of gold from an adverse balance of payments would be self-correcting: the drain of gold would force banks to curtail the supply of paper money; the price level would fall; British goods would cheapen with respect to foreign; and foreign demand for British goods would correct the balance of payments and replace the lost gold. The same process worked in reverse. Based on this logic, mercantilist restriction on specie movements were unnecessary and self-defeating. While the supporters of the Bank of England and the vestiges of mercantilist restriction fought back, inexorably the advocates of free trade in money won the battle.

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They were greatly aided by post-war financial conditions. The national debt had risen from £ 13 million in 1709 to £900 million by 1815; rents and debt charges remained heavy while commodity prices and wages fell. Free traders raged that the debt burden would bring about the collapse of the entire productive apparatus. And periodic crises continued to wipe out numerous small banks. Gradually new types of financial institutions took shape. In the wake of the war the value of the pound was pegged to gold, whose free export and import was permitted. And over the course of the three post-war decades restrictions on the formation of banks that would compete with the Bank of England were lifted. In 1825 in the midst of another company promotion mania the Bubble Act was repealed, thus allowing the formation of joint stock banks, first in the provinces, and then in 1833 in London itself. Finally in 1844 came the complete victory for the forces arguing for automaticity of the credit system. The Bank of England lost its power to control money market conditions by issuing paper money on a discretionary basis; from now on the amount of new paper it could issue was tied on a one-for-one basis to the amount of gold it held as cash reserves. It was against this background of controversy and periodic crisis in England that the Canadian banking system took shape, moulded partly by the changing structures of imperial trade, partly by the evolution of economic conditions (and political ones as well) within the colony, and partly by the vagaries of Colonial Office attitudes toward the correct principles of colonial banking.

The Emergence of Colonial Banks The end of the War of 1812 brought a commercial crisis and deflation of major dimensions. British military spending dried up, and staple prices fell at the same time harvests were poor. A sharp balance of trade deficit with the United States drained the Canadas of good coin, including that sent by Britain to redeem the army bills, and left a circulation clogged with broken down and debased coins, brass buttons, trade tokens, and private promissory notes. The simultaneous appearance of currency famine and commercial distress produced the classic confusion whereby the first was assumed to be the cause of the second, instead of them both being effects of the cessation of British military spending. Also in the wake of the war came another shift in the commercial patterns of the upper province. The Corn Law of 1815 granted preference to colonial grain, and to American grain imported into Canada for milling and re-export to Britain. With the protection of

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the colonial grain preference added to that of the timber trade, and the disruption to the fur trade caused by the wars between the North West Company and the Hudson's Bay Company and the complete loss of the southwest trade, Montreal capital shifted its primary focus of activity to Upper Canada. The St. Lawrence-Great Lakes system finally promised to be a British imperial route by which English manufactures could move to the new markets provided by the growing American and Upper Canadian agrarian frontier, and from which farm produce could move back to Britain. Montreal was to be an advance post of London and Liverpool, and Kingston a commercial extension of Montreal. The time was ripe for the establishment of colonial banks. The circulation of army bills helped dissolve some of the barter structures that had hitherto sufficed for Canadian commerce. Population growth and the extension of trade also demanded monetization of economic activity. At the same time, the return of a balance of trade deficit with United States, which could no longer be covered by big injections of cash from British military spending, drained the provinces of specie. A bank of issue and discount was a logical project. In 1817 a private company of wholesale merchants, including some close to the North West Company, began operating under the name "Bank of Montreal", and was followed the next year by two other institutions: the Quebec Bank, primarily servicing the timber trade; and the Bank of Canada, financing the Montreal-New York trade via Vermont. The assembly consented to incorporate the Bank of Montreal, and in 1822 the Colonial Office approved the charter. The charter in many respects was a model other early colonial banks followed. Its shares carried limited liability. Perhaps reflecting the fact that Ricardo's forces had not yet carried the day in English monetary debate, there was no explicit limit to the amount of bank notes it could put into circulation, beyond a legal limit to the total debts that the bank could incur. Then-normal prohibitions on real estate lending were imposed on it. But there were a number of convenient oversights, not least of which was the lack of any clause or procedure to ensure that shareholders paid for their shares in specie, rather than in promissory notes as many understandably preferred to do. There was nothing to prevent the bank lending on the security of its own stock, which would open up the possibility of the bank in effect repaying the capital to the shareholders in exchange for a pledge of shares. In conjunction with the first oversight it would permit a shareholder to "pay" in promissory notes, secure a share certificate, then use it as collateral for a loan. Nor was there any limit to borrowings by directors who were given thus given carte blanche to drain its loanable funds. On the other hand, the charter was careful to specify that

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counterfeiting was punishable by death, and forgery of bank instruments punishable by the pillory, public whipping, or sentences of up to six years' hard labour. Crime paid only for bank directors, not for outsiders. Two other banks were similarly incorporated in 1822, but it was the Bank of Montreal which became the chief source of financial controversy in Lower Canada. Its tight political links to the "Chateau Clique", the group of powerful landlords, clerics and merchants gathered around the governor, enhanced its substantial economic power by allowing it to assume the role of government banker and thus enabling it to use its political links to impede the establishment of competitive institutions. As opponents of the bank well understood, its capacity to issue paper money unencumbered by specie reserve requirements conferred on it the power to levy interest-free loans from the public at large. Its paper money could be issued in exchange for income-earning securities, or lent out in the form of interest-bearing loans; and as long as the paper circulated as money in the hands of the general public, the bank got a free ride. On top of this were the interest-free deposits the colonial and British government kept with the bank. And of the interest-free resources available to it to finance loans and discount, as late as 1830 fully one third went to the banks' own directors — who profited from the favourable interest rate and from the profits that resulted from the banks' successful operation. The political links to the Chateau Clique were some insurance that such bills to charter competing institutions as the assembly did pass would get no further. Not until 1832 was another bank, the City Bank of Montreal, chartered in the province, and this was the last for some years to come. In Upper Canada, banking development was complicated by the economic geography of the province. On the one hand stood Kingston, which began as a garrison town and quickly evolved into the advanced base from which Montreal strove to control the commerce of Upper Canada, and which was the business headquarters of most of the important early merchants of the province. On the other hand there was York (Toronto), the political capital of a province where the emerging commercial elite had not yet captured the reins of government. Governor Simcoe had set out to create a Tory landed aristocracy. While the patronage-merchants and backwoods squirearchy that actually came into existence were a far cry from the aristocratic ruling class he had tried to fashion in the wilderness of Loyalist Upper Canada, still they were politically and economically distinct from the Kingston commercial elite. The ruling clique which surrounded the governor, the so-called Family Compact, controlled virtually all of the patronage, and could use it to keep its hirelings in line. Its power was

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rooted in the fiscal independence of the executive branch of government from the legislative. The executive directly secured its revenues from timber licences, public land sales, clergy land sales, fines and forfeitures, postal receipts, land taxes, revenues from canals once they were built, the military subsidy from Britain, and, after 1825, the payments made by the Canada Company. Moreover, even those funds that the assembly voted could only be spent with the approval of the executive. William Lyon Mackenzie, leader of the radical wing of the Reform Party, described the Family Compact as "paymaster, receiver, auditor, king, lords and commons," and the Legislative Council it controlled as "the most extraordinary collection of sturdy beggars, parsons, priests, pensioners, army people, navy people, place-men, bank directors, and stock and land jobbers ever established to act as a paltry screen to a rotten government." A third power elite was taking shape. Outside both the ranks of the Family Compact and the Kingston merchants were the York businessmen, from whom leaders of the Reform Party in the province were mainly drawn. These merchants, grain dealers and millers strove to establish economic links with supply centres independent of the Montreal elite. Sometimes their correspondents were smaller Montreal houses; sometimes they imported directly from Britain; sometimes their sources of supply were in the United States. This last was a particularly strong threat to the St. Lawrence commercial system: and the later success of the York business community in asserting its independence of Montreal, particularly once the Erie Canal linking New York to Lake Ontario was built, was reflected directly in the decline of Kingston as a forwarding station. But in the immediate post-war years the principal antagonists for financial power were the Kingston merchants and the Family Compact, both of whom cast covetous eyes on the prospects of a monopoly bank of issue. In 1817 Kingston petitioned for a charter of incorporation for the Bank of Upper Canada, and York followed with a similar petition for the Upper Canada Banking Company. While waiting their charter's approval the Kingston group went ahead with a private bank under articles of association which closely paralleled those of the Bank of Montreal. In 1819 Royal assent to the charter was granted, while that for the Upper Canada Banking Company remained in abeyance. When the Kingston charter arrived back in Canada for final approval the Family Compact at York hijacked the bill, inserting their own names as subscribers to the stock, and shifting the headquarters of the bank, called the Bank of Upper Canada, from Kingston to York; and they added a clause which permitted the provincial government, which they controlled, to own stock in it. That left the Kingston group with no option but to open up a private bank and operate without a charter of incorporation.

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Popularly known as the Pretended Bank of Upper Canada, the Kingston institution had a brief and inglorious career. The president and cashier, without the approval of the other directors and without entering the transaction on the books, borrowed a sum virtually equal to the paid-up capital and used it to operate a "shaving shop" — a private lending business. Other directors acquired a reputation for note kiting and reciprocal endorsement of loan applications. At one point the bank's president, suspended by the other directors, ran off to Montreal and tried to abscond with the cash the bank had in the hands of its Montreal agent. A noteholders' run began. The specie reserves were quickly exhausted, and the bank came to an end in bankruptcy proceeding which dragged on for many years. The affairs of the defunct institution were put in the hands of provincially appointed commissioners who oversaw the further plundering of the wreck. One commissioner after another resigned amidst rumours of misconduct, and the costs of administering the operation soon ate up most of the proceeds from debt repayments. In the end the notes were paid off at about 10% of their face value. In the interim, reaction in the rest of the province to the progress of banking institutions was far from favourable. Some assembly members began demanding the establishment of a provincial bank owned by the province and issuing notes, instead of a Family Compact bank in which the Compact could invest government funds without losing control. Others demanded the end of all incorporated institutions, including banks. Farmers' representatives in the assembly called for government legal tender paper and provincial loan offices of a sort established in Nova Scotia, which would lend paper money to farmers on the security of their land. Other threats to the Bank of Upper Canada's dominant position soon emerged. Its profits were excellent; dividends of between 8% and 12% on paid-up capital were paid right from the start; and over time, as its hold on the provincial financial structure extended, it exploited its monopoly to the full. By 1833 its dividends reached 26%. Success derived in large measure from the Compact's command of the resources of government, which gave it an excellent credit base. Given the chronic shortage of specie and its high credit rating in the province, its notes circulated very widely, soon dominating the currency of the province. They were even accepted at par across the border, and at only a slight discount in New York. Of course the widespread circulation of notes was due to other factors as well as the bank's established credit base. Persons making the mistake of trying to cash the notes might find them redeemed in the most broken down, defaced, and debased coin on the legal tender list, so that while nominally being redeemed at par, in fact the notes were only convertible

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into specie at a discount. The perceived — and perhaps exaggerated — profits and the power of the bank led to jealousy among other aspirants for bank charters. Most important were the Kingston merchants, York's old rivals in the bank charter game. Kingston merchants had not given up their banking ambitions after the demise of the Pretended Bank of Upper Canada. The council unceremoniously rejected a bill for a Kingston chartered bank in 1831 once it passed the assembly. Its grounds for rejecting the bill were of course that competition (with the Compact-dominated Bank of Upper Canada) would lead to financial instability and was therefore contrary to the public interest. A new bill, for the Commercial Bank of the Midland District, again passed the assembly and again was rejected by the council. However, the Compact bank's very success in the end proved its undoing. The amount of bank notes it was allowed to issue by law could not exceed a fixed relationship to the amount of paid-up capital. Given the acceptability of these notes and the shortage of specie, the limit of its circulation powers was soon reached, and it had to apply to the assembly for an amendment to its charter, to permit it to increase its capital. In order to secure the passage of the amendment, the Compact had to agree to let the Commercial Bank bill pass the council. This compromise was opposed by William Lyon Mackenzie and the radical wing of the Reform Party. The two banks thereafter found common cause in fighting off both the radical reform interests and prospective new entrants into the banking business. At this point events south of the border began to exert a major influence in the struggle taking place in Canada.

The Politics of Public Finance, 1825-1837 At the end of the War of 1812 and after a brief post-war crisis the United States renewed its rapid expansion westward. Immigration and colonization proceeded quickly, commerce prospered, banks and credit institutions proliferated. Along with them came rising economic nationalism, articulated in the form of demands for protective tariffs against the industrial products of Britain. Until the early nineteenth century Spain ruled the upper Mississippi, Montreal controlled the northern river and lake system, and a purely American east-west trade route was blocked by the Appalachian Mountains. The Mississippi had been opened up by the Louisiana Purchase, and the War of 1812 had been launched in part to break the British hold on the St. Lawrence-Great Lakes system. It failed; Montreal continued to threaten the commerce of the American interior from the north. Hence New York commercial interests undertook

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to build canals along the Hudson-Mohawk river system to penetrate the interior directly. The Erie Canal, begun in 1817, promised not only to draw the trade of the American Great Lakes states down the Hudson-Mohawk river system and away from the St. Lawrence, but even to redirect Upper Canada's trade from Montreal to New York. The American federal government was much less active than the state governments in fostering such developments. It finished the War of 1812 with a new burden of debt, and that debt gave rise to the call for a central bank which would issue paper money in exchange for government bonds and bills. In 1816 the new Bank of the United States was chartered. Its career of economic and political expansion at the expense of both smaller banks and prominent politicians fed anti-bank sentiment which grew until the Jacksonian victory in 1832, after which the bank's days were numbered. Behind Andrew Jackson stood an alliance of farmers, workers and small businessmen opposed to bank monopoly and public expenditure. To the farm community in the new west, with new soil and access to credit, public expenditure on infrastructure like canals was welcome, for it facilitated the marketing of their staples. But farmers in the older settled areas, with declining yields and rising costs from deteriorating soil, saw their tax money being put to work to entrench the position of their competitors. For them, Jackson's antigovernment spending appeals fell on fertile ground. As for banks, the farm community was in a curious position. Farmers in general were not heavy borrowers from banks until the middle of the century or even later. Banks, however, provided not only credit but also currency, and paper currency was linked in the public mind with inflation of the domestic price level. Since the commercial farmer's revenues depended on world prices, the only effect of domestic inflation was to raise his costs. Along with taxes on commodities, imposed to raise money for public works, inflation served to turn the terms of trade against him and decrease his profit margin. The farmer faced with a price-cost squeeze was joined in the Jacksonian alliance by skilled workers in the early unions. Transportation improvements often eroded the natural protection that transportation costs provided to local artisanal industry. It was also a time when merchants' capital began penetrating and taking control of the skilled trades, and behind merchants' capital lay the banks. The reaction of master craftsmen to the twin pressures of external competition and debt to the merchant was to try to squeeze labour costs, by reducing wages and/or eliminating journeymen and substituting the unskilled. Journeymen reacted with unions to try to push back wage levels. But they also faced another problem — inflation of the cost of living at the same time that downward pressure was

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being exerted on wage levels. To deal with the second problem, organizations of journeymen climbed on the Jacksonian hard-money, anti-bank bandwagon. But the core of the Jacksonian party was formed by a class of rising business interests, merchants and manufacturers who resented the restriction on bank lending that the existence of a limited number of chartered banks entailed. Led by New York financiers who aspired to smash the hold of Philadelphia on the top rungs of the national financial apparatus, the business Jacksonians stood for more banks, more credit, more paper money. They joined a temporary and in the long run incompatible coalition with hard money devotees to break the existing banking structure. Jacksonian democracy really entailed the use of agrarian radical rhetoric by urban entrepreneurs to smash the hegemony of the old financial elite and impose on the journeymen and farmers a deluge of the very banks they had fought to prevent. Much of the Jacksonian rhetoric struck a responsive chord north of the border. Louis-Joseph Papineau, leader of the radical Reformers of Lower Canada, had been raised in a period when revolutionary consciousness had been growing among the francophone middle classes of Quebec. During the French revolution revolutionary tracts calling for independence, the abolition of economic privilege, the freeing of commerce, and the abolition of the seigneural system had been circulated widely. Riots were far from unknown in the 1790's, and by 1798 it was felt to be dangerous to arm the local militia. By 1815 Quebec agriculture had entered a period of reorientation. The notaries, doctors and lawyers who followed the Reform banner in the assembly found themselves, much as the Jacksonians did, articulating the consciousness of an agricultural sector opposed to public spending on canals and the like that served only to increase the amount of competition from cheap grain produced on better land. They articulated too the frustrations of urban small business that resented the banks' tendency to favour established commercial interests in their credit policy. And they articulated the protests of colonial reformers everywhere demanding responsible government, fiscal supremacy of the assembly over the executive branch of the government, and the transformation of the political system from one of an oligarchy of the few to a democracy of a few more. In Lower Canada the struggle took on the additional dimension of a conflict of nationalities, partly, though certainly not exclusively, by virtue of the difference in socioeconomic position occupied by English and French businessmen. During the early decades of the nineteenth century that was little participation by francophones in the main centres of economic power — in shipbuilding, the square timber trade, the grain trade, the West Indies trade, the banks, and the busi-

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ness of importing British goods. These were the preserve of anglophone big business, whose interests therefore transcended the province, and whose fortunes were not as directly tied to the fate of rural Quebec as were those of the francophone merchants. Anglophone businessmen, working through the executive branch of government, demanded public expenditure on canals and other projects that would serve their interprovincial and international commercial interests, and were opposed by francophone business which for the most part kept its horizons limited to the frontiers of the province. Francophones were well represented in the urban retail trade and made up the bulk of the country merchants. Their prosperity depended directly on that of the mass of urban artists and farmers, and they were threatened by the economic power of anglophones, who controlled the wholesale trade and most of the banks, particularly the Bank of Montreal, regarded as an arm of the anglophone political oligarchy. Prominent members of the francophone middle class therefore fought to prevent public monies being put to work at the behest of anglophone big business to further entrench their economic power. Similar considerations were at play in the upper province. William Lyon Mackenzie, leader of the radical wing of the Upper Canada Reform movement, was born into a Scottish highland family during one of Scotland's worst periods of economic and social distress. He entered the retail business, then saw it collapse in the post-war depression. In 1820 he set offfor the Canadas and got back into the retail business. He then moved into the printing and publishing business, using his newspaper as a political vehicle for expressing the distaste of the colonial small businessman for entrenched political and economic power, and the disdain of the early nineteenth century economic liberal for the emerging institutions of finance capitalism — corporations, monopoly banks of issue, and growing public debts incurred for such purposes as building canals to increase the economic power of the Montreal-Kingston commercial clique. The need for canals to make the St. Lawrence system viable for bulk exports such as grain and timber was recognized well before the Erie Canal threatened to destroy Montreal's hold on the western trade. However, an economic crisis in 1818-19 and the commencement of work on the Erie Canal made progress toward a St. Lawrence system urgent. Yet financing was impeded by the political division between the two Canadas, the creation of two separate political authorities which had to co-ordinate their activities to create a viable navigation system and which, when not immobilized internally by squabbles between assembly and executive, were scrapping with each other over the division of customs receipts. While several minor canals were in various stages of construction

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— the Rideau Canal financed by British military authorities, and the Lachine Canal linking the Ottawa-Rideau river system to Montreal and financed by Montreal merchants — the real problem for the St. Lawrence-Great Lakes waterway system was Niagara Falls. The fate of the St. Lawrence commercial artery in its competition with New York therefore turned on the success of the projected Welland Canal. Financing Upper Canada's first major piece of infrastructure proved a serious problem, particularly as the construction costs rapidly climbed into the millions. Canada had no capital market, and very little liquid wealth even in personal form. Farmers invested in the form of land improvement, not in stocks and bonds or even bank accounts. Banks were rudimentary and oriented toward discounting short-term commercial paper, and the wealthy commercial men in the lower province ploughed their profits back into their trade or sent them to England to buy government securities or land. Hence the promoters quickly came to rely on government loans and foreign capitalists. In 1825 the Erie Canal, and its threats to Montreal's hegemony over the western trade, was completed. That year too financial crisis in the United States and Britain upset schemes to unload the cost of the Welland Canal on foreign investors. With all other sources of financing dried up, the promoters turned back to the Canadian governments, both of which pledged aid. But the great majority of the funds were destined to come from Upper Canada, which soon found itself in a classical financial dilemma—if it failed to loan more money to the company, the company would go broke, and the government might lose its original investment; if it did not lend more now, it simply compounded the amount of money it would have to lend in the future as construction costs climbed. Moreover, the question of how much, if anything, to lend at any particular time depended on which political group controlled the assembly. An 1825 financial reorganization of the Welland Canal Company involved the squeezing out of the original group of promoters and the assumption of power by the Tory elite who controlled the executive branch of government, and who could only be sure of assembly assent to more gifts of public money to their latest enterprise when the assembly had a Tory majority. The Reform Party, both radical Mackenzieites and moderates, had been in favour of public works like canals in general, but opposed the Welland Canal Company in particular. They saw it as a political tool of government officials and of stock and bond speculators. Furthermore, the Mackenzie wing was against incurring a public debt which "plundered the unborn" as well as the current generation in order to raise public funds to enhance the commercial profits of Montreal-Kingston big business or the value of

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lands held by speculators. For the Upper Canadian farmers who stood behind Mackenzie, the canal also meant that their tax money would go to increase the amount of competition they had to bear from American grain. The grievances against the canal company were bound up in the general struggle between the assembly and the executive branch of government. For it was more than just the successful opening of the Erie Canal in 1825 that prompted the Tory elite to seize control of and reorganize the Welland Canal Company. Throughout the early 1820's pressure had been building inside Britain to force the colonies to bear more of the fiscal burden of their maintenance, yet at the same time Britain had determined to keep as much fiscal power as it could in the hands of the executive. Potential canal revenues were one central element it sought to control. At the same time, a decision was made to shape land policy to assure a flow of revenues rather than simply distributing land as spoil to reward faithful political service. Since the land sale revenues went directly to the executive branch, the "reform" of the system in fact simply served to make executive control more efficient. The province quickly reached the limit of its internal financial resources and in 1834, after an electoral gerrymander put a Tory majority in the assembly, it decided to start borrowing in England. Negotiations with England merchant banks such as Baring Brothers for marketing Upper Canada's first sterling loan began, only to be hampered when Mackenzie and the Reform group unveiled a string of charges of corruption against Barings. In 1837, after "consultation" with Barings and other merchant banks, another reorganization was effected, increasing the amount of government control preparatory to trying again to raise money in London, which until then had been quite receptive to American state canal projects. But the crash of 1837 and rebellion against British rule the same year intervened to ruin the province's credit.

The Politics of Private Finance Canal financing combined with land tenure and taxation to keep Canadian politics in ferment during the 1820's and 1830's. The spill-over from the banking controversies raging south of the border, as well as periodic interference of the Colonial Office, exacerbated the problems further. For those radicalized farmers the issues were clear. Public spending on canals meant higher taxes on imported consumption goods to

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facilitate the influx of American grain. In Lower Canada, faced with agrarian crisis that in a few areas reached famine proportions by the 1830's, the issue was particularly acute. But the Upper Canada farmers, once the inhabitants of the rising grain frontier, soon found themselves in the same position vis-a-vis American farmers that Lower Canadian grain farmers were in with respect to those of Upper Canada. Furthermore, they had in common the struggle against speculators and Crown and clergy reserves which impeded the flow of settlement onto new land. If the Lower Canadian Reform ranged itself against the British American Land Company, that of Upper Canada did likewise against the Canada Company, encouraged in their hostility by the fact that both companies' payments, when they bothered to make them, served to enhance the fiscal independence of the executive branch of government. It was also a period of crisis for the artisanal classes. Industrial growth was slow, reflecting the rate of capital accumulation, mercantile domination, and the vulnerability of the Canadas to American and British manufactured commodities. Apart from the shipyards, factory-type production was rare. Instead, manufacturing was conducted either domestically, on the farm, or by small handicraft shops in the urban centres. There was some divergence between the experiences of the two provinces, the result of their different agrarian histories. The agricultural crisis of Lower Canada dried up farm incomes and stifled the prosperity and prevented the growth of villages and towns serving the agrarian frontier. The resulting regression to domestic manufacture was pronounced in Lower Canada, and the major artisanal industries were largely confined to Quebec City and Montreal. But in these cities the crisis of artisanal production was all the greater. The penetration of the skilled crafts by outside capital meant mercantile control over the marketing of products and over the supply both of raw materials and of credit for artisanal industry, and it thus put pressure on the master craftsmen to speed up production runs and cut costs. The earliest unionization efforts were virtually all organizations of journeymen against the masters, fighting either against wage decreases or to shorten the working day to ten hours from eleven or twelve. In Upper Canada developments were similar. In the urban centres, particularly Toronto, as in Montreal and Quebec, master craftsmen responded to the pressure of debt by speed-ups, wage reductions, and the substitution of cheap, unskilled, and part-time labour thinly disguised as "apprentices". The journeymen replied by unionizing. Printers took the lead, for in their trade technology became a vital issue from an early stage, the scale of plant was susceptible to expan-

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sion fairly quickly, and the workers tended to be literate and informed. While skilled workers were active in the movements demanding political reform, in neither Lower nor Upper Canada did working class disturbances take the form of revolutionary movements against the propertied class. Economic reform at the plant level was a distinct issue, one deriving from the blocking of socioeconomic ascent by the hardening of class lines within the institutional framework of an artisanal structure of industry. Master printers like William Lyon Mackenzie could rage against their journeymen's efforts at unionization while at the same time protesting that "labour is the source of all wealth": for to them the primary battle was of producers against non-producers; and the master craftsman, while boss of his shop, still worked at productive activities, only to see the profits skimmed off by the middlemen. Master craftsmen as well as journeymen were represented in the ranks of the Reform Parties and some of both followed the Mackenzie and Papineau wings of the Reform Parties on the route to insurrection. Thus, like the Jacksonians, from whom they drew so much inspiration, the Reform Parties of the Canadas were awkward coalitions — representatives of declining farm areas, journeymen under pressure from merchants' capital and their masters, master craftsmen and urban small businessmen demanding freedom of socioeconomic ascent. As with the Jacksonians, banks were an obvious symbol of entrenched socioeconomic privilege — denounced as discriminatory in their lending by the aspiring entrepreneurs, condemned for generating inflation by the fixed-income earner, and excoriated by the rugged individualist who detested paper money and limited liability as instruments of commercial immorality and fraud. And, much as with the Bank of the United States, in Canada there was an additional, political reason for the vehemence with which Reform interests opposed the existing structure of finance. For both Upper and Lower Canada (and indeed also New Brunswick and Nova Scotia), the existing large banks were virtually synonymous with entrenched political power as well. The Bank of Upper Canada and the Bank of Montreal cultivated a special relationship with the governors and councils in their representative bailiwicks (as did the Halifax Banking Company and the Bank of New Brunswick) to assure a flow of government business, to enhance their profits, and to gain the co-operation of the executive branch of government in blocking rivals. But, as in the United States, there was a fundamental contradiction at work in the ranks of the opponents of banking privileges. Rightwing reformers in both provinces reacted to the existence of monopoly banks by pushing for more banks. When council opposition blocked

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the passage of new bank charters in the legislature, they turned to establishing private co-partnerships. Their objective was the easing of credit conditions in general, and their own access to credit in particular. On the other hand some of the radical reformers, especially in the upper province, were hard-money fanatics, opposed to the principle of paper money. And, to the horror of "respectable" members of the Reform movement, Mackenzie, in the period just before the abortive rebellions, was willing to fight the bank battle by publishing in his newspaper fake rumours about the pending collapse of the banks, thus setting off runs by frightened depositors. In 1836 the struggle over bank legislation also reached a peak in Lower Canada. That year the Quebec Bank's charter expired, to be followed in 1837 by those of the City Bank and the Bank of Montreal. The Reform Party, which controlled the assembly, planned to renew the charter of the Quebec Bank for only one year; then the next year, when all three charters were up for renewal, to make a clean sweep of the provincial banking system. The chartered banks panicked, and in 1837, to head off the Assembly's actions, secured a one-year renewal under imperial government statute. The next year Papineau, like Mackenzie, broke with the right wing of the Reform Party and, in the context of international financial crisis, crop failures and commercial stagnation, led his forces into military and political disaster. The Assembly was suspended in both provinces, and a Special Council appointed by the governor ruled as a military dictatorship. The council renewed the charters of the existing banks for ten years and saved the chartered branch banking system.

Finance and Politics from Crisis to Union The crash of 1837 was of international dimensions. Beginning with a financial crisis and sharp credit contraction in Britain that immobilized much of its international trade, it spread to the United States as British capital to finance American commodity movements or the building of infrastructure dried up. From there it passed north. With the stagnation of trade that followed the credit crisis, much of Canada's foreign exchange receipts were cut off, and the trade deficit with the United States threatened to drain the province of specie at a time when domestic depositors and noteholders were clamouring for gold and silver. Specie payments in both Canadas were suspended and the government decreed bank notes to be legal tender. During the general financial chaos of the crisis and rebellion period, important forces for concentration of economic power were taking

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shape. In 1838 the Bank of Montreal inaugurated the era of intercolonial branch banking by acquiring a small Upper Canadian institution. The next year Lower Canada's Special Council banned the circulation of notes by private banks, thus giving the circulation business, which was the cornerstone of commercial banking in the early nineteenth century, exclusively to chartered banks. Moreover, new banking legislation in 1841 had a heavy input from the Colonial Office, which stepped in to help shape the banking structure in the direction of large, multiple-branch incorporated banks of issue, at the expense of small banks and local control — at a time when political forces in the United States were dictating the opposite pattern of development and moving to ban interstate banking. In public finance too centralization of control, and the influence of London, were profound. The crash of 1837 had wrecked the finances of Upper Canada and the Welland Canal, the two being inseparable. It had also led to the bankruptcy of one of the Canadian fiscal agents in London. The role of Canadian government bankers in Britain passed jointly to the two merchant banks, Baring Brothers and Glyn, Mills and Company, whose view of the Canadian financial situation could not help being influenced by concurrent events in the United States. By 1840 nine American state governments which had borrowed heavily in London through merchant banks to finance canals and other development projects were in default. Soon others stopped payment, and some repudiated their debts altogether. The Barings pressed for the American federal government to assume responsibility for the state debts, and backed Daniel Webster and the Whigs in their bid for power in the expectation that the Whigs would be more receptive to fiscal centralization. Congress, however, refused to approve the federal assumption of state debts. That in 1842 Daniel Webster and one of the Barings, Lord Ashburton, worked out a treaty ceding to Maine much of the prime timber land of New Brunswick did not suffice to change American minds on the debt question. In Canada the Barings had better luck. The Welland Canal was bankrupt, and its shareholders were looking for a way of unloading it on the upper province. The Barings too were looking for a way of unloading the upper province's debts on the virtually debt-free lower province. The obvious solution was union; the credit rating of the combined province would be better than that of the insolvent upper province alone, and the new joint government would be able to borrow enough money to take over the Welland Canal and complete it. The idea of union was also being advocated by Montreal big business as a device for eliminating the francophone Reform Party's power in the assembly. With the Reform in disarray after the rebellions, it was an ideal time to carry the project through.

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To bring about this union and rebuild the provincial finances the British government dispatched Charles Poulett Thompson, the future Lord Sydenham, to assume the post of governor-general. Sydenham was a former president of the Board of Trade and a leader of the agitation to reduce the colonial timber preference in order to restore the primacy of the Baltic trade, in which his family had invested for generations. He was related to the Barings by marriage and with the Glyn, Mills firm by business association. Both by virtue of political acumen and his links to the forces of economic liberalization in Britain, Sydenham was the ideal choice for the governorship of the prodigal and profligate colonies. For the Age of Steam and Steel, an age of multilateral free trade and political "reform", was about to dawn on the British-led Atlantic trading system, and a prerequisite of full participation in that new era was the triumph of "business" principles, and of business in government, over the last relics of the old empire, the squirearchy and petty oligarchy that had traditionally formed the colonial governing elite.

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The Age of Steam and Steel

The time was when the universal prevalence of commercial monopoly made it worth our while to hold colonies in dependence for the sake of commanding their trade. But that time is gone. Trade is everywhere free or becoming free; and this expensive and perilous connection has entirely survived its sole legitimate cause. Goldwin Smith, 1863 Our augmenting interests in the East, demand, for reasons both of Empire and of trade, access to Asia less dangerous than by Cape Horn, less circuitous even than by Panama, less dependent than by Suez and the Red Sea. Our emigration, imperilled by the dissension of the United States, must fall back upon colonization. And commercially, the countries of the East must supply the raw materials and provide the markets which probable contests between the free man and the slave may diminish, or may close, elsewhere. Edward Watkin, 1861 The greatest triumphs of mankind will be won on the greatest of oceans. William H. Seward, 1867 Now, for my part, I would rather give my confidence to a Gracchus when speaking on the subject of sedition, than give my confidence to a railway director when speaking to the public on the benefits of competition. Gladstone, 1844

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17

The Triumph of Steam and Gold

FEW PERIODS OF WORLD HISTORY of such short duration have witnessed structural transformations on a scale to rival those that typified the Age of Steam and Steel, that early Victorian period when the world economy was transformed by revolutionary changes in modes of communication. The railway and the kindred innovations, the steamship and the electric telegraph, not only fundamentally altered the transportation and communications networks within and between nations, but set off complementary transformations in commerce and finance, industrial organization, and even political ideology-

The Impact of the Revolution in Communications The concept of a world market for a commodity was for the first time translated from an academic abstraction to a concrete reality when railways and steamships began permitting the rapid transportation of bulk commodities at progressively falling costs. Prices became world market prices as the telegraph spread the knowledge of price differentials and simultaneously provided the mechanism for speculators to eradicate those differentials, the more so in an age of steady progress of trade liberalization between nations. A genuine international capital market began to evolve. The new speed at which goods and capital could be transferred drastically shortened the term of international payments, and helped free for alternative investment the great accumulations of funds formerly frozen into trade credits. Rapid communication also permitted the centralizing of control of enterprises, and thus the beginnings of a genuine 237

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parent-subsidiary relationship in the international operations of commercial ventures, though not yet of industrial firms. The period also witnessed the generalization of the international gold standard. Trade was to be free and multilateral, and that required both an adequate supply of internationally acceptable currency as well as a commitment by governments to abandon all monetary controls and allow their domestic credit conditions to fluctuate with the state of the balance of payments. As country after country permitted the spread of banks of issue, and therefore of paper currencies backed by a fixed reserve of gold (silver fulfilling only a token role), the demand for gold rose. The period from the crash of 1837 to the crisis of 1873 was one of acute gold fever that sparked rushes to the interior of old continents and frantic exploration of new territories. Siberia, California, Australia, British Columbia, and even Nova Scotia all felt the rush, and in the period from the opening of California in 1849 to the crash of 1857, the world's gold supply rose 600 to 700%. The new gold stock permitted banks to ease credit conditions and thus helped feed the great international investment boom of the period. It also nurtured the rise of financial institutions capable of channeling large amounts of investment funds from the old world to the expanding new one. A new industrial revolution was ushered in by the transportation and communication changes. The ease of long-distance sales, which expanded markets, and the cheapening of trade in bulk raw materials transformed both the scale and the location of industry. Raw materials could be collected cheaply and quickly in one location, encouraging centralization of production and vertical integration of industrial enterprises. The financial transformations set off by railways — their massive capital requirements restructuring national capital markets by draining middle-class savings into corporate stocks and bonds — had spin-off effects on industry, facilitating industrial concentration as well. And the emergence of national product markets encouraged industrial concentration, as did the very power of railway enterprises, forcing manufacturers to organize in order to wield countervailing power. The relations of production were also transformed, the railway age witnessing the emergence of modern class conflict on a national and even international scale. Under the social conditions prevailing in the old industrial order, master craftsmen evolved into small-scale capitalists by reinvesting earnings in local, petty enterprise. A rise through the ranks of journeymen or apprentices, while rare, was not an impossibility, and thus helped keep the lid on social discontent. In the new industrial age the scale of enterprise led to a concentration of business power with the long-term result that the proletariat ceased to

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be simply a functional category in the industrial system, and became a political one. The communications revolution externally, and the concentration of wage workers in one place on a given shop floor internally, promoted the hardening of class consciousness that paralleled the objective hardening of class lines. Under the pre-industrial, and even to some degree the early industrial social formations, there were frequent manifestations of harmony of interests of the producing class as a whole vis-a-vis landlords and merchants. Now the landlord and commercial classes of old ceased to stand at the top of the economic pecking order, although their hold on the social and political apparatus persisted for some time. In their place rose the industrial capitalist, now clearly differentiated from the wage-labourer. With a growing awareness of this development came the articulation of doctrines of both revolutionary and Utopian socialism and the formation of mass labour organizations that embraced these doctrines.

The Coming of the Railway It was the railway first and foremost that symbolized the new age. Britain was the first country to adopt a large-scale railway system, displacing its old inland waterways and roads as commercial arteries. Its railway system actually began as an offshoot of the coal mining industry. As industrialization and urbanization raised the demand for coal, technological change occurred in the form of a mobile steam engine to transport the coal, and the first modern railway ran from the inland coal fields of Durham to the coast in 1825. The great railway engineer of the era, George Stephenson, appropriately and not accidentally began as an engineer in the coal mines. Britain's first organized railway company, as distinct from railway line, was a product of the engineering, promoting and lobbying talents of George and Robert Stephenson and had as its objective the linking of the new industrial metropolis Manchester to the old mercantile metropolis Liverpool. In Parliament, where the industrial centres were chronically underrepresented, spokesmen for the privately owned road and canal companies denounced the new threat to their profitability. To the ranks of potentially injured business interests were added innkeepers, carriage manufacturers, and blacksmiths whose trades might suffer from the competition of the iron horse. Ecological as well as economic disaster was predicted from the coming of the railway. The bill to charter the Stephenson's company failed to pass. However, a renewed appeal to Parliament was more successful. Outside the legislative body, the chartered "turnpike trusts", the road

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corporations that collected tolls for a profit, faced mounting unpopularity for their exactions. The more unpopular the turnpike trusts became, the higher the bribes the Members of Parliament demanded for voting renewals of their charters. The rising degree of unpopularity faced by the companies coincided with the mounting reform agitation. The power of the industrial centres from which the railway projects originated therefore became a factor in the battle, and the railway question became bound up in the general struggle against the political monopoly of the gentry. Furthermore, the railway promoters at last mastered the methods of British parliamentary democracy. For the simple promoter from the industrial outlands, the sight of the Mother of Parliaments at work must have been an awesome experience. Members of this body, conscious of the weight of public responsibility placed upon their shoulders by the nation, deliberated, debated, scrutinized bills clause by clause, even word by word. Impassioned pleas for public responsibility and noble exhortations to political principle rang through the hallowed chambers of the birthplace of modern democracies. The humble railway promoters watched all of this in wondrous veneration, until its lessons were well and truly mastered. Duly apprised of the operating principles of British democracy, the promoters of the Liverpool and Manchester Railway wrote their bill, placed it in trusted hands, distributed the requisite £70,000 among the honourable members, and the bill was passed. The railway began operation in 1830 and was a great success. It blazed the path for many more, especially after the Reform Act of 1832 turned the House of Commons into a promoter's paradise. Britain's railway system was one of the most costly networks of the age. Railways seeking right-of-ways were held to ransom by landlords. Another factor driving up costs was plundering by the contractors and directors. In theory the interests of the directors, as agents of the shareholders, and those of the contractors should have been diametrically opposed: shareholders were interested in efficient, long-run operations yielding stable long-term profits, and in the most efficient and inexpensive mode of construction of the road; the contractors sought to maximize short-run construction profits by inflating costs and skimping on materials and workmanship wherever possible. In fact the promoters and directors of the early lines were often the contractors as well, and they dreamed up all manner of schemes to drain the lines' financial resources off into promoters' or contractors' profits. It was a favourite trick for the promotercontractor by the 1840'sand 1850's to issue shares to themselves, then manipulate the market to push up their apparent value, all the while plundering the line. The shares could then be dumped at a premium

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because of the market manipulation, and the promoters thus unloaded a financial derelict onto a new and thoroughly duped set of shareholders. Last, but far from least, of the factors driving up the cost of the British railways was what was euphemistically referred to as "lobbying costs". The great age of Parliamentary "reform" witnessed members of the Commons and Lords alike wandering from one railways office to another selling their votes to the highest bidder for cash or for shares in the burgeoning list of lines chartered by Parliament. In 1845 at least 157 members of the House of Commons were listed as part-owners of railway companies, many of more than one company at the same time. It is impossible to guess how many more held shares under assumed names or via trustees and relatives. One railway company alone boasted that it could muster 100 votes when the division bells rang. Through the 1840's Britain saw a tremendous boom in railway investments, fed by the rapid capital accumulation typical of the early industrial revolution. The wealthy had no other place to invest: industry was already plagued by overcapacity. Foreign lending was eschewed after 1840-41 after a series of defaults in loans, especially to American state governments, and did not recover until well into the decade. At the same time, the middle classes who formed the new industrial elite accumulated and invested rather than squandering their wealth as the old elite often did. The railway was an enthusiastically welcomed investment opportunity, and the Stock Exchange shifted much of its activity from dealing in government bonds to railway stocks. Local authorities even reported an inability to raise money for education as Britain's middle classes poured every farthing they could beg, borrow or, preferably, steal into the railway mania. Out of the boom emerged great firms of railway contractors. Sir Morton Peto's firm had built the Houses of Parliament before he turned to cashing in on the steady flow of railway charters churned out by that institution. At its peak the Peto firm employed 30,000 people. It was an enormous firm, but it paled before Lord Brassey's empire. Thomas Brassey was born into a family of minor gentry, and turned first to surveying and then the supply of building materials, in which capacity he formed a connection with George Stephenson during the building of the Liverpool-Manchester line. Brassey was one of the earliest British contractors to operate abroad; his first European contract came as early as 1841 .Within 35 years of going into business he had 170 contracts on five continents; at its peak his firm employed 80,000. Behind many of Brassey's overseas operations stood the Baring Brothers, the great merchant bank. Apart from a few projects in France and Germany toward the end

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of the decade, overseas operations were rare in the 1840's. It was domestic railways that attracted the attention of investors, contractors and promoters, in particular that of Henry Hudson, the "railway king". Hudson was a prominent York businessman whose business interests embraced land dealings, docking operations, banking, and election fraud (a Tory, he faced charges of bribery after the 1834 election). Hudson had close links to other eminences grists of the railway age. The private investment banking firm Glyn, Halifax, Mills and Co. backed many of his projects, and George Carr Glyn himself sat as chairman of the board of a number of railway companies. Hudson too had established early business connections with Robert Stephenson and from him had learned the art of lobbying railway bills through Parliament. By 1849, when his regime came to an abrupt and noisy close, he had directly promoted 1,450 of Britain's 5,000 railway miles, and had been an important backroom operator for many more. At one point he steered forty bills through the House of Commons within the space of two days. His exploits were widely appreciated; within a few days of his joining the board of one railway company its shares rose 1,000% in value. Not least of his financial accomplishments was his pioneering of the technique of keeping railway investors happy by paying them dividends out of their own capital. But the railway boom was a house of cards. By 1846 a minor flight of capital from railways set in. Then in 1847 came a commercial disaster of the first order of magnitude — a bountiful harvest leading to a collapse of grain prices and the ruin of numerous speculators who had poured money into purchases of wheat in an effort to cash in on the miseries of Ireland during the great potato crop failure. The British credit system was shaken by a wave of bankruptcies. In 1848 the political convulsions spreading across Europe reached Britain in the form of a revival of Chartist agitation, further panicking financial circles. By 1849 the Hudson system lay in ruins and the first British railway building orgy was over. With the end of the British boom came a rush of British capital abroad, as promoters sought new fields of conquest and contractors scrambled for new projects to keep their capital equipment employed. Behind them stood the merchant banks, eager to channel surplus investment funds into bonds and preferred shares of overseas railway companies or the debentures of governments that subsidized the railways. Unlike the European venture of the late 1840's the new wave of railway building was concentrated in the underdeveloped world, where the railways served to open up resource-producing areas to serve British needs or promote the sale of British manufactures

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abroad. With the steamship and telegraph to facilitate communication, the age of foreign financial control was coming into being through the overseas railway, and its manifestations were particularly strong in the colonies where a local business class was weak. British capital financed the railways; British contractors built them; and British financiers ran both them and the local governments from London. While British capital flowed freely abroad into other lines of enterprise — banks, land companies, mines and trade credit — it was railways that set the pace. Apart from the United States with its enormous appetite for British investment funds, Canada was the chief focus of overseas railway investment activity from 1849 to 1857. Then the action switched to India, to aid the economic transformation of the subcontinent from a company colony to distinct empire in its own right and to consolidate the British military hold in the face of internal and external threats.

The Eastern Empire The Napoleonic Wars made clear that India would be a prime source of economic and military rivalry in the nineteenth century. Napoleon's invasion of Egypt as part of his strategy of seizing India to restore the empire that the French had lost to Clive made it equally clear that an old-fashioned chartered company would not be enough to maintain British control over India. In 1813 the East India Company lost its monopoly of trade and became simply the government of India, with some power shared by the British government-appointed Board of Control. The flood of British-manufactured cotton goods into India after 1813 effectively turned its balance of payments position around: from 1813 the traditional balance of trade surplus based on the export of the coveted oriental luxuries to the west became a deficit based on the import of the cottons of Manchester into the east. With it came the destruction of India's traditional artisanal cotton manufacturing sector, swamped by cheap machine-made fabrics that British merchants, supported by state and army, peddled. As the British hold on India grew, the company increasingly lost power to the Board of Control. In 1833 the company, already bereft of its monopoly for two decades, ceased trading completely (with the significant exception of its opium trade to China) and became an increasingly marginal administrative entity whose role was to exact tribute and taxes from the Indian population to maintain the British army keeping them in subjugation, and to maintain dividend payments to its own shareholders. During the 1833 reorganization, the British government guaranteed the company shareholders profits

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of £10 10s per £100 share, the profits to be paid out of taxes imposed on the Indian peasantry. In 1837 India celebrated Victoria's ascendancy to the English throne with the worst famine in its history. Meanwhile, British-Russian imperial rivalry in Asia increased steadily from 1837 to the end of Company rule, culminating in the Crimean War. Economic imperatives and strategic consideration together dictated a continued policy of territorial annexation, both to expand British commercial control and to pre-empt Russian moves. The cost of the wars of conquest was simply added to the Indian national debt. In the 1840's came rising pressure in Britain to transform Indian colonial policy. It was clear that India could only continue to absorb British manufactures if it had something to export in exchange. New staple exports were developed. Bengal became the principal centre of the world opium trade. Raw cotton was exported to Britain to manufacture shoddy textiles to be dumped back in India. Raw silk, tea from the plantations of Assam, sugar, jute for packaging material so greatly in demand during a period of phenomenal expansion of world trade — all of these staples became important; and to move them out, and to move British manufactures in, major public works were required. The East India Company had invested virtually nothing in transportation facilities, irrigation or general development infrastructure. Even the old Moghul drainage system had been run down. The railway was the obvious solution. The early lines had their earnings guaranteed by the East India Company out of the proceeds of taxes it levied on the population, so that in effect the peasants and artisans subsidized the movement of British manufactures in to help ruin the artisanal industry, and the movement of grain out to help intensify the famines that periodically ravaged the countryside. The early lines generally lost money, and the East India Company was loath to subsidize many of them out of its revenues. Hence the real beginning of the railway age in India had to await the end of Company rule. The turning point came during the boom of the 1850's and the Crimean War era. The war indicated the strategic vulnerability of British India and the military importance of a means of conveying troops quickly to the frontiers. The economic boom of the 1850's led to a soaring demand for Indian primary produce, especially cotton but also grain and other products. The Company tried to step up the rate of railway building by borrowing the necessary funds in London, but the Indian Mutiny of 1857 led to the final overthrow of Company rule, as well as opening India to an unprecedented reign of terror. After the fall of the major cities the British army, which still followed the medieval principle of throwing captured areas open to the troops for looting,

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would be immobilized until the depredations were finished, while special British commissioners were established to hunt down rebels and brutalize the population. One officer wrote home a quaint description of the operation of British justice in India: "We hold court martials on horseback, and every nigger we meet we either string up or shoot." The costs of suppressing the Mutiny were simply added to the Indian national debt. In the aftermath of the Mutiny, the East India Company was wound up. In "compensation", dividends of 10% were to be paid to the shareholders forever. The cost, however, did not fall on the British taxpayer — again, it was simply added to the Indian national debt. The decade that followed the end of Company rule saw a vigorous program of railway building, first in connection with the drive to consolidate the British hold in India, and then in conjunction with the cotton boom that swept India when the American Civil War broke up normal British raw cotton supply lines. The end of the American Civil War precipitated the collapse of cotton prices, heavy unemployment, riots and starvation. Grain exports from India accelerated, abetted by the fact that land taxes forced farmers to sell for cash to the grain dealers sent out by British houses, who exported the grain even in the face of famine along the railways being built by the proceeds of the taxes on the peasantry. Indian railways were a bonanza for British investors and contractors, for the dividends on the lines were guaranteed by the government of India out of its tax revenues. It was an iron eldorado that only ceased pouring forth its stream of profits after a great financial crisis in 1866 temporarily checked Britain's second railway mania, leaving the big contracting companies eager for contracts elsewhere in the empire or in the United States.

Economic Conflict and Sectional Politics in Post'Jacksonian America The critical social and political divisions that wracked the United States prior to and culminating in the Civil War were rooted in fundamental structural differences in the economies of its main geographic regions. American economic development of the early to middle nineteenth century was predicated on three main factors. First, agricultural exports were the engine of growth, and the principal influence governing the pattern of development of the rest of the economy. Second, Britain was the chief market for these exports as well as the main source of capital, immigrants and manufactured imports. Third, the amount of land subject to exploitation for grain, cotton,

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timber and minerals rose rapidly as the United States seized vast territories from older colonial powers, weak new states, and the indigenous peoples of the continent. Three main sectional economies took shape. First, and fastest growing, was the newest of them, the West, especially the transMississippi areas and including (in the economic sense, though not the political) the southwestern part of the province of Upper Canada. The dominant unit of production in these areas of new settlement was the family farm producing grain for export and mixed produce for local consumption. It was a region where the notions of frontier democracy struck deep roots. While the self-employed farmer, working with only his family as a labour force, was far from the sole species of income earner — towns, as distributing centres with small-scale manufacturing industries, grew up in the prosperous agricultural areas — nonetheless the pioneer farmer, aspiring to "independence", was the engine of economic growth in the region and stamped his ideology upon it. Pioneer democracy based on a class of self-employed small property owners in opposition to eastern big business provided the political dynamic of the midwest. Farmers found themselves at odds with eastern-based grain distributing firms which seemed to control the course of produce prices, with eastern financiers stingy with credit and, as the farmers saw it, usurious with interest rates, and with manufacturers eager for high tariffs to tax the consumers of manufactures in the midwest to their own profit. At the same time the frontier farm ideology was one of egalitarianism, inimical to slavery as an economic institution and determined to prevent its extension into the West. The second sectional economy was the northeast, the old northern colonies which after the war of 1812 underwent rapid industrialization and which remained the big business centre of the republic. Jacksonianism had done little more than shift the levers of power from Philadelphia to New York, from the merchant elite to the new manufacturers and financiers. From a global point of view this had been an economic event of great significance, but to the western farmer it was of secondary interest. The northeast was the commercial hub of the system and increasingly the manufacturing one as well. The interests of manufacturers ran counter to those of the midwestern farmers on two main issues. Northern manufacturers opposed a freeland policy which would draw offlabour from the industrial east, and they demanded high protective tariffs which would force up the price of manufactured goods to western farmers. Some accommodation on the first issue was possible. Rapid immigration dumped Western European paupers in the northeast as a labour force, while free land in the West drained off the native Americans, especially farmers from

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those older agricultural areas of the northeast which were suffering from soil exhaustion and competition from cheap western grain. The tariff problem was more obdurate, and it was also the issue over which North and South first came to serious political blows. The South, a society led by planter aristocrats, was ideologically alien to much of the United States, though economically vital to it. It was the area that provided the great bulk of the foreign exchange necessary for American development in the period. The southern states were classical staple-extracting economies tied to Britain which provided capital, manufactured goods, and the principal market for raw cotton. The American Revolution had broken the mercantilist link but substituted a more powerful one, for it opened the interior to American settlement at the same time that Britain's demand for raw cotton was far surpassing the ability of the old Caribbean colonies and Brazil to supply it. In 1790 the United States exported 190,000 pounds of cotton to Britain: twenty years later it sent 93 million pounds from the great slave estates that spread through the south and southwest. The abolition of the slave trade by Britain in 1807 and by the United States the following year raised the economic value of the existing American slave population. As a consequence the slave's life expectancy increased considerably. Slaves were income-earning capital assets; their rate of depreciation depended on their rate of utilization, and both depended on their replacement cost. The abolition of the legal slave trade drove up the replacement cost, for the illegal trade was dangerous and the supply therefore undependable. Indeed the British opposition to the slave trade (and after 1833, to slavery itself) was regarded in the United States as a plot to raise production costs of slave-grown cotton as well as sugar and other staples to the point where the non-slave output of India would be competitive, since the sale of British East Indian cotton, sugar and similar products was an essential prerequisite to its continued absorption of British manufactures. Since it was increasingly difficult to import slaves, the natural growth of the slave population had to be relied on to reproduce the labour force. Hence the encouragement of family life and social stability in the slave society, and with it the emergence of a paternalistic social ethic among planters based on the notion of the immutable inferiority of blacks and their "natural" aptitude for physical labour in tropical conditions under close, white supervision. Such a society of planter-aristocrats with a slave population found itself at odds on fundamental economic issues with the other two sections of the United States. The South opposed the free-land principle advocated by the West, on the grounds that the proliferation of states comprised of independent family farms would tilt the

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political balance within the Union in favour of abolition of slavery. And it opposed the North on the tariff issue, seeking to avoid purchasing expensive, tariff-protected, domestic manufactured goods in favour of continuing to import from Britain, to whom it exported its cotton. Hence all three basic economic divisions of the United States had fundamental reasons for opposing each other's demands. American politics in the period was conditioned by a series of shifting alliances between the three — and by the role of the fourth principal antagonist, industrial Britain with its insatiable demand for raw cotton and for markets. In the colonial era, tobacco was the great staple linking the American plantation economies to Britain, a trade which directly affected very few persons in Britain. Cotton was a different matter: the British industrial machine depended upon it. With industrial growth came urbanization and the spread of market exchange, creating an ever greater degree of economic interdependence and vulnerability to external changes among the mass of the British population. On the other side of the Atlantic the tremendous demand for raw cotton meant a steadily growing need for new soil to increase the volume of production and replace the soils exhausted by successive years of cotton crops. In between, cotton dominated the Atlantic trading system, for Britain by the 1840's drew 80% of its raw cotton from the American South; by 1860 two thirds of American exports were cotton. At the same time the United States was Britain's single largest market for manufactured goods. Only India came close to matching it in importance, but while India was the leading market for cotton cloth exports from Britain, general manufactures found their principal outlet in the United States. Britain thus found itself increasingly dependent upon the supplies of cotton from the American South, and anxious to keep American doors open for exports of general merchandise to cover its cotton imports. First and foremost therefore, Britain sought to keep the American tariff low to assure that the American market stayed open and to keep down the cost of its raw cotton imports. If the South had to buy protected American manufactures, not only would Britain directly lose markets in the United States but it would raise the cost of production of raw cotton and thus of British cotton manufactures, costing it markets elsewhere in the world as well. Behind the veil of liberal rhetoric, "free trade" meant backdoor protection for Britain's industrial monopoly. Initially the three geographic divisions in the American economy achieved a fair degree of integration which smoothed over the latent tensions. Until Jacksonian times, the American West meant the area beyond the Appalachians, and very little beyond the Mississippi; and

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its influence as a distinct force in American political economy was slight. In the 1830's the industrialization drive of the northeast was based to a substantial degree on the working up of raw cotton from the South for export. The midwest exported much of its food surpluses to the South and to the northeast, which still had a large, if inefficient, farm sector of its own. After 1837 the interests of the various sectors grew increasingly disparate. The commercial and financial crises of 1837, 1839 and 1841 were followed by four years of recession. Prices of wheat and cotton were both disastrously low. The result was a flow westward of ruined farmers and native American artisans who saw their living standards threatened by the rise of northern factories and the influx of European immigrants. The growing midwestern states found their hog and grain production exceeding the capacity of a limited southern market to absorb. Moreover, anti-Corn Law agitation in Britain alerted the midwest farm states to the possibility of new markets there. After repeal of the Corn Laws in 1846 the United States replaced the Baltic states as the chief source of British grain and flour imports. Britain encouraged the growth of the midwestern farm states and the spread of mixed farming territories across to the Pacific. Not only were such areas providers of cheap food for industrial Britain, but they were also a rich and growing market for British manufactured goods, a market which the industrial development of the North behind tariff walls would ruin. On the other hand the industrializing North hoped to make the West its own commercial fiefdom. New York, in competition with Montreal, reached out to try to control the grain export trade of the area. Northern manufacturers sought to capture the western market for their own output, and to tap it as a secure source of cheap food for the eastern proletariat. The growing British presence upset relations between South and North as well. After the cotton crises of the late 1830's and early 1840's the cotton trade increasingly by-passed New England and New York, going directly to England from southern ports, a development encouraged by American navigation laws that permitted foreign ships to call at only one U.S. port per voyage, and encouraged further by Southern resentment of New England's former intermediary role. The commercial link with the midwest too was declining. While the South and the West could continue to collaborate on the tariff question, the proliferation of trade links between North and West, cemented by canals and railroads, upset the balance of forces. Moreover, British exports to the North helped solidify the links. While northern manufacturing gradually displaced British merchandise from American markets in a wide variety of fields, there was one

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important exception. In the 1850's iron and steel products, demanded by the railway boom, became Britain's leading export to the United States. The rail links moved from North to West, increasingly alienating the South. In 1857 a world economic crisis led to a collapse of cotton and grain prices and an industrial recession. Agitation for higher tariffs in the North increased, but was blocked from success by a still-solid front of South and West on the tariff question. Not until Abraham Lincoln managed to forge an alliance of Northern big business and Western farmers, an alliance whose rallying cry "vote yourself a farm — vote yourself a tariff' ably summed up its constituent parts, did the political deadlock end. By favouring expansion of the limits of free land for farmers and at the same time granting industrialists a protective tariff, Lincoln's Republican Party was placed in power by a minority of voters, and the Civil War soon followed. Relations of the United States with Britain, and therefore with British North America, also deteriorated as sectional conflict moved the republic closer to civil war. Since the Revolution Britain had intrigued to keep the United States weak and divided and as geographically constrained as possible, while for American politicians aggressive expansion at the expense of European powers and the aboriginal population was regarded as both an instrument for assuring continued prosperity — every domestic crisis was met by an appeal to further expansion — and as a means of uniting the latently antagonistic sectional interests against an external threat. In 1836 and 1837 rebellions in Texas against Mexico and in the Canadas against Britain heartened the expansionists. The acquisition of Texas meant a further step to controlling the commerce of the Gulf of Mexico and the Caribbean as well as a stepping stone to the silver mines of Mexico. The independence and/or annexation of Canada would mean the freeing of the St. Lawrence-Great Lakes system from British rule. Britain tried to prevent the incorporation of Texas into the United States, for it would mean the loss of part of the trade of the former Spanish areas of America whose control was a major objective of British policy. But at the same time, Britain was faced with wars in Afghanistan and China and French intrigues in Egypt and was therefore anxious to avoid an open clash with the United States over the Texas question. Nor were relations with the United States much better on other fronts. In the northeast the Maine-New Brunswick border dispute culminated in the Aroostook War between two sets of rival timber interests. The American government seized upon the dispute to use it as part of its general campaign to expand its borders at British expense. While the 1842 Webster-Ashburton Treaty stabilized the

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northeastern border — by granting the United States virtually all its demands — the Texas question continued to fester as the slavery issue, coupled with British encouragement, kept Texas out of the union. And by the 1840's the Oregon Country too had become a source of Anglo-American tension. The resolution of the Oregon dispute in America's favour coupled with the subsequent absorption of Texas and California gave the United States a powerful position in both the Caribbean and the Pacific, and the British viewed the new American aggressiveness with alarm. It attempted to use the remaining parts of British North America as a political bulwark against republicanism and as a commercial artery for controlling the interior trade, whose importance grew as expansion westward proceeded. It hoped the split between North and South to deepen if not to the point of secession, then at least to the point where the American central government was rendered impotent by sectional conflict. In addition, by encouraging French aspirations toward the seizure of Mexico, it could block further American expansion into Latin America and check American expansionists' plans to grab Mexico and therefore a short route for a railway linking the Caribbean and the Pacific. And in the event of war — a war which it was hoped would involve a conflict only with a weakened northern segment of the union — Britain planned to seize Maine, whose business population already hosted a proannexation party, and turn Portland into a major conduit for channeling British goods to western American markets along Canadian railways. But victory by the North in the Civil War ruined all these schemes. The United States emerged from the war greatly strengthened politically, commercially and militarily. The French were ejected from Mexico. The United States now formed a tacit alliance with Russia, Britain's bugbear in the far east. Cemented by the Alaska purchase, the alliance threatened to give the United States control of all of the Pacific coast of North America — unless the British hold could be consolidated by railways and union of its remaining North American colonies.

18

Commercial Reorientation and Structural Change in the Economy of United Canada

IN THE PERIOD AFTER THE NAPOLEONIC WARS the vagaries of imperial policy, combined with the great structural changes taking place in international economic relations, kept the Canadas in a state of economic, political and social uncertainty. Waves of pauper migration rolled across the provinces while huge tracts of land lay idle in the hands of speculators close to the government. Timber pirates roved the forests hacking down great stands with complete indifference to economy, ecology, and public authority, while the colonial administrators pursued private gain and neglected their public duties. All the while, the imperial authorities vacillated in their colonial policy between hardening the decadent mercantilist structures, propping up colonial staple trades with measures to assure the war-time supplies of strategic materials such as grain and timber, and catering to demands for trade liberalization. By the late 1820's order began to emerge. Some elements of rationality appeared in the land settlement process; the provinces were learning to handle at least a part of the pauper immigration; and behind the colonial timber and grain preferences, which the power of vested interests in Britain turned from war-time into seemingly permanent measures, the accumulation of capital in the colonial staple trades took place. But by the mid-1830's agrarian discontent and autocratic, corrupt government combined with discontent over imperial policy to propel the Canadas to rebellion, while a financial and com252

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mercial crisis of major proportions rocked the Atlantic trading system. In the aftermath of the crises of 1837-1838 the economy of Upper Canada lay prostrate. The agricultural distress was compounded by the fiscal crisis which led to a cessation of public works expenditure, further exacerbating the existing unemployment problem. An outflow of population to the United States began. While Canada had always been an entrepot for immigrants from Britain en route to the United States, the exodus was now swollen by emigration of established settlers. Political motivations also prompted the egress; in Upper Canada some with Reform sympathies packed up and left for the American midwest, where free land and the slogans ofjacksonian democracy beckoned. In Lower Canada a farm crisis and overcrowding of the seigneuries accentuated the decline of two important alternative sources of employment, timber exports and public works. Recharging the Canadian economy required first and foremost the resolution of the fiscal crisis and the resumption of public works — elusive goals at a time when the interest charges on the debt of Upper Canada absorbed most of its revenues and it would have been difficult to unload more debentures in London at virtually any price. The danger of default on the existing debt loomed large. At that point the British government sent Charles Poulett Thompson, Lord Sydenham, to Canada as governor-general to restore public credit, complete the St. Lawrence conduit for American grain and British manufactures, and gerrymander the two provinces into union.

The Economy of United Canada The union scheme was an old one, as old as the division of the colony itself. But its reincarnation in the post-rebellion period was the result of several new factors. The need to reorganize the finances of the provinces was one such factor, adding the tax resources of Lower Canada to the debt load of Upper Canada to assure that the debt was serviced. So too was the need to preclude a repetition of the events of 1837-38. Furthermore, there was a growing discrepancy between political rhetoric and practice in Britain, with its trend toward political "reform" and liberalization, on the one hand, and the autocratic, archaic governmental structures at work in the colonies on the other. And in the aftermath of the rebellions, too, British policy makers reawakened to the possibility that the binational nature of their British North American possessions could be a problem. When Lord Durham was sent to investigate and recommend solutions, he quickly became aware that the problems in Lower Can-

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ada had a qualitatively different dimension from those in the other colonies. A struggle between a "popular" party in the assembly against an autocracy in the executive branch was a feature in all of them, but for Lower Canada the problem was exacerbated by the national question. To Durham the "popular" party in Lower Canada represented the retrograde traditions of France of the anrien regime, while the English-speaking governmental party was the embodiment of the spirit of modern enterprise. It was essential to free their hands of the shackles imposed on them by the reactionary impulses of the popular party in order that they could perform their annointed tasks of modernization, development and accumulation. At the same time the province had to be freed of the archaic practice of irresponsible government, which was contrary to the spirit of British parliamentarianism. The solution was therefore a twofold one. In the short run the provinces would be united in such a way as to preclude French majority control, while in the long run the surplus population of industrial Britain would be encouraged to settle in the vast tracts of "empty" land to swamp, and later assimilate, the francophones. The result would be to simultaneously open the provinces up to modernizing and developing influences and eliminate the most obvious and pressing source of sentiment in favour of separation from the empire. Montreal's merchant elite had long been inclined toward union as a way to break their political isolation and facilitate their commercial penetration of the upper province. The most powerful opposition to union was the Family Compact, Upper Canada's ultra-loyalist would-be planter class who, like the old planter class of the West Indies, the East India Nawabs or the West Country merchants, had to be forced from power to make way for the new colonial system. The job of Lord Sydenham was to organize a rapprochement between Montreal big business and the agribusiness interests of Upper Canada in order to carry the union project, drive the Loyalist squires of Upper Canada from power, and water down the political influence of the francophone middle class radicals. This last would be assured by giving both halves of the united province equal representation in the assembly despite the fact that Lower Canada had much the larger population. The British government chipped in by promising, in the event union was accomplished, to guarantee a loan of £1.5 million to help pay the existing debt of the provinces and complete the canal works. Once the British investment funds began to flow again public works resumed and, with the help of improving overseas grain markets, soon lifted the province out of its depression — though not without generating labour disturbances in the process. The conditions of life among canal workers — exorbitant rents in the shanty

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towns, long winters of unemployment, cold and hunger, and the practice of defrauding them of wages by truck payments at company stores — made strikes and riots commonplace. Behind Britain's enthusiasm for canals along the St. Lawrence, and for the political union that permitted their cost to be dumped on the local population, lay its dream of using the St. Lawrence to control the trade of the American West. And as long as Canadian farm products shipped along that route gained access to British markets on the same terms as American, Canadian farmers were content to make their peace with Montreal merchants and imperial planners, their mutual gain being New York's loss. But this precarious unity of economic and political purpose was not destined to last long. The first blow against the system came in 1845 when an American Drawback Act permitted Canadian wheat to enter the United States in bond for re-export to Britain via New York. Then in 1846 the Corn Laws were repealed, destroying the St. Lawrence trading system and shifting the balance of commercial advantage back to New York. To make matters worse, timber followed the wheat staple. An overexpansion in the early 1840's had already produced a glut in 1845; a brief recovery, prompted by the railway building frenzy in England, followed, but the deflation of the Hudson bubble in 1847 caused a crash of the timber market during the very period Britain was phasing out the colonial preference and readmitting Baltic timber on equal terms. For Montreal and the great timber port of Quebec the events of 1846 and 1847 were disastrous. Prices of stockpiled commodities collapsed, while mills lay idle along the St. Lawrence commercial system. Commercial credits were lost; the canal revenues tumbled; and the province once again faced bankruptcy. Even in the best of times the elaborate canal system could not pay interest on the debt incurred to built it; with the repeal of the Corn Laws and a massive diversion of grain traffic to New York, the provincial deficits widened. The province's public credit in Britain, always suspect, now was ruined as the commercial distress of Canada was compounded by financial crisis in Britain. Then, just when the public purse was least prepared to sustain new demands, the situation was further aggravated by a new, massive influx of pauper immigrants induced by the Great Hunger in Ireland. The cause of the Great Hunger inhered, as had earlier Irish famines, in the structure of agriculture imposed on Ireland by British power. The Corn Laws and the shortages of the Napoleonic Wars had encouraged the shift of Irish agriculture to intensive tillage of tiny plots, forcing the population to rely almost exclusively on a few pounds of potatoes a day for food and to pay rents in the form of wheat for export. The average size of plots cultivated continued to fall with

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population growth and land subdivision until the Great Hunger decimated the population and facilitated land aggrandizement. With the onset of the potato famine, Britain's response exacerbated the already legendary misery of life on Ireland. Instead of placing an embargo on the export of grain from Ireland, the English government moved in the direction of complete free trade in foodstuffs. Prompted by the desire to cut the price of wage goods in England and to ease the tense relations with the United States by capitalizing on the flow of cheap American grain onto world markets from the rapidly expanding midwestern states, the Corn Laws were repealed. Purchasing power in Ireland was cut just when the potato catastrophe struck. Relief grain was shipped back to Ireland but it was insufficient and its consumption was impeded by the shortage of grain mills in the destitute areas. Laissez-faire, England's long-term policy for the relief of Irish distress, took the form of encouraging the outflow of population which, with the deaths through hunger and the spread of disease among the undernourished, managed in a few years to cut Ireland's population to about half of its pre-famine level. Irish landlords, faced with the need to rationalize production costs in the face of the loss of protection, also encouraged the depopulation of Ireland and aggrandizement of holdings. In 1847 the Irish Poor Relief Act was passed, giving the Board of Governors of the poor relief funds the power to pay half of the cost to a landlord of getting destitute tenants to migrate. Landlords sometimes cheated, offering the tenants money to leave, then never paying — but collecting the rebates from the Poor Relief funds in any event. The refugees were transported in timber ships in which crude partitions and berths were thrown up (flimsily, so they could be knocked down again to make way for the timber on the return voyage). The ships often leaked, sometimes floundered, and frequently bred disease. Some 25,000 people bound for Canada in the years 1847-1848 died of typhus; many thousands more of other afflictions. On the other side, the impoverished immigrants were often dependent on public charity for survival. After much colonial protest, Britain finally agreed to pay a little money for relief, but it sufficed to do little more than cover a floating debt the province owed the Bank of England. The Canadian government tried to impose taxation on immigrants to raise funds for poor relief; but the concerted objections of the British Parliament that wanted to keep Canada open as an imperial dumping ground, of the shipping interests in the immigration trade, and of the big land speculators of the province secured a reduction in the level of the tax. The crisis of 1846-1847 badly weakened the authority of the representative of the British Crown in Canada, and of the Tory Party. In

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1848 the Reform Party, led by Robert Baldwin, Louis Lafontaine and Francis Hincks, took office as the governor general, Lord Elgin, acceded to the principle of responsible government (of which the primary form of "responsibility" was to be Canada's responsibility for paying its own debts). Britain had repudiated most elements of fiscal control over the colonial parliaments, retaining only some residual, supervisory powers: imperial duties had been abolished; and the dominant party in the assembly henceforth was to control all public expenditure and patronage —just in time for the railway mania to begin to sweep Canada. In the meantime a commercial crisis still loomed in Montreal, as Canadian grain flowed in increasing amounts to market via New York. The St. Lawrence canals were actually deeper and better than those of New York, capable of carrying ocean-going ships all the way into the Great Lakes rather than just barges whose cargoes had to be transhipped. But the relative cost advantage of the canals was more than offset by New York's advantages over Montreal: the fact that New York was open year-round, and the distance from it to London and Liverpool was considerably less. Without the Corn Laws the St. Lawrence waterway system seemed uncompetitive. Not only was the American canal system winning for New York the battle for control of the interior trade, but the rapid development of American railways threatened to make matters worse. Montreal's formerly staunchly loyalist commercial elite reacted by riots against the governor-general and by demanding to join Texas and Oregon in opting for annexation to the American union.

The Texas Syndrome Though short-lived as a political force, annexationism had a profound logic, and its supporters had concrete long-term economic objectives in mind. As one annexationist put it, "I would love to remain a subject of Her Majesty—if I could afford it." The manifesto of the movement pointed out the commercial distress and financial crisis afflicting Montreal-based business. It cited the drying up of credit and liquid capital, and the inability to raise private or public loans in Britain for the province. Political instability, it claimed, was driving away outside investment, British and American. The solution lay not in protection of the Canadian economy for home development, for Canada was too small, and federation of British North America would add little to the size of the economic unit. Freer trade with the United States was only a very partial solution. The answer to the province's economic woes, as the business leaders of Lower Canada

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then saw it, was joining Texas, California and the Oregon County and securing Canada's annexation to the great Republic. The manifesto was explicit: The proposed union would render Canada a field for American capital into which it would enter as freely as into any of the present states. It would equalize the value of real estate upon both sides of the border, thereby probably doubling at once the present value of property in Canada, whilst by giving stability to our institutions and introducing prosperity, it would raise our public, corporate, and private credit...both with the United States and with foreign countries. It would introduce manufactures into Canada as rapidly as they have been introduced into the Northern states; and to Lower Canada especially where water power and labour are abundant and cheap, it would attract manufacturing capital, enhance the value of property and agricultural produce, and give remunerative employment to what is at present a comparatively non-producing population. Nor would the United States merely furnish capital for our manufactures. They would also supply for them the most extensive market in the world without the intervention of a Customs House office. This vision of Canada's economic future, with minor modifications, soon became deeply embedded into the political reflexes of Canada's ruling elite. The key element in the program was not political but economic annexation, in other words the notion that Canadian development had to derive from that of a greater power, and that it hinged crucially not on domestic accumulation but on the injection of funds from abroad. Formerly that vital injection had come in the form of British government expenditures in Canada, and to a lesser degree long-term loans from London. This ended with the dismantling of the old colonial system and the foisting of fiscal autonomy and responsibility for its own debts onto the Canadian government. The annexationists looked forward to the United States replacing Britain as a source of investment capital and as a market for staples. The Reform Party, backed by the governor-general and Colonial Office, articulated a different political strategy for achieving roughly similar economic results. In effect they joined the imperial authorities in their global campaign for reciprocal lowering of tariffs, the encouragement of free trade in general, and the fostering of freer trade between British North America and the United States in particular.

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Commercial Diplomacy and the Triangle Trade Pattern The shifting pattern of regional alliances in the United States formed the background against which the Reform Party in Canada sought to manoeuvre a Reciprocity Treaty through the American Congress and explained the pattern of negotiation, the success, and the eventual collapse of the treaty. Politically, Reciprocity came to be judged in the United States at least in part on the basis of whether it would hasten annexation. Economically, the issue was which of the three sections of the American economy would most gain from free trade in raw materials with British North America, and how the Reciprocity Treaty would affect the American tariff structure. The negotiations were long and complex. Britain was deeply interested in Reciprocity, the strategy it was at that time applying to its own commercial relations with a number of European countries to bring down tariff levels. It thus hoped to use the treaty negotiations as a lever to secure a reduction in American tariffs on British manufacturers. In exchange for such a reduction, Britain was more than willing to cede cheap natural resources and primary products from British North America. But the United States from the start refused to consider extending the terms of the treaty beyond raw material trade between it and British North America, and Britain's failure to secure lower tariffs scuttled that round of negotiations. Opinion on the issue was still far from settled in the United States. Western farmers feared Canadian competition. The South feared Reciprocity was a first step toward annexation, which would swing the political balance in favour of free states. Moreover, it failed to perceive any economic benefit to itself under the proposed treaty: the North would get cheap raw materials while the South would still have to buy its manufactured goods at tariff-inflated prices. Some Northern business interests were apprehensive that it might be a first step toward free trade in manufactures. While the tariff reductions envisaged applied only to British North America and only to primary products, any tariff reduction at all could be a bad precedent for internal politics. Over the period 1848 to 1852 a high-tariff administration was in power in the United States, impeding the course of deliberations. But in 1853 an administration favourable to freer trade took office. Prince Edward Island, beginning to generate large surpluses of agricultural produce, also looked forward to Reciprocity. In New Brunswick, whose economy turned almost exclusively on timber and related activities, business hoped to secure American markets to replace the declining British ones. The problem lay in Nova Scotia.

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Nova Scotia's economy remained largely a traditional mercantile one, a pattern in fact reinforced by the great Atlantic trade boom of the late 1840's and early 1850's. Fishing, imperial trade, and the related shipbuilding industry remained the predominant occupations. However, slowly but surely a new direction of economic activity, based on the exploitation of the province's resource base, was taking place. First and foremost among the new resource industries was coal. The coal mines of the province, including Cape Breton, had been encumbered since 1826 by the monopoly of the General Mining Association. By 1857, when the GMA was finally forced to cede back some of its lands to the province, some £300,000 of British capital had been invested in it, but dividends had been minimal. Britain had an abundance of cheap coal and thus had no potential as an export market — in fact Britain sent coal to British North America as ballast in timber ships. Inside British North America there was little demand: industrialization was in its infancy, and timber still served as the chief fuel for domestic purposes. Even the early railways burned wood. And if coal was required, Canada was closer to the Pennsylvania fields than to those of Nova Scotia. On the other hand, New England had a booming market, though it was cut off by tariffs. The coal mining interests of Nova Scotia, supported by the British government, therefore pushed for Reciprocity, which would include free trade in coal. As a quid pro quo Britain offered the American fishing industry unrestricted access to the Nova Scotia fishing grounds, even though increased competition in the fisheries would have an adverse effect on the province's West Indies trade and its shipbuilding industry. Thus the interests of the traditional seafaring economy of the province would be sacrificed to help turn in dividends for the General Mining Association. In the provincial assembly the representatives of the traditional economy, were outraged — there was not even a Nova Scotia delegate at the final treaty negotiations. But in the long run the opposition from the province was to no avail. With Canada, New Brunswick and Prince Edward Island in favour and Nova Scotia secured by imperial insistence, the only remaining problem was to assure the bill's passage through Congress. In 1854, the year of the Kansas-Nebraska bill and with North-South antagonism at a peak, Elgin himself went to Washington. By then the North was coming around to accept Reciprocity in the conviction that it would lead to annexation. The South too was increasingly favourable, on the assumption that Reciprocity would avert annexation. Elgin's diplomacy involved convincing both that they were right. He entertained lavishly, and it was afterwards claimed that the treaty passed the U.S. Senate on a sea of champagne.

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The operation of the treaty coincided with the great boom of the 1850's. From 1850 to 1857 Canada, and indeed most of the Atlantic economy, saw an unprecedented era of prosperity, and even after 1857 there were still periods of marked prosperity alternating with crises. Trade between British North America and the United States shot up, much of it representing a shift in Canadian trade patterns away from overseas markets toward the American one, which was precisely what many millers and merchants of Upper Canada wanted. There were many factors besides the treaty that would have induced prosperity in Canada. The decline of the square timber trade to Britain was more than offset by the growth of American lumber markets. The American prairie lands were treeless and their development demanded a huge volume of cheap lumber for construction of buildings and railways. Even before the treaty went into effect American capital and lumbermen were moving into the Canadian forests in significant numbers, while in Britain coal replaced charcoal for fuel, iron replaced wood as a building material, and steam power spelled the end of the era of dominance of wooden ships, all causing a decline in the timber trade while the American demand for Canadian lumber was rising. Other factors were also at work. Railway fever swept Upper Canada in the early 1850's as Toronto and Hamilton wholesale merchants strove to free the province's trade from Montreal by running railway links to American lines. A deluge of British capital moved in as the Canadian provincial government and the Upper Canada municipalities ran up crushing overseas debts to foster the proliferation of railways. The early lines were often a threat to Montreal's commercial hegemony, and it reacted with even more railways, specifically the Grand Trunk system, which poured yet more millions of British investment funds into the provincial economy. It was also the high tide of the Upper Canadian wheat staple, dotting southwestern Ontario with market towns linked by railway lines. Population growth was rapid in the 1850's, and the frontier of agricultural settlement soon reached its limits. Even Quebec, taking advantage of buoyant world demand, recovered partially from its agricultural crisis and participated in the booming grain economy. Colonization was extensive in the lower province in the 1850's. The success of the grain export economy was fed by European crop failures, the opening of the American market, and the effects of the Crimean War in blocking the flow of Russian grain onto world markets. The peak came in 1857, after which American competition and soil exhaustion caused wheat output to level off. While wheat remained the dominant cash crop of farmers in both parts of Canada

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until Confederation, the post-185 7 trend to diversification of crops was strong. The American Civil War reinforced the switch to other crops by increasing demand for livestock and feeds. It also stimulated the demand for other Canadian raw produce, and kept economic activity going at a rapid pace. Moreover, the southern secession provided a great windfall for Montreal commerce by breaking up the Mississippi route and diverting much of the midwest trade down the St. Lawrence system. Wooden shipbuilding in British North America also saw one last great surge of activity as world trade expanded and war decimated the American merchant marine. All in all, despite periodic crises after 1857, the period of operation of the treaty was one of substantial prosperity, and especially after the termination of the Reciprocity Treaty in 1866, Reciprocity came to be identified with prosperity in the minds of Canada's primary producing sectors. The reasons for American decision to terminate the treaty are complex and varied. In 1857 and 1858 Canada imposed higher tariffs on manufactured goods to try to raise money for railway building, a move which alienated American manufacturers hoping to displace Britain as the leading source of supply of manufactured goods for British America. Certain farm groups in the United States resented Canadian competition, especially after the end of the Civil War and its inflated demand for produce. American transportation interests objected to the incursion into their country of Canadian railway lines competing for control of the midwestern trade via Chicago. A number of specific American resource industries found themselves increasingly at odds with Canadian competitors — the Pennsylvania coal mine owners, Maine and Michigan lumbermen, and the shipbuilding interests of New York. But more important in the long run than specific vested economic interests was the impact of the Civil War on overall regional economic balance in the United States. The rising power of industrial interests in the North, a power accelerated economically by industrial growth during the war and politically by the elimination of the South as a factor to be consulted in economic policy, dictated a high-tariff strategy. So too did the burden of debt and the demand for funds for reconstruction after the war at a time when tariffs were the principal source of government revenue. The economic alliance between Britain and the American South had shown itself during the war, in an era of pro-Southern sympathy evidenced by leading British and Canadian figures. The consequence was a diplomatic crisis between the United States and Britain, one of whose manifestations was pressure to abrogate Reciprocity, and therefore pressure inside Canada to find an alternative development strategy within an imperial context.

19

The Dawn of the Railway Age in British North America

IMPERIAL-COLONIAL ECONOMIC RELATIONS during the Age of Steam and Steel reflected Britain's search for commercial hegemony on a world scale. That primary motivation of British colonial policy had two major consequences for Canada. On the one hand, Britain attempted to aid and abet the development in Canada of an archetypical white settler state which exported industrial raw materials and foodstuffs while importing British manufactures, along with the labour to produce the raw materials and the capital to build the infrastructure necessary to move them to imperial markets. On the other hand, judged in terms of global strategy, Canada per se was of minor significance to Britain. British concerns were primarily with assuring its markets in India and the United States, and its supplies of grain and cotton from the U.S. in particular. Canada was valued first and foremost as a means for furthering and deepening British commercial penetration of the United States, both by using Canadian resources as a bargaining tool and by using the province as a conduit for trade. And assuring those trade flows in turn required the development of the appropriate transportation infrastructure.

Early Transportation Infrastructure The process began with road building, which set important political precedents for the scramble for spoils during the railway age that followed. Since the 1830's road building had been a provincial government responsibility, although municipal authorities, where they existed, were expected to take care of construction and upkeep in 263

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their jurisdictions. Road improvement grants voted by the Upper Canada legislature were the source of abundant corruption but little road development. Individual members would propose their own road jobs, and collect the cash if it were voted through successfully. These grants were log-rolled through the legislature and squandered by the members. Given the lack of genuine municipal institutions then, as Lord Durham, the British government's Commissioner of Enquiry into the political affairs of Canada, observed, "the great business of the assemblies is, literally, parish business." Each country member in the assembly competed with others to get parish business done at the expense of provincial business; and the assembly would be impelled by reasons of its own electoral survival, as well as by reasons of its political war with the executive branch, to cut down on the civil service list as much as possible to maximize the amount of funds each member could have for his constituency. The results, Durham noted, were that There is a perfect scramble among the whole body to get as much as possible of this fund for their respective constituents; cabals are formed, by which different members mutually play into each other's hands; general politics are made to bear on private business, and private business on general politics; and at the close of parliament, the member who has succeeded in securing the largest portion of the prize for his constituents, renders an easy account of his stewardship, with confident assurance of reelection.

Not surprisingly, among the casualties of the system was a coherent, integrated network of provincial roads. In the Maritimes too, the condition of the roads tended to remain deplorable, despite the relative size of the commitment of resources to them. Indeed, road development was the single largest item of the Nova Scotia government's budget in the 1830's and 1840's. But there, as in Canada, road development grants were notorious sources of legislative jobbery. The funds were dispensed by road commissioners, who were granted sums of cash which they could either contract out at a 5% commission or use themselves. The commissioners were political appointees, and each legislative session saw a scramble for the posts. Once appointed, the commissioners tended to absorb as much of the cash as possible themselves. The result was that roads often remained little more than bright ideas in the local commissioner's mind. The earliest railways developed in British North America had strictly local objectives. The first "railway" in the colonies, as in Britain, was a short line with cars pulled by a stationary steam engine, whose objective was to convey coal in the Pictou, Nova Scotia

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mines of the General Mining Association. In Canada as in the United States the early railways were portage lines designed to supplement canals and existing waterways; the first of them, the Montreal and Lake Champlain, was chartered in 1832 in response to New York's Mohawk and Hudson Railroad, which was designed to bolster the Hudson-Mohawk waterways system in its competition with Montreal for control of the interior grain and produce trade. Several other portage roads were planned, and a few built. Typically these portage roads were small-scale affairs chiefly involving the resources of a few well-to-do local citizens. It was quite otherwise with the great trunk line schemes, whose scale demanded the involvement of the state, and totally transformed the relations of business and government in Canada.

The Advent of the Trunk Railway The election of 1847 brought the Baldwin-Lafontaine-Hincks ministry to power, and with it the operation of the most fundamental operational principle of "responsible" government, majority party control over the dispensation of patronage. With it too came the trading of corporate charters for political aid. Charters for various projects, road companies, railways and utility operations were jobbed through the house by coalitions of members — sometimes to force those actually interested in building the canal, the telegraph, the railway or whatever other enterprise was specified in the charter, to admit the politicians as partners or to be bought out by them. From 1847 to 1866 the major pieces of the central Canadian railway system, apart from a few links necessary for future transcontinentals, were pasted into place with an amalgam of public money and private greed, the role of the government being to translate the first into the second. Several major railway systems were planned and some actually constructed. The St. Lawrence and Atlantic was to run from Montreal through the Eastern Townships to the American border where it would link to an American line that would carry the system through to Portland, Maine; the Great Western was to connect Hamilton and Toronto to the United States border at Windsor; the Northern was to link Toronto to Georgian Bay as the first stage in a land-water route to the northwest; the Intercolonial was to run between Halifax and Quebec City; the European and North American was to join Halifax and a major New Brunswick centre to Portland, Maine. Finally came the Grand Trunk system, sharing a name with India's principal commercial highway, and planned and built as the

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largest integrated railway system in the world under single management. In 1850 there were 66 miles of railway in British North America: a decade later there were 2,065. The phenomenal growth of railway mileage was both a symptom and a cause of one of the most sustained economic expansions in Canadian history. In the context of the tremendous acceleration of world trade typical of the era, the American midwest, toward which the major trunk lines were aimed, and Upper Canada experienced an unprecedented agricultural prosperity. The development of Canadian railways too went hand in hand with a metamorphosis of the political institutions of the province, personified by one man above all others, Francis Hincks, principal founder and one of the leading early beneficiaries of the corporate welfare state in Canada. Under Hincks's leadership the Canadian state structure was put at the service of the rising railway magnates, and the legal infrastructure for the development of a primitive financial capitalism in Canada laid in place. There were three main blocks in the construction of the credit pyramid Hincks devised and on which the railway age was built. The first block was the Municipal Act of 1849 by which towns and townships were incorporated and empowered to borrow money to either build public works themselves or to give it away to private promoters. Second was the Guarantee Act, under which the province guaranteed the interest on bonds issued for half of the total cost of a railway with a mileage exceeding 75, provided half of the line had already been built — that is, the promoters in theory had to build the first half of the railway from their own resources or by borrowing on their own credit, and the state would step in to help raise funds for the second half by pledging the provincial revenues as a guarantee of interest on the construction bonds. The Guarantee Act was carried triumphantly through the assembly with a rare degree of unanimity. A resolution, drawn up at the urging of Eastern Townships political chief and St. Lawrence and Atlantic railway promoter Alexander Gait, and intended to aid railways, was introduced by Inspector-General (Minister of Finance) Francis Hincks and seconded by Allan MacNab, leader of the opposition. A committee chaired by Allan MacNab listened sympathetically to the testimony of railway promoters such as Allan McNab, President of the Great Western, and reported in favour of state aid. The Guarantee Act was therefore carried with non-partisan ease. Political principle may have differentiated the Tory leader from the Reform government, but personal greed transcended these principles. Cash has always been a remarkable solvent of interpersonal tensions, and the Canadian legislature was one of the last

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places on earth where exceptions to this simple rule of political behaviour could be expected to be found. With the Guarantee Act passed, the St. Lawrence and Atlantic line was off and running, followed quickly by the Great Western. Shortly after the passage of the Guarantee Act, the third and final block in the credit pyramid by which taxpayers' money could be appropriated for private purposes by members of the assembly elected to defend the taxpayers' interests, was laid in place. There were many instances of Canadian municipalities and even parishes subscribing stock in railway companies, but the Municipal Loan Fund Act had other objectives. Its purpose was to provide a mechanism whereby municipal revenues could be siphoned off into debentures issued in aid of railway and other transportation projects, and to complement the Guarantee Act. Under that act, the province proposed to aid the development of the main trunk systems, while the Municipal Loan Fund Act allowed the municipalities to borrow to build the branches and feeders. Various municipalities would issue debentures which would be pooled in one central fund under the control of the Receiver General of Canada, who would then issue provincial debentures in proportion to the size of the pool of municipal securities. Thus the province would sell its securities, which were backed by the combined credit of the municipalities, at home and abroad at a lower interest rate than would be available to each municipality in isolation. The result of the plan was to drain large sums of money out of the municipalities, and ultimately from the provincial treasury, for "loans" to railway promoters, of which virtually none were ever repaid. Railway promoters could wander from town to town shopping for the best terms. Some lines were aided by towns in the hopes that they would provide competition with an existing railway, when in fact the new line had already negotiated a merger agreement with the older line before the grant was made and would subsequently be absorbed, along with its grant, by the other railway company. Furthermore, since the province itself had to approve all municipal bylaws granting aid under the Act, the result was to make those members of the assembly representing towns anxious to give handouts to railway companies more subservient to the ministry in power. If they behaved well and toed the party line, their constituencies got the required approval and the subsidy funds. And the idea was spread about by some members of the assembly that no repayment would ever be demanded from the towns, which made them all the more extravagant in their votes of aid and all the more beholden to the member securing the cabinet approval for the grants. By 1858,45 of 47 participating municipalities in Canada West

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were in arrears along with all 31 in Canada East. Ultimately the province had to foreclose and take responsibility for the debts. Meanwhile, the railway promotion scene further east was far from quiet. In the late 1840's plans for a link from Halifax to Quebec and other schemes were revived, and Joseph Howe, leader of the Nova Scotian Liberal (Reform) Party, set off for England to try to secure an imperial government guarantee of a loan of £7 million for the Intercolonial, the European and North American, and a trunk line to Montreal. During his trip he regaled audiences of influential Englishmen with his visions of imperial grandeur and colonial fidelity to their mutual benefit, if only the railways needed to cement the alliance could be built. Railways were the key to reintegrating the British North American possessions into the British-dominated Atlantic economy under the new rules by which it operated. Many people were inattentive and sceptical, but one enthusiastic listener did appear at Howe's lectures — Sir Morton Peto. The demise of the Hudson system led to the virtual cessation of railway building in Britain, and the great contractors avidly searched for overseas employment. Hence when Howe set off for Toronto to confer with E.B. Chandler of New Brunswick and Hincks, then Prime Minister of Canada, Peto and his business associates, Brassey, Jackson and Belts, sent along an agent to tender an offer for construction of the lines planned under the £7 million quarantee. At first it was to no avail, as the political chiefs were committed to the principle of public ownership and publicly supervised construction of the railway system. Then suddenly in 1851 the Colonial Office retracted its loan guarantee, citing routing problems, and the entire integrated railway project collapsed. Howe charged that the English contractors had gone to work on their friends in governmental circles to get the Colonial Office to sabotage the project to force the colonial governments to strike a deal with them. However, in 1852 Hincks managed to patch together a compromise proposal, and set off to England to try to renegotiate the plan with the Imperial government. Hincks left Canada committed to the principle of public ownership of the colonial railways. He returned to Canada committed to the principle of Peto, Brassey, Jackson and Belts, the great partnership of the leading English railway contractors of the day. Hincks's trans-Allantic journey was a watershed point in Canadian financial and political history.

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Promoting a Railway Hincks did not return to Canada alone. With him came Henry Jackson, one of the partners of Peto, Brassey, Jackson and Belts. Possessed of a smooth manner and a glib tongue that could dazzle the backwater colonial politicians with tales of the contracting firm's millions, Jackson's arrival in Canada meant the importation into British North America of the entire morass of British railway finance, of contractor-promoter teams and all that they implied. Joseph Howe later credited Henry Jackson with the introduction of corruption into Canadian public life. It was an unfair charge. Corruption was rampant in Canada long before Jackson arrived; all he did was make it scientific and systematic. In place of the scramble for petty patronage that typified early operations of the Canadian parliamentary process, great fortunes were now to be had by systematic looting of the public purse. The railway scheme led to a massive increase in the Canadian public debt — with the advice and consent of the British private banks, Baring Brothers and Glyn, Halifax, Mills, who functioned as financial agents for the province and as bankers for the railway. And it ushered in, for Canada, an age of overseas financial control that nullified much of the effects of the granting of responsible government. Plans for the Grand Trunk Railway were worked out by Hincks, the contractors, and the bankers, with the enthusiastic moral backing of Montreal big business, which had been upset by the spreading rail links between Upper Canada and the United States and saw in the Grand Trunk scheme a means of maintaining for Montreal the role of trade entrepot for the American and Canadian midwest. Initially the line would run from Montreal to Hamilton where it might be expected to link up to the Great Western. To finance the Montreal-Hamilton line, the promoters would subscribe 10% of the necessary capital in return for shares, another 10% would come from individual and municipal share subscriptions, 30% would be raised by the company's bond sales, and 50% would come from provincially guaranteed bonds under the Guarantee Act. Extension plans were many and ambitious. The St. Lawrence and Atlantic was to be secured as a link from Montreal to Richmond, followed by the building of a line from Richmond to Quebec City along the south shore of the St. Lawrence. If a liaison were effected with the Great Western, which ran from Hamilton to the American border, the result would be a trunk line that could funnel the trade of the American midwest, and incidentally Upper Canada as well, along the St. Lawrence route by rail to Montreal, Quebec and Portland.

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Some major revisions in Canadian railway aid legislation were demanded, and received. Until then, to receive aid under the Guarantee Act, a line had to be half finished before its application could be approved; but the GTR was to receive aid at the rate of 50% of cost right from the start. In 1851 the Barings and Glyns got Hincks to agree that in the future government aid would be available only for those lines designed to form a part of the ultimate trunk line system, and to agree further that the Barings and Glyns would be exclusive agents for the sale of railway securities. The more securities issued and sold, the greater would be the commission drawn by the bankers, especially since implicit or explicit government support would be expected to make them particularly desirable investments. It was a sweet deal that was to get even sweeter. But first a little opposition had to be disposed of. The trunk lines already established inside Canada, especially the St. Lawrence and Atlantic and the Great Western, resisted the lure of affiliation with and therefore submergence in the new trunk line. The St. Lawrence and Atlantic was ultimately obtained, but at an enormous cost to the public purse, which had already paid for its construction. Its promoters, led by Alexander Gait, demanded a price double the market value of the shares plus another costly concession. The GTR next tried to secure control of the Great Western, but with no success, for the Great Western had become Toronto's hope for metropolitan status and Toronto business realized that absorption of the Great Western by the GTR would mean a drainage of trade to Montreal, a trade that had greatly increased in volume and value as the 1850's unfolded. The boom of the early 1850's was transforming the Upper Canadian countryside and the business class that dominated it. The business elite of Toronto invested heavily throughout the Ontario peninsula in lands, grain and timber mills, and the like. Entire villages might be the property of absentee landlords who owned mills, handicraft factories and the land that tenants rented or more well-to-do farmers contracted to buy on instalment. Led by publisher George Brown, the Toronto business elite began to view the Great Western as the key to their prosperity and to Toronto's rise to metropolitan status. With its harbours, road links and early lead in banking facilities, Toronto was ideally located to dominate the trade of southern Ontario. And the new Toronto set out to displace Hamilton as the chief wholesale trade centre for the peninsula area and to become a funnel for the diversion of the trade of the American interior, rivaling Montreal. George Brown, who led the Reform Party in Upper Canada, ipso facto also led the coterie of Toronto businessmen in the assembly

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fighting to keep the Great Western under their control. Brown's business interests were representative of the group. He had come to Canada in 1843 and celebrated his entry into the newspaper business by slashing his printers' wages, organizing a combine of employers to push down the industry wage level even further, firing workers for union activity, and even at one point having some arrested for conspiracy in restraint of trade. From this auspicious beginning he went on to build Upper Canada's most successful and influential newspaper, the Globe, and used it to advance simultaneously the Reform cause, Toronto's metropolitan aspirations, and George Brown's investment portfolio. He had heavy investments in lands along which the Great Western ran. His forests were drawn upon for firewood on the London-Windsor stretch. In 1855 the Great Western established a permanent wooding station on Brown's land, around which grew the village of Bothwell. Typical of the new centres of the province that the railway had brought to life, Bothwell was built on George Brown's land; and George Brown oversaw the creation of the sawmill, grist mill, cabinet factory, door and shingle plant, foundry and machine shop. What was good for the Great Western was good for George Brown, and his public political posturing reflected that fact, political posturing reflected that fact. As a result of the concerted opposition from the Great WesternToronto alliance, the GTR had to build a new southwestern Ontario line to the American border. Under the terms of its merger agreement with the St. Lawrence and Atlantic, the GTR had acquired the charter for the Toronto-Guelph line which it now proposed to extend to Sarnia. However, it had also acquired additional obligations to Alexander Gait which he now stepped forward to claim. Gait had realized that the American trade, especially that of Chicago, was the ultimate objective of the GTR's expansion, and that the line would not hesitate to spend a great deal of money en route if such proved necessary to buy essential support. Hence one of the terms of his merger agreement had been that his firm be selected as contractors for the stretch from Toronto to Sarnia. In addition to his profits from the merger of the St. Lawrence and Atlantic with the GTR, in addition to the contractor's profits that now began to flow his way, the new line ran through lands of the Canada Company, of which he was Commissioner, just as the St. Lawrence and Atlantic had run through lands of the British American Land Company inflating property values en route and feeding one of Canada's greatest speculative land booms. But for the railway itself, and thus for the Canadian treasury, the deal was a financial catastrophe. It meant two lines would serve southern Ontario when it was doubtful if there was enough traffic to

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support one. And when the main lines were finished in southern Ontario, the two companies leapfrogged into the United States to tap the American grain traffic which both regarded as the sine qua non of success, piling up in the process additional assets for themselves and liabilities for the public purse.

Progress of the Grand Trunk Once the preliminaries had been taken care of, the Grand Trunk promoters planned their raid on the pockets of British investors and Canadian taxpayers. They issued a prospectus emphasizing the railway's links to the Canadian government and which critics afterwards claimed was designed to mislead potential investors into thinking the railway had a government guarantee of its profitability. Lord Elgin pitched in by writing a glowing appendix to the report, eulogizing the country's economic potential. The prospectus was issued just as another one of Britain's speculative waves was about to peak. The promoters put their considerable experience in such matters to work in London in order to boom the shares of the line. But the outbreak of the Crimean War spoiled their plans by setting off a brief money market panic. The promoters were unable to unload all of the shares. It had been the hope of the bankers and contractors to pull off a stock exchange coup, collecting premiums on share purchases, collecting commissions on security sales, and collecting profits from construction, while having as little long-run responsibility for directing the line as possible. But the stock exchange crash left them very much involved with the future of the line. The agreement with the province required that they themselves invest in all securities not otherwise sold. Since clearly they had no intention of investing their own money in the line, the sole solution was to go back to the province and further fleece the treasury. But before that could be arranged, another calamity struck. In 1854 Francis Hincks was forced to resign the prime ministership. A long string of charges were made against him by enemies of the Grand Trunk: that he had used inside information to speculate with Gait in shares in the St. Lawrence and Atlantic just prior to its lucrative merger with the GTR; that he had collaborated with the postmaster general to speculate in Crown lands knowing in advance the location of certain future public works that would raise the value of the property; that he had conspired with the mayor of Toronto to fraudulently acquire Northern Railway construction debentures issued by the city of Toronto; that he had been plotting with the Barings to become Canadian agent in the negotiation of

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certain municipal loans at the same time that his cabinet that would have to authorize these loans. In addition he was accused of a long series of petty malfeasances. But the most serious, and the one that generated the most heated controversy, was that he had allegedly traded the contract for the Grand Trunk Railway to Peto, Brassey, Jackson, and Betts for £50,000 in GTR stocks. Lord Elgin returned to England the year after Hincks's political demise, and it was afterwards whispered that Elgin's share of the GTR job had been sufficient to discharge some £80,000 in mortgages then encumbering his Scottish estates. As a reward for his clever former first minister, Elgin helped engineer the unemployed Hincks's appointment to the governorship of several British Caribbean colonies, to whence Hincks retired in 1855. Elgin himself went on to bigger and better things, leading the British expeditions to China during the second and third Opium Wars, presiding over the burning of the Winter Palace in Peking after allowing his troops to loot it, and forcing upon the Emperor of China at gunpoint a "treaty" stipulating freedom of commerce in China for British drug peddlers and slave traders. Meanwhile back in Canada, even with Hincks and Elgin departed, the GTR was far from through with its depredations on the public purse. Costs were unexpectedly high while at the same time stock marketing problems in Britain impeded new issues of capital. To cover up the gap in its resources, the company turned to the province for aid. The result over time was a seemingly endless series of special relief measures, some voted by the assembly, some granted by order-in-council, some, it seems, simply handed out by particular ministers on their own authority. The financial woes of the line upset the stockholders in England, and led to the formation of a shareholders' committee, headed by the governor of the Bank of England, to demand that the Canadian government guarantee a return of 5% for 99 years on the entire capital — including all those shares purchased at substantial discounts. In 1855 Brassey and Betts came to Canada to press the demand. However, not only was such a scheme difficult to achieve under the most optimal of political circumstances, but since the abrupt departure from power of that most optimal political circumstance, Francis Hincks, a less congenial ministry had taken his place. The new prime minister, Allan MacNab, head of the Great Western Railway, not surprisingly refused further aid. The wild political quarrels of the two railway companies that ensued shook the province and brought down the MacNab ministry. The soon-to-depart Elgin then installed a new government to arrange a "compromise". The new ministry was headed by Etienne Tache, a GTR director, and John

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A. Macdonald, the Kingston Tory chief and a former opponent of the GTR who had since had second thoughts; and their "compromise" proposal was embodied in the GTR Relief Act of 1855. The act specified that apart from some residual claims of the Great Western and the Northern which had to be met to buy their support in the assembly, no further aid was to be granted to any line except the GTR unless they formed part of the direct line from Trois Pistoles to Sarnia. Secondly, it specified that government aid would now cover fully 75% of construction costs, not 50%, and this aid would be granted as fast as certificates from this engineer-in-chief could be produced. In spite of this generosity, the next year the GTR was back begging for more, and in 1856 another Relief Act was carried by a new coalition of railway lines seeking aid. But even that was not enough. Between 1852 and 1857 Canada's public debt had risen from $22 million to $52 million, half of the increase directly attributable to the GTR. London was already threatening to choke on Canadian railway or railway-related securities when the economic crisis of 1857 struck. In the wake of the Crimean War came a drastic price deflation, a drying up of the London money market, and a crisis in railway finance. Even when the immediate crisis healed, permanent damage was done to Canadian railway finances by the shift of British investment to government-guaranteed Indian railways. In Canada another GTR relief measure provoked yet another ministerial crisis and brought the leader of the Lower Canada Bleus to the fore, George-Etienne Carrier.

More Financial Woes Carrier, the solicitor of the GTR and along with Hincks, Gait and MacNab a founding father of the corporate welfare state in Canada, led the GTR forces into the 1857 election campaign. The railway company chipped in heavily with election funds, with promises of pecuniary aid for its supporters, and, critics claimed, with threats to aid the defeat of any members who did not support its expansion plans. It was a critical election, and the Cartier-GTR victory precipitated a political revolution with profound long-term results. The Reform Party opposing the GTR swept Canada West with a strong majority, but Carrier led the Conservatives to a decisive victory in Canada East and assumed office. The "radical" wing of the Reform Party, led by George Brown, had long looked askance at the provision of the Act of Union that granted equal representation to both the parts, since Canada West's population had by now come to

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exceed that of the lower province. As a result of the 1857 election they took up the cry of French domination with a new vigour. There were legitimate reasons for Brown and his colleagues to be upset at the results of the election. One Tory who had defeated a Reform candidate did so in a context in which 348 votes were cast in his township, yet only 60 names appeared on the assessment role. This discrepancy was imputed to the returning officer, after the poll closed, copying 250 names from a directory of Albany, New York, and registering them as voters. More than thirty constituencies which elected Tories showed similar irregularities, and enough reputedly phoney votes to swing the results in favour of government candidates. In another interesting exercise in democratic decisionmaking, one cabinet minister had hundreds of Grand Trunk Railway workers who were not legally entitled to vote in his riding cast ballots for him there; political opponents charged that he paid out $6,000 in bribes to secure the contest. Nearly half of the government supporters elected were implicated in some form of irregularity, if not open electoral fraud, yet the newly-elected government, naturally enough, undertook no prosecutions. Cartier's minority ministry was too weak in the upper province to last long. Its successor enjoyed an even briefer lifespan and was quickly superceded by a new Macdonald-Cartier ministry, in which Alexander Gait was Minister of Finance. Thus Alexander Gait was the head of the contracting firm which was busy pillaging the GTR in the construction of the Toronto-Sarnia branch; the GTR was receiving government of Canada money to support 75% of its construction costs; Alexander Gait was now being called upon to assume responsibility for the provincial finances, the most important facet of which was the raising of money to give away to the Grand Trunk. The result was a victory for the GTR in two ways. First, Gait raised the level of tariffs on manufactured goods to try to increase the tax revenues flowing to the province. An increased cash flow would both yield funds for direct cash subsidies to the GTR and the monies to pay interest on the public debt, as well as pave the way for more bond and debenture issues on behalf of the railway. On top of this came yet another relief bill. The Grand Trunk Relief Act that accompanied the tariff changes effected far-reaching changes in the structure of the line. At the request of the London board it shed the government directors, and it almost succeeded in getting a complete write-off of government claims to the railway's assets. Until then the government, in return for guaranteeing the bulk of the funds used to build the railway, had held a first mortgage on the line, but in the face of the 1857 crash the GTR insisted that the government mortgage interfered with deben-

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ture sales. No one, it claimed, would want to buy railway debentures when in the event of bancruptcy the government had first claim to the line's assets. Under the terms of the 1858 Relief Act the government agreed to relinquish its first mortgage. Thereafter the earnings of the railway would go in the following order: first, to pay interest on the preference bonds held by private investors; second, to pay interest on other bonds and debentures; third, to pay dividends of 6% on the stock (since much had been purchased at 25% of par value, this meant rate of return of up to 24%); and fourth, if anything was still left over, to pay interest on the debts incurred by the government to raise the money that built 75% of the line. It was, in short, free enterprise. The next problem to be faced was how to generate some earnings to distribute in the manner designated by the Act. It was no easy task in light of the state of the railway and its heavy operating losses. There were essentially two approaches taken to the problem of profits. One was to skimp on construction to cut costs. Hence a line that the contractors in their prospectus decreed would be built to a standard superior to any in North America managed to run up a truly remarkable number of steep grades, which cut costs on construction only to raise them on operation as the locomotives found the amount of weight each could haul reduced by the gradients. Along with the economizing on grading and other roadbed works came split and broken rails interspersed with a string of wrecked locomotives and derailed cars. Ballasting on the critical TorontoKingston run was kept down to two thirds the correct amount, and much of that was friable sand which easily gave way. Many rails were virtual scrap that Peto found in Europe. And when Gait's tariff put a 10% duty on imported rails, by the remotest coincidence one of Gait's business partners controlled the sole Canadian supplier. Many rails laid on uneven roadbed twisted and bent. They were not replaced or even rerolled but simply straightened out by hand and relaid. All of these actions were in violation of the contract, but the Barings lobbied for them to continue for fear that if Peto put any more money into the GTR he would go bankrupt, and his collapse would scar the Barings and the Glyns as well. All the while, heavy losses were being sustained from several directions. The ravaging of its resources by the contracting and subcontracting companies cost the line heavily. At the same time its operating revenues were reduced by its granting of cut rates on longdistance traffic. The railway, built to such a large degree with Canadian public funds, kept itself busy hauling American through-traffic at below cost to break into the American midwestern grain trade, which had always been its main commercial objective. The railway

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was crippled as well by the heavy cost of leasing or building American connecting lines to maintain that traffic. The Canadian tax monies thus went in part to subsidize American grain shipping interests. All the while within Canada the officials of the line did their best to add to the despoliation process with their princely salaries and fat expense accounts. Another of the major drains on the GTR's resources came from the provincial assembly itself, where the GTR's Canadian board had learned the art of "consideration". It engaged eagerly in securing what an auditor later euphemistically described as "conciliatory political support" by ordering the purchases of wood, land and supplies from government supporters and prominent politicians, not least among them the Kingston Tory chief John A. Macdonald. A final and severe source of loss for the company was the periodic ratecutting wars it fought with the Great Western in southwestern Ontario where their lines ran closely together.

Edward Watkin's Northern Vision By 1860 the GTR was effectively insolvent, and the Great Western was hardly better off. The GTR's creditors, led by Baring and Glyn, scrambled to establish their claims to shares of the assets of the rapidly expiring organism. Investigations by bondholders of both lines led to major reorganizations, both administrative and financial. The Canadian boards were eliminated and financial control centralized in London, thus strengthening the direct link of British finance to the Canadian government, which would be subjected to escalating demands for further aid and succour. The Barings threatened that if the GTR failed it would spell the end of the flow of British capital to Canada. Given Canadian business's near paranoia about the province's credit abroad and the degree to which prosperity and capital inflows were inextricably interrelated in the minds of the political elite, the threat was a powerful one. The reorganizations also meant that a lot of old grudges would no longer impede co-operation of the trunk lines. Brassey and Peto gradually withdrew from active participation, and other previously less conspicuous participants took control of the GTR. With a London board having wrested control from the Toronto clique, the Great Western was now in a position to co-operate with its erstwhile rival. A rate-fixing cartel arrangement had been worked out in the late 1850's, and in 1862 another effort was made to merge the two, an attempt which was aborted in the face of Toronto opposition. To

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steer the merger through, to secure more government aid, and to put new organizational principles into practice, Baring and Glyn despatched a new president of the GTR, Sir Edward Watkin, to Canada. Watkin's plans for the salvation of his line had two main elements. First, he began pressing for the construction of the long-dormant Intercolonial Railway from Halifax to Qubec. The American Civil War and its attendant hostility to all things British caused fear that the Portland, Maine outlet would be cut off; Halifax could substitute as an ice-free winter port. The Intercolonial Railway project required the co-operation of all of the provinces, and preferably, given the financial exhaustion of the Province of Canada, a fiscal union between them. Hence Watkin entered the fray in favour of federation of Canada with the Atlantic colonies. The second element in the strategy, and the more important in the long run, was to find a substitute for the American midwestern grain-carrying trade on which the GTR had earlier pinned its hopes. The pending northern victory would likely spell the end of the hopes of the St. Lawrence route for commercial hegemony over the American midwest, and the GTR was an integral part of that faltering scheme for commercial dominion. The new source of long-distance trade, Watkin thought, would come if the GTR was restructured as a transcontinental railway to function as part of the British imperial route to China and India. The far eastern trade of the empire would cross British soil on the Canadian railway. This strategy required the prior absorption of the Hudson's Bay Company territories of the west into the planned Confederation in the east. Such a plan was rendered all the more urgent by developments in the United States and abroad. It was widely believed that the fastest and best route for a North American transcontinental lay across British North America, but the Americans, spurred on by the Civil War and the urge to drive the GTR out of the midwestern trade, were rapidly pushing their Pacific railways. At the same time, France and Egypt were collaborating in the building of the Suez Canal, which meant that a second fast route to Asia also lay under foreign control. The logic of safeguarding imperial trade seemed inexorable — it demanded a railway across British North America. The year before he arrived in Canada, when the news of Lord Elgin's triumphs in China during the Opium Wars was still fresh in the minds of imperial planners, Watkin had written an account of his views in the Illustrated London News, in which he said: Try for one moment to realise China opened for British commerce: Japan also opened: the new gold fields in our own territory on the extreme west, and California, also within reach:

THE AGE OF STEAM AND STEEL India, our Australian colonies — all our Eastern Empire in fact, material and moral, and dependent (as at present it too much is) upon overland communication through a foreign state. Try to realise, again, assuming physical obstacles overcome, a main through railway, of which the first thousand miles belonging to the Grand Trunk Company, from the shores of the Atlantic to those of the Pacific, made just within — as regards the northwestern and unexplored district — the corn growing latitude. The result to this Empire would be beyond calculation; it would be something, in fact, to distinguish the age itself; and the doing of it would make the fortune of the Grand Trunk.

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The Railroad to Confederation: Canadian Expansion

WHEN EDWARD WATKIN ARRIVED in Canada, British North America comprised several geographically and economically distinct regions. The first was the Maritime provinces, partly relics of an old empire and partly products of a colonial system in transition under the impetus of mass industrialization. Newfoundland was the oldest British possession — and the newest colony — in the area. It was as synonymous with mercantilism as the West Indian plantation colonies, and it was ruled by the remnants of a merchant elite descended from the old West Country fishing interests. Prince Edward Island was the last of the old-fashioned proprietary colonies, ruled by a class of absentee landlords in England. In New Brunswick economic power emanated from the timber and ship brokers of Liverpool and London. In Nova Scotia the ousting of the old Tory merchant class from power left its pattern of economic activity essentially unchanged. It was still an ideal eighteenth century mercantile colony, tied tightly into an Atlantic trading nexus that would shortly vanish. To the west, the Hudson's Bay Company territories were in two distinct pieces. In the central areas the old chartered monopoly continued to perform governmental as well as commercial functions visa-vis the aboriginal population of staple producers. In the far west a gold rush in the 1850's and 1860's had changed the nature of company rule and economy alike, shifting the role of staple extractor from Amerindian hunter to American prospector, but left on top a collection of former company officers whose economic and political orientation was again toward an imperial commercial structure of a bygone age. 280

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In the centre stood Canada, a prototype of the white colony of agricultural settlement that the architects of free-trade imperialism had conceived of as the ideal sort of commercial appendage, one that financed its own government activities yet remained open to the flow of British capital, merchandise and settlers. Its "planter" class had been dumped from power and in its place was a class of railway magnates, bankers and wholesale merchants, the most powerful of which were still concerned with the preservation of British commercial hegemony in North America.

The Canadian Staple Trade Canada was an overwhelmingly agrarian society in the preConfederation period. Agriculture directly employed half to two thirds of its income-earning population and indirectly provided the livelihood of most of the rest. Wheat exports, particularly from 1850 to 1857, were the motor force of its economic growth. Expanding world trade and rapid urbanization in Europe and the United States drove up the demand for food and encouraged the expansion of the Canadian grain frontier. Other factors too helped induce an unprecedented level of prosperity. Reciprocity opened the American market to Canadian raw produce. Railway building, rapid immigration, and urban growth in Canada buoyed up domestic demands. Crop failures in parts of Europe meant misery and misfortune to the peasantry, and happiness and good fortune to the Canadian wheat export houses. Then came the event for which loyal colonies had long prayed. To meet the threat of Russian expansion in the east, Britain formulated the strategy of shoring up the Turkish empire, keeping the Dardanelles out of Russian hands, and bottling the Russian navy up in the Black Sea. The Crimean War, fought to assure these objectives, had the incidental effect of stopping Russian grain exports and clearing more space for Canadian. Under the impetus of the grain export business, Upper Canada reached for the limits of its arable land. Towns developed rapidly as market and service centres for the grain-producing areas. Real estate shot up in value, and paper fortunes from land, railway stocks, and bank shares were made overnight. In 1857 it came to a sudden and calamitous end. That year the Crimean War came to a close, setting off a collapse of the speculative boom, drying up the London capital market, and threatening the return of Russian grain to world markets. Moreover, sloppy farming methods in Canada were leading to early soil exhaustion undet the impact of successive wheat crops. Declining

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yields were hidden by rising prices until 1857; thereafter the conjunction of falling yields and prices meant the end of the period of rapid growth of Upper Canada's wheat staple. In 1857 too wheat midge devastated crops, slashing output while prices fell. After 1857 the flow of immigration shifted back to the United States and bypassed Canada West, and it was joined by increasing numbers of native-born Canadians from both parts of the province. Canada West's economy was geared to expansion. Heavy investments in infrastructure, land and urban facilities had been made on the assumption of continued growth. The leveling off of output, together with the slowing down of the rate of population growth, threw the urban and financial sectors into turmoil, and business leaders searched for a way of reactivating the growth process. Two central problems plagued the agribusiness interests of the province. The first was the land problem. As early as 1850, as a consequence of the fantastic landgrabs of earlier decades, there was no more Crown land fit for settlement, while huge tracts lay idle in the hands of speculators. By 1860 it was estimated that 3.5 million acres of unimproved arable land were being held back from settlement by absentee landowners. At the same time Nebraska, Iowa, Minnesota and Illinois were offering immigrants cheap or free land, much of which had the additional advantage over Canadian land of being prairie and void of trees. Thus for Canada the problem was to find more arable wheat land to replace the soils already exhausted by wheat mining, and to induce the flow of immigration back north again. The logical solution of attacking the speculator was politically impossible, for the big landowners were powerful in the assembly. In 1854 and 1855 the Clergy Reserves were thrown on the market and the siegneural system in Quebec was abolished. The seigneural system was, like the absentee proprietorship system in Prince Edward Island or the continued hegemony of the Hudson's Bay Company in the northwest, a relic of a by-gone age whose existence was an impediment to the growth of the market and the triumph of commercial principles in the organization of economic life. With rising land values in the midst of a boom, the landlords were happy to see the holdings turned into absolute private property and then sold to the tenantry. But the effects were short-lived, and in the aftermath of the crash of 1857 a more grandiose solution was required. In 1857 the Indian Mutiny led to the winding up of East India Company rule, and also the spread of Indian railways bearing government guarantees of profitability. The second event complicated the problem of Canadian railway finance by tempting British money to India in preference to Canada. The first pointed in the direction of a solution to the land question. The same year that the East India

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Company rule was abolished, the Hudson's Bay Company charter was under scrutiny, and George Brown led Toronto big business in its attack on company rule of the great treeless, fertile prairies to the west. One of their chosen instruments was the Northern Railway. Another manifestation of Toronto's ambitions, the Northern Railway was to follow the old North West Company fur trade route from Toronto to Collingwood on Lake Huron and capture part of the Great Lakes traffic, drawing it down to Toronto. It would thus serve both as a grain route for the American midwest and a key link in the land-water route to the Hudson's Bay Company territories in the British northwest. The Northern Railway promoters, supported by George Brown and other Toronto business figures, were early agitators for the termination of Hudson's Bay Company rule in the interior, and for the annexation of these territories to Canada. As was typical of railways of the period, financing was a most interesting operation. The first sod on what was to become the Northern was turned by Lady Elgin in 1849, but for some time nothing grew on the land so prepared. Want of funds delayed construction. Hence the line, following ample precedent and a thorough reorganization, applied to the municipal and provincial governments for aid in 1850. Just by chance, the mayor of Toronto, John G. Bowes, happened to be a director of the mendicant company, which must have made easier City Hall's decision to grant the railway a free site for a station, free right of way, and a gift of £25,000 followed by another £35,000 "loan" the next year. The transfers were made not in cash but in City of Toronto debentures. As matters turned out the gift and "loan" of the debentures were illegal, which could not have helped the market value of the securities. To salvage the situation, legislation to permit the city to consolidate its debt and raise its largesse to the Northern to £100,000 was rushed through the provincial legislature by Premier Francis Hincks, and the necessary by-laws pushed through the city council by Mayor Bowes. A clause was attached requiring the city to convert its old debentures into new ones at par value. Everyone now waited expectantly for the contractors to come forward and trade in their old debentures. But it turned out that the contractors had already sold them off at 80% of their face value before the debt consolidation legislation was passed to two prominent gentlemen who now stood to make a handsome profit by trading them back to the city at par in exchange for the new debentures. Who were these two gentlemen? None other than John G. Bowes and Francis Hincks. After the scandal broke, Bowes was forced by the courts to refund his profits to the city; but Hincks appears to have kept his share.

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The Northern's backers solicited the province's government for money as well. However, provincial aid was conditional upon satisfactory completion of certain works. A government inspector had to examine the road bed and other parts of the works and issue certificates of satisfactory completion before the province could authorize the aid. In fact the government inspector found the work so badly done by the contractor and so dangerous for traffic that the Commissioner of Public Works refused to grant authority for the payment. This was indeed an impasse! But not for long. The contractor undertook to secure the necessary certificates for a consideration of $100,000 in Northern Railway bonds. He then called upon friends in governmental circles, and the Commissioner of Public Works was hastily removed from his post, his successor promptly issuing the necessary authorization for payment. A short time later it was observed that when a prominent member of the government of the day purchased some real estate, he paid for it with $50,000 in Northern Railway bonds. With the Northern off and running, Toronto big business, led by George Brown, had yet another instrument with which to threaten the Hudson's Bay Company hold on the west. Brown and the agribusiness interests were supported by growing numbers of established farmers demanding their own land. In Quebec too, the sharp contract between the colony's land hunger and depopulation and the great "empty" prairies also caught the attention of railway promoters. Colonization had reached the limits of feasibility in Quebec long before it had in Ontario, and the so-called colonization schemes in Quebec were usually just smokescreens for denuding large areas of timber while the outflow of population to the American western farms or New England factories got steadily worse. The railway question also pointed westward. With the rush of capital to India in 1857 new railway development in Canada came to a virtual standstill, while municipalities and the province staggered under the burden of a huge fixed:interest debt. Unemployment rose as railway construction ceased, giving immigrants yet another incentive to drift off to the United States. When the building activity stopped, Canada was left with a line from Sarnia to Trois Pistoles, while in the Maritimes there was just a few odds and ends of the European and North American and the Halifax-Truro line. In between lay a gap of 500 miles that, given the state of public credit, no province could tackle alone. Over the course of 1857 and 1858 leading Canadian politicians-cam-railway promoters made a number of unsuccessful pilgrimages to London to try to get imperial guarantees for railway loans or subsidies for steamship lines. In the

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meantime the old railways could not meet their debt charges. For a time American traffic seemed to promise the restoration of solvency. While Reciprocity had initially meant the loss of much of Upper Canada's grain export business to New York, the GTR and especially the Civil War meant that Montreal found a welcome replacement. Much American grain now blocked from using the Mississippi route moved to market along the St. Lawrence using the free navigation rights that Reciprocity entailed, helping in the process to finish the destruction of the Upper Canadian wheat staple and making agrarian pressure for annexation of the prairie west that much stronger. Canadian railway lines and bank branches descended on Chicago and assumed a prominent position in the grain and meat trades. But the progress of American railways, rate wars, and currency disorders intervened. Moreover, after Gettysburg it was clear that the North, with its built-up antagonism toward Britain and British America, would win the Civil War, and its victory would jeopardize Reciprocity and might cut off Portland as British America's ice-free winter port. A railway line from Canada to Halifax or to St. John was essential to maintaining the flow of Canadian agricultural exports to European markets.

Urbanization and Manufacturing Development Wheat's peak years in Upper Canada were also years when towns and villages spread quickly throughout the southern peninsula. Beginning as transportation centres and distributing points for the exchange of agricultural output for imported manufactures, they also became, in the years before railway links were complete, the locations for artisanal industries. "Natural" protection from transportation costs supplemented the existing tariffs enough for the firms to grow as their localities prospered and the demand for simple manufactured goods increased. From the artisanal base, small-scale manufacturing firms emerged. Blacksmiths opened foundries; cobblers set up boot and shoe factories and tanneries; a local woolen mill, run on water power, might supplement its staff with part-time labour drawn from the surrounding farms and add a piece of steamdriven machinery. Small-scale agricultural implement firms, carriage factories, distilleries and the like also emerged, often under the leadership of American master-craftsmen who had been forced by large-scale manufacturing developments in American industry to choose between proletarianization and emigration. Although beginning to evolve in capitalist directions, such industries in the small municipalities remained strongly influenced by

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their handicraft roots. Master craftsmen who became small-scale capitalists might well continue to work in the plant along with their small band of hired hands. Even those firms that attained a fair size were still organized as private enterprises rather than incorporated companies, were strictly self-financing, and passed on from father to son. Outside capital was eschewed, and where necessary would often assume the form of extending the firm into a partnership with other master-craftsmen or local retail merchants. Industries spread from town to town as the partnerships dissolved and one or more of the partners moved on to establish the business elsewhere. Merchants' capital, apart from that represented by a local retailer, was not a significant component of the early artisanal-style enterprises of small-town Ontario. Merchants' capital first penetrated the skilled crafts in the major urban centres as large-scale or long-distance trade became the norm. It also penetrated the small towns in the form of grist and sawmills for the primary processing of the staples destined for export. But for strictly local industry, artisanal independence and self-financing was the rule. The railway changed all that. Its construction meant an injection of cash into the localities through which it passed, and its operation expanded the opportunities of long-distance trade. Banks seeking new fields in which to circulate their notes and develop deposit business followed the railways. So too did the telegraph. These developments facilitated the integration of the remoter districts of Upper Canada into the commercial orbit of the big cities. In Quebec developments took quite a different path. Its farms shared much less the agrarian expansion of the 1850's. The tendency for the spread of small urban centres was therefore considerably diminished. Instead, urban growth was largely restricted to the existing three principal cities, and particularly Montreal. Moreover, while the expanding Ontario argarian frontier attracted immigrants, often with craft skills, into farming or urban service centres, Quebec's farm sector, despite the opening of some new land to cultivation between 1850 and 1870, continued to disgorge surplus population which drifted off to New England, to the American west, or to Montreal where it joined a pool of cheap, unskilled labour dumped there by the immigration wave. Montreal remained the principal port of trade of Canada. It was from Montreal that the wheat exports of Upper Canada largely moved to British markets, until Reciprocity diverted some of the flow of grain to New York, and it was to Montreal that British cotton and fancy woolen cloth, iron manufactures and machinery, East India tea and West India sugar and molasses came to be redistributed throughout the province. Montreal had Ontario as its agrarian hinterland and

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market, Quebec's surplus population as a potential cheap labour force, a legacy of developed financial institutions, and accumulated merchants' capital potentially available for investment in large-scale enterprise for the Ontario market when and if commercial conditions became such as to warrant that development. In general, industry in Montreal and environs relied heavily on labour drawn from the redundant farm population to produce cheap, standardized goods that could, in the days of high ocean freight rates for bulk cargo, coexist with imports of higher-quality, more valuable British products. It relied heavily as well on the capacity of the anglophone entrepreneurial class to accumulate capital. The anglophones, who dominated the wholesale trade and financial sector, not only had the best opportunities to amass wealth, but were open to an infusion of technical knowledge and credit from abroad due to their continued links to the world of international commerce. The French entrepreneurial class, by contrast, remained largely restricted to the pursuit of retail trade and the professions where the opportunities for accumulation were small, where there was little contact with the American frontier of technical change, and where there were few chances of establishing credit links to Britain. Labour drawn from Quebec's declining rural sector, commercial credit from Britain, merchants' capital accumulated by the anglophone elite of Montreal, and American industrial skill would typify much of the process of Montreal's industrialization. But for this process to take place another element had to be provided — by Ontario. As incomes rose for the Ontario farm population and specialization in wheat farming intensified, the farmers abandoned domestic manufacture from imported or local raw materials, and began to buy the simple manufactured goods from local artisans. The development of commercial farming increased the demand for more sophisticated agricultural implements, which were either imported from the United States where they had been developed for farm conditions almost identical to those of Canada West, or manufactured locally by emigre American entrepreneurs and craftsmen. All the while, the farmers' consumption of imports of British imperial products — sugar, tea, cotton cloth, specialized hardware and fancy textiles — continued to grow, for their increasing wealth inclined them to consume more high-quality imported goods. Hence as Montreal's basic cheap mass production industries took shape, the first thing they challenged was not British imports, but the simple manufactures of Ontario artisans. The American Civil War encouraged the evolution of Canadian industry, for it cut off the supply of many goods formerly imported

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into Ontario. It also led to the United States dropping out of the West India trade, thus encouraging Montreal to step up its involvement in the Caribbean and fostering the growth of sugar refining in Canada. Montreal's continued commercial relations with the American south enabled it to develop cotton mills to replace the products that the British could no longer supply when their sources of high-quality raw cotton were curbed. Montreal's export trade in manufactures, both its own and British products, increased as the Grand Trunk penetrated the American agrarian heartland. Many of the Montreal firms that emerged during the Civil War were caught with depressed markets and excess capacity when the war ended and American tariffs went up. The cry for protective tariffs was heard once more; and, though not heeded, for the manufactures still lacked political clout, one of the reasons the Montreal industrial community favoured Confederation was the hope of finding alternative markets within British North America.

The Forest Industries Wheat was not the only great staple export of the period. In Quebec and eastern Ontario the most important role was played by the forest industries. During the 1840's there were frequent crises in the industry. Then the great boom of the 1850's restored the timber trade's fortunes one last time. The Crimean War also helped, for it reduced the supply of Russian wood exported to Britain through Baltic ports. But the great crash of 1857 following a wave of overinvestment, and the return of Russian wood to market, meant effectively the end of the square timber trade to Britain. While some exports did continue, they were dwarfed by the rising importance of the American market. American capital began moving into the Ottawa Valley timber stands in the mid-1840's, and those American timber barons that stayed soon became the economic and political overlords of the area. Reciprocity already began redirecting the main flow of wood — in the form of sawn lumber — southward before the 1857 crash ended the last boom of the Atlantic square timber trade. As sawn lumber for American markets replaced square timber, and as exploitation penetrated further into the interior, the increasing scale of operations squeezed out small entrepreneurs and concentrated economic power. The American Civil War accelerated the process of restructuring the forest industries onto a north-south axis as war demands were added to those of railways and construction of towns and farms on the treeless prairies. The end of the war and Reciprocity were alike disastrous for the industry.

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Another result of the shift of the lumber frontier deeper into the interior and the rise of the American market was to hasten the decline of Quebec City, the principal Canadian port of wood export for the British market. As the lumber operations moved inland beginning in the 1860's, the wood increasingly flowed to Montreal where it would be loaded directly onto steamships bound for European markets. At the same time Quebec City's principal industry, shipbuilding, was facing extinction. The city's dependence on wooden shipbuilding grew rapidly during the 1840's and even continued from 1849 to 1857. Despite the progress of steam power and the attendant switch first to iron, then to steel hulls, the phenomenal growth of world trade of the period permitted the world's tonnage of wooden sailing ships to expand alongside steam-powered ones. Until 1849 many of the British North American ships had usually been fit for little besides the timber trade. So great was the demand after 1849 that not only did the yards build more fine, fast clippers for sale in England at good prices, but the best of the old timber trade vessels were often overhauled, refitted, and sent off into one of the many branches of commerce associated with the opening of the Pacific. Even further impetus to the business was given by the Crimean War, which inaugurated such a rush of entrepreneurs into shipbuilding that it precipitated a major collapse in 1855. Revival was followed by another crash in 1857, from which the industry never fully recovered. The mode of production had changed very little, if at all, over the long boom. The actual construction operations were done on an essentially handicraft basis by skilled artisans who owned their own tools, together with their journeymen and apprentices. The shipyards relied for finance on capitalists who remained aloof from the actual manufacturing process. The capitalists — local merchants, bankers, or, more importantly, British emigres who acted as representatives of Liverpool or London firms — advanced money on the security of ships' frames, and collected every possible interest and commission charge they could — discounting the original loan, adding a compound interest charge, then tagging on commissions for selling the ships, procuring freight, collecting freight, etc. Few builders actually made serious money, for interest and commission charges ate up the potential profits. The builders reacted by attacking the incomes of their workers and the resulting squeeze on wages contributed to a rash of strikes in the 1850's and 1860's which may have hastened the industry's decline. The industrial structure contributed to the eventual demise in another vitally important way. The artisanal nature of construction activity and the appropriation of profits by merchant-financiers who

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remained outside the sphere of production itself hindered the accumulation of fixed capital. Shipyards remained small and technically backward, and therefore would have difficulty making the switch to iron and steel. While a burst of shipbuilding activity occurred from 1857 to 1866, this last great boom was an artificial one spurred by rising prices that resulted from a fortuitous confluence of events —the Crimean War, an Australian immigration boom, the Indian mutiny, the British Columbia and California goldrushes, the American Civil War — destined not to be repeated. The American Civil War was particularly significant. While it wrecked the American merchant marine and buoyed up tremendously the demand for Quebec sailing ships it also greatly encouraged the development of the iron steamship-building industry in Britain, something that the colony could not imitate. Hence it generated both short-run prosperity and long-run decline. The American war also undermined one of the principal supplements to the shipbuilders' profits — the carriage of cargoes of American southern cotton to Britain on the ships en route to market. And by shifting much of Britain's source of supply to India it dealt a body blow to Quebec City's traditional network of commercial relations, particularly since the shift of the timber frontier inland, and therefore the export trade to Montreal, robbed it of the obvious alternative source of outgoing freight. Thus the productive sectors of the provincial economy were in a state of flux, with certain long-term trends portending radical transformation clearly in view. The wheat staple developed rapidly until 1857, then went into decline, followed by the square timber trade and the shipbuilding industry. While recovery of agriculture, forestry and shipbuilding was in evidence from 1857 to 1866, there was a crucial difference. Upper Canada's agriculture diversified away from wheat for the British markets towards coarse cereals for the American one; the forest sector switched increasingly from square timber for British markets to sawn lumber for American ones; and the last great boom of the Quebec City shipbuilding industry was predicated on a peculiarly favourable set of short-lived circumstances that encouraged the industry to avoid the drastic restructuring necessary to prepare it for the future. By 1866, with the end of easy access to the war-inflated American market, the economy of the province was everywhere in crisis — agriculture, forestry, shipbuilding, manufacturing, and even the new petroleum industry faced crises of overproduction. At the same time the situation in railway finance was desperate, and immigrants forsook the province for greener pastures in the United States. And developments in the financial sector reinforced those in the agricultural and industrial ones.

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Banking and Finance The crisis of 1857, which almost wiped out the Canadian banking system, followed the end of the Crimean War, and witnessed the post-war collapse of timber and grain prices succeeded by a drastic decline in land values and the drying up of capital imports. The speculative funds which had been poured into land purchases were now immobilized. Farmers who had negotiated purchases on long credit terms from storekeepers in order to put their ready cash into land speculation now found the investment locked into land while storekeepers demanded liquidation of their floating debts. The storekeepers, finding it impossible to realize on their claims against farmers, in turn defaulted on their debts to the wholesalers, who consequently could not meet their obligations to the banks. With the banks themselves heavily involved in land deals and railway securities, discounts were curbed sharply. To make matters worse, revelations of the activities of managers of the Gore Bank and the Bank of Upper Canada, who had been busy embezzling funds to speculate in land on their own account, further shook confidence in the banking system. In the midst of the crisis the banks reacted in their usual way — launching raids on each other's specie reserves by gathering up and demanding redemption on their rivals' notes. Recovery from the crash of 1857 was never complete, though a few years later the prosperity induced by the Civil War temporarily papered over the cracks in the Canadian financial edifice. Bank circulation expanded again: more branches were opened; but the securities rendered worthless by the 1857 crisis remained worthless, and the banks' long-term positions were thereby badly weakened. The end of the Civil War and of the artificial prosperity it had induced through the inflation of Canadian trade was followed by another collapse of primary product prices and a new credit contraction. In England, too, the 1866 crisis marked the end of the second wave of railway building and dried up the London capital market. The Barings and Glyn, Mills could not market Canadian debentures and were forced, along with the Bank of Montreal, to provide interim financing to the province, leading to the inevitable accumulation of floating debt. Then came the wreck of two of Canada's three largest banks. The Bank of Upper Canada had functioned as the government bank until 1864. Large government deposits had been used to bouy up its loans to millers and land speculators during the boom of 1850 to 1857. It was a period of fabulous profits, with dividends and bonuses running up to 20%. Bank branch managers freely

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"borrowed" the banks' funds for their own speculation, and big loans were made to railway companies. While the bank actively assisted the railway companies, especially the Grand Trunk, it was by the same token investing in its own ultimate collapse. The arrival of the railway shifted trade routes away from the old lake ports where the Bank of Upper Canada controlled so much business, and thus indirectly subsidized the expansion of business of its betterlocated competitors. The result of the crash of 1857 was a turnaround in its relations with the government of the province. Instead of the bank functioning as government banker, standing ready to accommodate the government's needs, government deposits increasingly became the mainstay of the bank. As the bank's condition deteriorated, the government had to agree not to withdraw its funds. By 1860 the state of the Bank of Upper Canada was a matter of open discussion. A series of public quarrels between the bank, the government, and the Grand Trunk Railway over the responsibility for certain charges deepened suspicions. Stockholders began to ask embarrassing questions, and by 1861 the stock was selling at a substantial discount while most other banks' shares were at a premium. The Reform administration that came to power in 1862 attempted to clean out tlje finance department, and the tangled state of relations between the bank and the government became public knowledge. The return of the Tories to power, with the implicit pledge of more government aid, temporarily averted collapse. But the crash of 1866 pulled it down. The government ultimately only recovered $200,000 of the $1.5 million it held with the bank. The panic set off by the bankruptcy of the Bank of Upper Canada and the general financial malaise precipitated a run on several other banks, including the Commercial Bank of the Midland District, which had plunged much of its money into the ramshackle Detroit and Milwaukee Railway. The bank's president, an eminent Kingston Tory, applied to his fellow Tories for aid. Gait, Cartier and Macdonald, fearful that the opposition would charge the Tories with once again stealing public monies to temporarily salvage a Tory banking institution, worked out a plan to have the Bank of Montreal grant the necessary aid. One loan was given; then all other aid was refused. The banks of Canada West collectively refused any aid, and an effort to sell the crumbling institution to the Bank of Montreal met with that institution's blanket refusal to talk terms. In 1866 the Bank of Montreal began draining specie from the Canada West banks to feed its New York speculations, while refusing the bills of the banks it felt were in a weak condition. A general panic ensued. In 1867, the Commercial followed the Upper Canada Bank into insolvency.

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Thus on the eve of Confederation, much like the period just before the Act of Union, the Canadian financial system tottered on the edge of total collapse. Two of its largest banks had tumbled; many others seemed threatened. The government finances were in chaos, for the province had been mortgaged from top to bottom to British financiers by the railway promoters. Public expenditures were only maintained by drawing on temporary loans from the Barings, Glyns, and the Bank of Montreal, directors of whom were pressing for Confederation as the means to restore solvency.

Another Railroad Job Political developments followed from the economic ones; the year 1857 was again a watershed. That year Cartier, accompanied by his flock of fifty or more moutons, as the opposition Globe derisively referred to his Canada East parliamentary followers, came to power on the strength of the Tory Party-GTR-Catholic Church alliance in Canada East, while a divided Reform captured the bulk of the Canada West seats but were a minority in the assembly. There the Reformers sat, muttering about French domination and the inequities of the Act of Union with its equal representation to both parts of the colony. In the attempt to salvage the GTR, Gait chose to raise taxes by a higher import duty on manufactured goods. The duty was to be levied as a percentage of the price of the goods in the last market where they were bought. In other words, British goods moving directly to Montreal would pay less duty than British goods shipped to New York and then reshipped to Ontario with the American tariff and transport costs built into their prices. The plan was to assure that the taxes imposed to raise money to give away to the GTR also favoured Montreal over the Hudson-Mohawk system in moving British goods to Canadian markets; and since the GTR controlled the traffic between Montreal and Canada West, it was indirectly as well as directly another handout to the railway company. Toronto big business — comprised of the millers, wholesale merchants, brokers, railwaymen, bankers and land jobbers who had aspired to replace those of Montreal in controlling the commerce of Canada — was outraged. In 1859 George Brown took the lead in calling a great Reform Convention to try to rebuild the opposition by uniting Toronto big business with the agrarian radicals of the province. Toronto business wanted to use the Great Western to funnel the American grain trade to the city and to use the Northern to do likewise with the trade of the west of British North America. It

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also wanted tariff reductions to reopen the border for the import of manufactured goods. And, in conjunction with the agrarian radicals, it wanted annexation of the prairie west and representation by population in the Canadian assembly. In demanding liberal democratic reforms, free trade and westward expansion, the Canada West Reform echoed the American West of earlier decades, while Montreal big business stood in a position analogous to the American northeast. What was missing was a Lincoln and opposition to a southern slave economy to unite them. Instead they got Edward Watkin and the Grand Trunk. In 1862 the Macdonald-Cartier ministry, under attack for its handling of railways and public finance, fell from office and was succeeded by a series of unstable and short-lived ministries. The Reform demanded free trade and annexation of the northwest, and opposed Confederation. The Tories had swung in favour of Confederation with the Maritime provinces but opposed annexation of the northwest. In 1864 Watkin helped to arrange a deal. Brown and two other reformers joined Macdonald and Cartier in a coalition cabinet committed to building the Intercolonial Railway, union with the Maritimes, annexation of the northwest, lower tariffs, and representation by population in the new federal assembly. Brown was offered the chairmanship of a Canadian board of directors of a reorganized Hudson's Bay Company if he would support the Intercolonial Railway project, while Watkin and his financial associates in England busied themselves in securing control of the old fur trade monopoly. Quebec's Conservative Party apparatus consisted of much more than Montreal big business, however strong that element may have been in determining party policy. And the adhesion of the Quebec Tories to the Confederation scheme indicated a deep-seated discontent with the political and economic status quo, and the expectation that the future under Confederation augured much better. To begin with there was the land question, and the concern to stop the flow of emigration that the rural crisis continued to feed. Cartier and the Church hierarchy had visions of the northwest receiving the bulk of would-be emigrants where they could be kept safely in triple allegiance to the Catholic Church, the British Crown, and Montreal big business. Confederation also meant a commercial union of British America and the prospect of larger markets for Quebec's growing sweated labour industries. For Quebec City, Confederation held out the prospect of a rekindling of its commercial prosperity if its railways could tap the western hinterland. Swinging the Quebec Bleu machine over to the scheme was one major step. Another key objective was the Maritime provinces. A Canadian delegation invited itself to the Charlottetown Conference where

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Maritime union was being discussed; the delegation's transportation and entertainment was arranged and paid for by the GTR. Maritime assent to the union of the colonies was essential for two reasons. The Intercolonial Railway project aimed to give Canada an ice-free Atlantic winter port on British territory, and that meant either Halifax or St. John. And fiscal union was essential to restoring the troubled finances of the province of Canada. In the fiscal year 186465 about 50% of Canadian government revenues went to debt service charges, as against 40% in New Brunswick, 19% in Nova Scotia, and 8% in Prince Edward Island. Adding the tariff revenues of the Maritimes to Canada's empty coffers would help restore the public credit and generate the funds for the Intercolonial and, subsequently, a Pacific railway. Extending the tax base was all the more important, given that part of the price of Brown's adherence to the plan was the lowering of tariff rates. The financial situation worsened as negotiations proceeded. The end of the American Civil War brought economic collapse to Canada, and in conjunction with the bursting of a company promotion and speculative bubble in England brought Canadian credit to its lowest point since the crisis of 1837-38. Bonds were unsaleable, and the banks in England and Canada were demanding strong action. The response was the Confederation scheme. All taxes except the field of direct taxation — in effect, the politically difficult real estate taxes — were to be federal powers. Thus not only would the federal level of government have exclusive control of the tariff but the restrictions on the revenues of the lower levels of government would keep them politically subservient. They were to be financed predominantly from the proceeds of a subsidy from the federal government, which put them in relation to the federal authorities in about the same position the colonies had been vis-a-vis Britain before responsible government. In exchange for the loss of their revenues the provinces would be freed of most of their debts, which became a federal responsibility. In effect the debts were to be consolidated and the tax net for repaying them cast over a wider field of territory. As with the Act of Union and the Municipal Loan Fund, the assumption was that the larger the borrowing unit, the greater the potential revenue resources available, thus the greater the security of the loan and the lower the interest charges. In 1841 the Barings had pushed in vain for the American federal government to assume responsibility for state government debts. In 1866 in Canada they were more successful. Much else besides debts and tax revenues were centralized in the hands of the federal level of government. Currency and banking were to be uniquely federal responsibilities, assuring the generaliza-

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tion of large multibranch banks and gold standard orthodoxy at the expense of local banking enterprises. Railways, telegraphs, lighthouses and the major canals were all to be federal spheres of authority. Even if a piece of infrastructure were located exclusively in one province it could be declared to be for the general benefit and brought under federal control. All powers not specified in the constitution were to be federal, and the central government assumed the imperial parliament's power of disallowance of colonial (provincial) legislation. The House of Commons of the central government was to be elected on Brown's representation-by-population criteria, but above it was a Senate constituted not by election, but by appointment for life from the ranks of big business and worn-out party hacks. As to its role, as John A. Macdonald once remarked: the Senate was there to protect minorities; and "the rich are always fewer in number than the poor."

21

The Railroad to Confederation: The Maritime Response

TRENDS IN THE NOVA SCOTIAN ECONOMY in the 1850's and 1860's provide a microcosmic view of the contradictions of the Atlantic trading system as a whole during a period of uneasy balance between the old economy of wind and water, in the midst of its last expansionary phase, and the new economy of steam and steel. In Nova Scotia the contradiction manifested itself in a political struggle between, on the one hand, areas that looked to the sea and depended on fishing, shipbuilding and external ocean-going trade, and on the other, the growing business interests concerned with the interior resource industries. The old economy railed behind Joseph Howe and the Liberal/Reform Party while the coal, iron and steel, and railway interests increasingly found their champion in Charles Tupper and the Tory Party, though the battle lines took some time to form. As in Canada, the period from 1849 to 1857 was one of great prosperity during which both the seafaring economy and the resource industries expanded. California, Crimea, Reciprocity, China, and the Pacific boom all buoyed up trade. Even the West Indies recovered some lost ground as Indian and Chinese indentured labour replaced black slaves, and Nova Scotia fish and timber exports expanded. It was the last golden age of the clipper ship, and Nova Scotia stood to gain doubly. Unlike Canada and New Brunswick, Nova Scotia's ships were built at least as much for the use of its own shipping lines as for sale. Hence the trade expansion meant both merchants' profits and increased activity in the shipyards. It was true that the handwriting was on the wall for the wooden 297

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sailing ship. The Royal William, built at Quebec, had made the first Atlantic crossing by steam alone in 1831; and Samuel Cunard, the Nova Scotian magnate, received an imperial contract for an Atlantic mail service by steam packet in 1838. But for a time steam and windpowered ships easily coexisted; business was plentiful, and they tended to occupy different channels of traffic. Steamers with their heavy fuel costs (that of the windships was free) could not compete in the bulk trades, and were largely restricted to first class passenger runs and mail service until the opening of the Suez Canal slashed distances and therefore fuel costs for the eastern trade. Steamers also required coaling stations, and their mobility was accordingly more limited than windjammers. Hence Nova Scotia windships found their way into every major trade route of the period, from the South Pacific whale fishery to the East Indian tea trade to the carriage of Peruvian guano. After the crisis of 1857 latent tensions between the old economy and the new became viable for perhaps the first time, soon dovetailing into the Confederation debate. While the shipping tonnage of Nova Scotia doubled from 1857 to 1866, the age of multilateral free trade was drawing to a close. Many lines of shipping business were feeling the pinch of too much competition. The American Civil War gave the Nova Scotia economy a temporary respite as the American merchant marine was decimated. Nova Scotia ships seized the opportunity to carry fish to the West Indies, bring sugar back again, take coal to the northern ports, run contraband to the American South and pick up cotton. But the war also nurtured the growth of the steamship and American protectionism, and it was the interior resource economy of the province, not its carrying and shipbuilding trades, that would profit in the long run. First and foremost in guiding the course of events was the railway, which led to Ottawa from four directions: it opened the interior of Nova Scotia to more intensive exploitation of its resource base and strengthened the economic position of the pro-Confederation forces in the coal and iron industries; it promised a direct communications link with Canada; it loaded the province with debt and reinforced the pressures British financiers could exercise on the political future of the province; and it brought increased political power within Nova Scotia to railway promoter-contractors gathered around Charles Tupper. Railway fever set in in earnest after 1849 when responsible government handed the assembly the political power, and a trade revival the fiscal means, to mortgage the province's future to English bankers. Initially the Liberal government chose to build slowly, financing the program by tax receipts, local borrowing, and an issue

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of treasury notes. In 1855 the decision was made to borrow abroad, and Howe went to England to negotiate with the Barings — but despite overseas resources and a brief Tory interlude, progress remained slow until 1863. In the 1863 election Tupper campaigned on the grounds that the Liberals were overspending and, after winning a decisive victory, inaugurated a policy of unprecedented extravagance in public expenditure, largely on borrowed money. Public funds were lavished on his associate, Sandford Fleming, to build a railway line to tap the Pictou coal fields. The contract for the Annapolis-Windsor line was handed to Thomas Brassey along with a cash subsidy, a tax exemption, and free land. In 1853 only 2.2% of Nova Scotian government expenditure went to debt service charges: by 1866 this figure had risen to 19%; and between 1866 and 1868 the public debt rose another 50%. By the time of Confederation, Nova Scotia had $6.3 million in bonds outstanding plus floating debts of more than another $3 million including over $600,000 due to Brassey, $500,000 to Fleming, and $300,000 to the Barings. Confederation was attractive as a means of unloading Tupper's railway debt onto the central government. Closely linked to the railway question were the prospects of the coal mining industry: railways would facilitate the marketing of its product; railways would buy much of the coal as fuel; and coal royalties would provide the government with revenue to hand out to railway promoters. The fortunes of the General Mining Association, which held a monopoly of the province's mineral lands, had been generally poor. More than £300,000 of British capital had been sunk into its operations, while dividends were negligible. There was very little domestic market in Nova Scotia in the 1830's and early 1840's, while the expectations of an important New England market were dashed by an American tariff of 1842 reinforced by railways which could carry Pennsylvania anthracite to market throughout New England. To complicate matters further, British timber ships began moving cheap British coal and salt to British North America as ballast. The salt was welcomed by Nova Scotia fishermen, but the coal was deplored by the mining interests. The first effort to break the GMA monopoly came in 1838, a year in which three events coincided: an economic crisis; the formation of an organization of millers and manufacturers calling for protection and local development; and the arrival of the first steamship calling to load up Nova Scotia coal. The pressures for responsible government and local control of the revenues, including coal royalties, were reinforced by the efforts of Abraham Gesner, the Nova Scotian inventor of kerosene, to break into the coal business. Gesner was one

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of the province's earliest systematic advocates of protectionism and local manufacturing development, and his invention of coal oil aptly symbolized the rise of mineral-based industry at the expense of marine ones like whale and seal oil extraction. While Nova Scotia was still far from ready to endorse protectionism, by the late 1840's the assembly was ready to concur that the GMA was an antiquated relic of a by-gone age. The GMA was accused of keeping the price of coal high at a time when firewood was growing scarce, while cheating the government of revenue by paying minimal royalties. The monopoly was also accused of holding back the industrial development of the province for the benefit of a handful of non-resident stockholders. But the imperial authorities, egged on in London by Samuel Cunard, decided to back the GMA, and the monopoly was left undisturbed for a few more years. In 1854 railway building accelerated, raising the demand for coal, while more steamers called at Halifax during the trade boom. Moreover, Reciprocity opened the large New England market to the province's coal. By 1865 exports of coal to the United States stood at ten times their 1850 level. The great rise in demand, and therefore in potential profitability of coal investments, meant Nova Scotian, Canadian, American and British investors were clamouring for dismantling of the monopoly, while for revenue purposes the province wanted coal reserves exploited to the maximum. In that critical year 1857, a member of the colonial assembly was sent to England to negotiate the termination of the monopoly, which he did with such success that he soon found himself at the head of the largest Nova Scotian coal mining company. Under the terms of the agreement the GMA received private property rights to most of the choice coal areas, 34 square miles on Cape Breton and 12 on the mainland in Cumberland and Pictou counties, and its royalty rate was reduced. A disgusted Joseph Howe remarked that "I hope the attorney general when he has gone under ground might not become petrified, because if he did the GMA would claim him dead as they had owned him alive." The other areas were opened to Nova Scotian and foreign — Canadian, British and American — capital. The grab-and-run, quick-profit orientation of the new operations produced leaky and dangerous mines. Despite the fact that demand for high-quality coal pushed the shafts ever deeper, it was not until 1866 that proper ventilation systems were installed. Furthermore, the existence of a host of shoestring mining operations gave the new owners a strong incentive to ease their cash-flow problem by the truck system of payments. Wages were paid in rum or in credit on the company store; housing was provided by the company on company property; debt was rife, and it encouraged the companies,

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when demand was low, to give the available work to those who had debts to settle. To all intents and purposes the workers were industrial serfs, and the Nova Scotia coal mines proved to be a fruitful source of bitter industrial conflict. The end of Reciprocity plunged the coal-mining areas into a depression as exports to the United States fell. Alternative markets were desperately needed, and Confederation was one obvious answer. Not only did the province of Canada have no coal of its own, but Confederation would pave the way for transcontinental railway building. Cape Breton coal would figure as an essential ingredient in the creation and maintenance of an "all red route", in Sanford Fleming's phrase. Nova Scotia would form the eastern terminus of a railway "from Europe to China", for it would be in Nova Scotia that the Atlantic steamers would trans-ship their cargoes onto the transcontinental railway. The coal mines would fuel both the railway and the steamship line. Linked to coal and railways was another industry whose potential under Confederation seemed limitless. Railways and steamships demanded iron and steel, and Nova Scotia had an abundance of iron ore and coal to fuel the furnaces. Canada had very little primary iron and steel capacity, while Nova Scotia had only a very small home market. Hence the real hope for the Nova Scotian industry was Canada and a transcontinental railway. One of the pre-Confederation campaign promises was that its resource base would make Nova Scotia the industrial heartland of the new Confederation, while Upper Canada would be its granary. Finally, Nova Scotia's gold "rush" illustrated in a spectacular way the potential wealth of the province's resource base. Gold had been reported in the 1840's but little importance had been attached to the stories at the time. The California strikes of 1849 spread gold fever around the world, and led to the first confirmed find in Nova Scotia. But the gold lay in poor quality alluvial deposits and was not susceptible to economic exploitation. Then, in 1858, with the world economy still reeling from the crash of 1857, with the British Columbia gold rush in full swing, and with the GMA monopoly broken, major quartz mines were found. Given that the gold lay in quartz deposits rather than placers, there was no "rush" in the Californian or British Columbian sense. A fairly heavy commitment of fixed capital was required from the outset, and therefore the mining operations were organized as extended partnerships of wealthy individuals or incorporated companies. Given that it was built on company organization, a speculative mania in gold mining shares soon set in. Promoters bought up worthless property and, if lucky, unloaded it at fabulous

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profits. Assay reports could be falsified by "picking the eyes of a mine", i.e. extracting the very best ore samples whose yield would be far above average for assaying, and using the report to sell shares or the property. British, American, Canadian and even German capital moved into the mining business and into related enterprises in the province: in fact foreign capital was estimated in 1867 to make up over 90% of the total investment in the mines. While the long-term economic results of gold fever were minor, there being few linkages from gold to other sectors, and the capital-intensive technology of quartz mining itself not able to support a great increase in consumer demand from labour income, its psychological effects were probably more important. For the gold "rush", pointing to the potential of interior resource industries, peaked just as the 1866 crisis hit the seafaring economy, and made the choices in the Confederation debate all the starker. Railway speculators seeking subsidies from the government, promoters looking for contracts, coal mining interests seeking the Canadian market to compensate for the New England one lost in 1866, and iron mining and smelting interests demanding railways and export markets in Canada all could expect material benefits from Confederation. They were joined (or rather represented) by a Tory government under Tupper facing a fiscal crisis. In 1865 Tupper had proclaimed his opinion that union with Canada would lower borrowing costs for the government abroad. In 1866 the Barings informed him that a new provincial debenture issue could only be unloaded on the London market at a hefty discount. He told them to wait until Confederation had been engineered before selling the bonds, and in the meantime to advance him a temporary loan. This was done, and the merchant bank joined Sanford Fleming and Lord Brassey in clamouring for repayment of their debts, and therefore at least indirectly for Confederation. With appropriate pressure applied by the British government the staunch anti-Confederation forces under Joseph Howe, who had swept Nova Scotia in the 1867 election, were brushed aside and the province was "railroaded" into the new union.

New Brunswick The polarization of economic interest groups into two provincial camps that characterized Nova Scotia politics during the Confederation debate was not as evident in New Brunswick. Nova Scotia had been a diversified mercantile economy with abundant resources of

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coal and iron susceptible of easy exploitation, whereas New Brunswick was a single cash crop economy with little to offer besides its timber resources. Timbering and shipbuilding were complementary activities in the days of the colonial timber preference, for both went for sale in Britain, and timber provided the cargo for the ships en route to market. After the decline of the timber preference and the rise of an American market for sawn lumber, the shipbuilding and timber concerns no longer found their interests in perfect conformity. The 1840's were a decade of recurrent crisis for the New Brunswick economy. The square timber trade had peaked, and was beginning to decline. Industrial development, apart from shipbuilding, was sparse, and agriculture backward, partly because the merchants who ran the legislature discouraged bounties and tariffs that would benefit the agricultural sector. A revival of the economy in 1843 was succeeded by another, more serious collapse in 1847, out of which came an attempt to reorient part of the province's export activity to the United States. Skilled labour began deserting the province in the 1847-48 depression. Timber operations were scaled down. The potato crop failed. The market for ships in England shrank, and shipbuilders with unsold stocks began to push for Reciprocity and for the concurrent privilege of American registration for St. John ships to enable them to take part in the American coasting trade. In 1852 a new trade revival occurred. Timber prices doubled their 1849 level and until 1854 shipbuilding also proceeded at an unprecedented rate. In 1853 the volume of wooden shipbuilding in New Brunswick amounted to half the tonnage produced in all of Great Britain. London and Liverpool ship's brokers were so easy with their credits and advances that the ensuing collapse was as unprecedented as the preceding boom, and the industry lay in the throes of intermittent crisis until 1861 when the American Civil War revived it again. The boom of the early 1850's, however, had a number of important effects. St. John saw a period of rapid growth based on timber, ships, and the prosecution of the South Sea whale fishery. Its wholesale trade sector, established largely by emigres from Britain who were trained in businesses there and who retained credit and supply links to facilitate their colonial trade, came to dominate not only the import trade of New Brunswick, but also that of much of Prince Edward Island and western Nova Scotia. And when the debate on Confederation heated up many of the business leaders of St. John foresaw that city becoming the great winter port of the Dominion, while many of Halifax's merchant elite were anti-Confederation. The commercial prosperity of the period also provided the soil in

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which railway projects could take roots. In 1848, when the advent of free trade left the New Brunswick economy temporarily in limbo, the plans of the Intercolonial Railway and the European and North American Railway gained some favour as means of tapping markets in Canada and New England. Little was done, however, until the commercial revival of the early 1850's permitted Prime Minister E.B. Chandler to pledge New Brunswick's revenues for railway building, and the contract for a line from Amherst through St. John to the American border was struck with Henry Jackson on behalf of Peto, Brassey, Jackson and Betts. However, cost overruns slowed construction to a crawl and forced the abandonment of the contract. After 1854, when the government reorganized the existing lines and reaffirmed its commitment to railway building, a new start was made on paper, but despite the shower of patronage funds the railway lines still made little progress. In 1863, after yet another reorganization and an infusion of £800,000 of English capital through the Barings, the St. Andrews and Quebec line passed into receivership once again. By the 1860's economic circumstances in the province had changed. The American Civil War generated prosperity in a multitude of ways. It eliminated one of the most important competitors in wooden shipbuilding at the same time it raised the demand for the product. In the short run the American Civil War produced boom conditions sufficient for the provincial entrepreneurs to sink their capital into shipbuilding, and to recycle their profits into the actual shipping business up and down the coast. The tremendous commitment of capital to an industry doomed shortly to die made the ultimate collapse all the more severe. But for the time being it was profitable. The war also produced a great demand in the United States for wool, meat, lumber and livestock from the province, and opened up the West Indies trade. Furthermore, blockade-running was a source of high adventure to the young and foolish, and hefty profits to the older and wiser. Another of the effects of the American Civil War was to produce the beginnings of large-scale industry in the province. While the 1850's boom saw the generalization of artisanal industry, the curtailment of imports from the United States after 1861 permitted some major firms to take shape, especially in textiles. These and other large-scale firms eyed the Canadian market when the crash of 1866 brought down the provincial economy. The crisis that hit New Brunswick in 1866 was not only more severe than that of Nova Scotia, due to the relative lack of diversification of its economic base, but was also reinforced by immediate events. In 1868 political turmoil in Cuba hurt one of its

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principal timber markets and broke up its sugar trade. The 1869 opening of the Suez Canal and the consequent triumph of the steamship struck an economy ill-equipped to weather the storm. From the crash of 1866 the banking and financial system progressively worsened. Not only was the government's credit suspect, and existing debtors in Britain clamouring for repayment, but the private capital market was shaken by the crises in the shipbuilding industry. The Bank of Westmoreland, founded at Moncton in 1854 to finance the industry, lent all of its capital to the shipbuilding firm its president ran and crashed in 1867 following the failure of that firm, Moncton's largest. In 1868 the Commercial Bank of New Brunswick folded up when its cashier absconded with most of the cash. Two other banks also failed during the early 1860's. While some St. John bankers, fearful of Canadian competition, had taken a stand against Confederation, for other powerful businesses of the city Confederation was the most viable prospect for the future. Some saw St. John as the future manufacturing centre of Canada as a result of its access to cheap coal, sugar and cotton, its fleets of windjammers, and its railway links (once the Intercolonial was completed). Hence the province's Tories, led by Leonard Tilley, met secretly with Grand Trunk Railway officials in Maine to secure the cash necessary to fight a successful pro-Confederation campaign.

Prince Edward Island For Canada and the imperial strategists, the adherence of the tiny colony of Prince Edward Island to Confederation was important for two reasons. One was that the essence of the Confederation scheme was the fiscal settlement. A customs union had to be created in order to generate tariff revenues to bolster the new Dominion's borrowing capacity in London, and therefore facilitate the construction of a transcontinental railway. The Island, with its myriad of small harbours, was a smuggler's paradise, and unless it could be brought under the Canadian fiscal net it would be an important base for undermining the Canadian tariff on the mainland colonies. A second reason lay in the Island's developing relationship with the United States, something which served to increase the importance of the first. In 1868, reciprocity negotiations reopened between Prince Edward Island and Washington, B.C., which if successful would have enhanced the danger of the Island becoming a smuggling base, and might give the United States effective control of Charlottetown harbour. That in turn would put the U.S. in a strong position with respect to the traffic of the Gulf of St. Lawrence and pose a threat to the integ-

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rity and security of the "all red route" of the British imperial communication system from Europe to China. For Canada, PEI was important; but, for the time being, the converse was not true. Central to Island political concerns was the land question, a direct consequence of the fact that Britain, after the Seven Years' War, decided to reward political service and keep down the burden of its public debt by handing the Island over to 67 largely absentee proprietors — whose legacy kept Island politics in turmoil for a century. The Island's assembly quickly became a focal point for agitation against the absentee proprietors, while their agents, together with major domestic landowners, gravitated to the executive branch of government, using it, the governors of the Island, and the British Colonial Secretary in defence of their social, political and economic privileges. Anti-absentee landlord opinion on the Island, however, fell into two inherently antagonistic camps. Radical tenants' groups demanded expropriation. They railed against the debt-bondage and barter economy the land tenure system created, in which tenants were trapped into paying rent in kind to the landlords' agents who often ran the country store on the estate, and could impose adverse terms of trade on the captive clientele. Picking up on the demands for liberation of the tenantry from the shackles of the debt-peonage system, and for the monetization of exchange relations, was a rising group of Island middle-class professionals and merchants. Their emergence gave the British authorities the opportunity to strike a viable social compromise. For while the imperial authorities were obliged to oppose the demands of a radical tenants' party for expropriation of the proprietors, they were equally unhappy over the continued social and political control exercised by the old plutocracy. Hence the governors of the Island imitated the policy of Lord Sydenham in Canada, forming an allegiance with a "responsible" party representing the Island middle classes in order to knock the old squirearchy out of power as well as to head off the development of radical agitation. The new Liberal (Reform) government that followed set out to achieve responsible government and to find an "amicable" solution to the land tenure question, by purchasing rather than expropriating the landlords' lands. But that in turn created certain problems on the monetary and financial front. In 1851 responsible government was granted to the colony, in theory ceding all political power to an assembly which had to pay some attention to the demands of the tenants and their allies. In fact the concession was accompanied by imperial troops who spent four years there charged with defending "the rights of property". In 1853 under the Land Purchase act the government bought 160,000 acres

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from some of the absentees and sold it cheaply to the tenants. But despite the trade expansion of the period, which broke down the selfsufficient structure of many Prince Edward Island farm communities and buoyed up both government revenues and the demand for property rights in the land, the assembly could not command sufficient money to continue the process of land purchase. 'A subsequent attempt to get an imperial guarantee on a loan to finish buying out the proprietors was refused. Tenants groups were formed denouncing "rent leeches" on the "rent-ridden and slave holding colony". In 1855 efforts to impose additional taxes on proprietors and to force landlords to pay some compensation to evicted tenants for improvements done by the tenants were struck down by the Colonial Office. Imperial troops continued to patrol the island to prevent attacks on landlords' property; and the troops, withdrawn in 1856, were called back in 1859 and again in 1861 to deal with a deteriorating political situation. In the meantime frustration with the progress of land reform was driving Island farmers to emigrate. In 1860 Samuel Cunard, head of the absentee proprietors' lobby in London, suggested the establishment of a formal commission of enquiry into the land question. So confident were the landlords of arranging a whitewash that they insisted the findings of the committee and its recommendations be binding on all parties. But the commissioners, headed by Joseph Howe, came out with a report which, while attempting to defend the interests of the proprietors, still aimed to promote freehold tenure. The proprietors angrily broke the agreement they had insisted upon, and the imperial government, at their request, ignored the report. One solution recommended by Howe had been to go back to the idea of an imperially guaranteed loan to buy out the proprietors. This too was shelved for the time being. The rejection of the commission report led to the formation of the Tenant's League. This was a particularly ominous development from the point of view of the imperial authorities, for the Tenant's League took its name directly from an association of Irish tenants organized in 1850 as the first stage of the great Irish land war against absentee landlords that were mulcting that island. It was at this point that the Canadian government began wooing the Island voters. Prince Edward Island had been changed by the long boom of the 1850's. Freeholders had become much more numerous, though still not a majority, while the tenants were much more vocal in their demands for emancipation. The commercial prosperity based on agricultural exports, fishing and shipbuilding monetized exchange relationships, strengthening the power of a middle class of

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merchants and small businessmen who demanded a more active role by the state in development policy. In 1863 proposals for Maritime union were discussed, and one reason for favouring it had been the hopes that union would lower the interest rate at which Prince Edward Island could borrow money for spending on essential infrastructure, including railways. It might also facilitate borrowing to buy out the absentees. When nothing came of the plans for Maritime union, the Canadian government picked up these last two themes. Island farmers and fishermen feared a customs union with the newly-created Dominion of Canada, for it would mean competition with Canadian agricultural products and with the Maritime fisheries and shipbuilding industries, without offering any compensating advantages in terms of development of the island productive apparatus. The province had no minerals and its timber stands were largely exhausted. As late as 1866 80% of its income-earning population were still farmers, another 10% were mariners and fishermen, while artisans and mechanics made up barely 8%. In 1869 the Dominion offered PEI an $800,000 loan to finish buying out the absentee proprietors while the imperial government threatened to block all efforts by the Island to raise the funds necessary for settling the land question independently of Canada. The imperial authorities informed the colony that only if it assented to Confederation would they cease to obstruct the efforts to buy back the land. Still the Island refused to join. Then came the passage of the Railway Act in 1871 which pleased the pro-Confederation forces, who were confident as to what its end result would be. The enabling legislation required that the government pay the contractor up to £5,000 per railway mile, in the form of provincial debentures bearing 6% interest. Unfortunately it neglected to stipulate how long the railway was to be. Thus it meandered around the island, dodging difficult grades and construction points in favour of running up more miles over easy terrain, picking up local subsidies en route. It was steered around hills and gullies by members of the assembly who had been coaxed by property owners to run the main line over their property. The extra mileage was welcomed by the contractors, for it helped pay for fixed installations such as stations and rolling stock that did not vary with the length of the line. Railway finance and government finance quickly became synonymous. They also impinged more and more on the operation of the private lending institutions of the Island, particularly the banks that had sprung up in the boom of the 1850's. In 1871, in return for loans to buy materials and pay their

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workers, the railway contractors began pledging the provincial debentures that had been issued to them to two of the local banks. By 1873 railways had driven the island debt up to over $1.5 million, while Prince Edward Island stood to have to pay out yet another $2.25 million by the time the job was finished. The per capita debt stood at $41, eight times its level when Canada had made the Confederation offer in 1869. Under these conditions, union with Canada was inevitable. In 1873 the Union Bank of Prince Edward Island found it could no longer unload provincial debentures in London. A financial crisis led to falling imports and customs revenues as well as declining exports which cut the sterling exchange earnings the island needed to maintain payment of interest and rent in London. The existing debentures went to a heavy discount. The PEI banks refused to accept more debentures and the railway contractor refused to continue construction. All this was carefully observed by John Rose, the Canadian government's financial contact in London, and by Prince Edward Island's lieutenant-governor, both of whom reported conditions to John A. Macdonald. Rose reminded the president of the Union Bank that Confederation meant federal assumption of the colonial debt. The president passed the word to his brother, the attorney-general of the province. A new vote on Confederation was called. The Union Bank president appeared at his first and only public meeting declaring a great financial crisis that only Confederation could rectify. And the island was thus railroaded into Confederation.

The One That Got Away Unlike Upper Canada or Nova Scotia, but very much like Prince Edward Island, the granting of elective institutions followed by progress toward responsible government did not entail a particularly important shift in the distribution of economic power in Newfoundland, whatever its effects on the structure of political institutions. At the top were the principals of the West Country merchant houses now domiciled in Newfoundland during their business lives, together with their interrelated coteries of high officialdom. These Tory merchants ruled the provincial economy from the St. John's Chamber of Commerce, and the provincial polity from the executive and legislative councils, until they returned to England from where they continued to influence policy through lobbying the Colonial Office. Below them and aspiring upward was a class of smaller wholesale merchants, businessmen who ran the most impor-

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tant retail outlets, and the professionals, doctors and lawyers, men with a long-term commitment to Newfoundland itself. This lower rung of the propertied class, grouped into the Liberal Party, sought political and economic power through the elected assembly once it became operational in 1833. Newfoundland, unlike the mainland colonies, had virtually no territorial revenues to bolster the fiscal independence of the executive branch of government. Its agriculture was subsistence-oriented, timbering was rare, and mining virtually non-existent before the 1860's. Public revenues came exclusively from the tariff, over which the assembly could exercise a substantial and growing measure of control. Simply vetoing adverse money bills from their vantage point in the councils did not suffice to assure the executive branch control over the government, given the lack of independent revenue sources. It was essential to keep some modicum of control over the assembly as well, for all money bills had to originate there. Hence in 1836, when the council lost control of the assembly to the Reform (Liberal) Party for the first time, it responded by having the election declared invalid. A new contest in 1837 returned another Liberal majority, to which the council responded by having the constitution suspended. In its stead a combined house, comprised partly of elected assemblymen and partly of appointed councillors, met in a body to vote on legislation — the idea being that the unanimously Tory council could join forces with a Tory minority of assembly members to outvote the Liberal majority. Over time the Liberal majorities increased to the point where the balance swung back to them, and the Tories responded in 1848 by restoring a bicameral system. A few years later, under the watchful eye of imperial military authorities, responsible government was granted. The Tories thus lost their assured control over the executive branch of government, and had to rely on blocking Liberal initiatives from the assembly through their control of the upper house for defence, meddling in the assembly itself for offence, and invoking the aid of the Colonial Office as a last recourse. In 1858 an attempt by the Liberal majority to tax the property of absentee landlords was disallowed by the Colonial Office, and in the 1861 election the Tories, supported openly by the governor, gerrymandered the election and ousted the Liberals. Riots and attacks on Tory property followed. The troops were called out, and three demonstrators were killed while twenty were wounded. In 1862 the Tory assembly wisely doubled the police force, for over and above the seething political discontent it was a time of acute distress in the fishing industry. Poverty was so widespread that poor relief absorbed 20% of government revenues. Against this happy background, the debate on Confederation began.

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Two events that occurred in 1864 pointed the future of Newfoundland in opposite directions. In the 1850's, while serving on the legislative council, C.F. Bennett, one of the colony's richest and most powerful merchants, had secured from that council a monopoly of the mineral rights to a million acres of land in the interior, before the advent of responsible government put an end to such concessions; and in 1864 one of his enterprises struck copper and nickel. New interest in the virtually unexplored interior of the province followed, and the assembly ordered the island's first geological survey. That same year Sandford Fleming, veteran engineer of the Northern Railway and a partner in Canada's leading firm of railway engineers, reported to the Canadian cabinet his opinion on the best possible route for the Intercolonial Railway. It would follow the northern New Brunswick route — coincidentally getting that part of the province enthused for Confederation — and terminate in Halifax. As a corollary he outlined plans for the shortest possible route between Europe and North America for mail, express freight, and passengers. A steamer would cross from Ireland to the eastern extremity of Newfoundland and connect with a rail line across the province, linking in turn to a steam ferry to the Baie des Chaleurs from whence a feeder line would carry the passengers, mail and valuable freight to the Intercolonial main line. Alexander Gait, architect of the financial aspects of the Confederation plans and principal of Canada's leading firm of railway contractors, then proposed to the Newfoundland delegates at the Charlottetown Conference that in exchange for $150,000 per year Newfoundland, upon entry into Confederation, would cede the lands and resources of its interior to the federal government. At least one person in Newfoundland, C.F. Bennett, had certain obvious reservations about a plan that would open the interior to competitive mining enterprises and place the control of royalty rates in the hands of a distant government in Ottawa that he could not be sure to influence. His misgivings were shared, though for different reasons, by many of his fellow Newfoundlanders. The Newfoundland economy, over which Bennett and other members of the Tory merchant elite ruled, changed little over the course of the nineteenth century. The bulk of the island's imports of food, hardware, clothing and rum was handled by a few big firms which also controlled most of the fish and oil exports. The fishermen were locked into a system of debt peonage that guaranteed the monopoly profits of the merchants. The merchants advanced the fishermen supplies and then credited their catch against the accumulated debt. Since the merchants set the price of both goods and fish, the debts of the fishermen rarely diminished. But the debt was

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an instrument of social control, not of profit per se: neither fishermen nor merchant necessarily anticipated its repayment as long as the fisherman continued to bring his catch faithfully to the merchant and raised no trouble over the prices that were set. Thus for the great bulk of the income-earning population monetary transactions were rare, and the West Country merchants could be depended upon to resist monetization of the economy lest it permit the fisherman to break free of the bonds of dependence which kept them under the economic, and political, tutelage of the merchant elite. On the other hand the smaller wholesale merchants and retail traders together with the professional classes stood to gain from the monetization of economic transactions and from the progress of open-market competition. Under the debt-peonage system there was no distinct wholesale and retail sectors of any magnitude, for the fish merchant controlled all the flows of goods and credit to and from his subject population through his single enterprise. Monetization would go hand in hand with opening the fisheries to the aspiring petty merchants, expanding the retail trade sector, and permitting the diversification of economic activity. It would also permit the socioeconomic ascent of the indigenous commercial and professional class at the expense of the old West Country elite. Leading the pro-Confederation Liberals was Ambrose Shea, a merchant and contractor who in 1849 had been involved in the project to link Newfoundland to the British North American mainland by telegraph. Shea and the pro-Confederationists saw all manner of material advantages, both to Newfoundland and to themselves, from union. Union meant railways which would open the interior of the province to exploitation of its natural resource base. Expenditure on railways would mean profits to the monetary sector of the economy, and its expansion vis-a-vis the debt-peonage sector. It would mean jobs for the unemployed, whose numbers were growing and whose desperation led to an escalating series of attacks on warehouses and stores to obtain food. Union and railways and the opening of the interior all meant the possible influx of British, American and Canadian investment capital. In 1868 Fleming reaffirmed his faith in the Short Ocean Passage by announcing that the best route for the ICR still lay near the Baie des Chaleurs, and Ottawa punctuated the sentiment by granting Shea a contract to supply unemployed Newfoundland labourers for a section of the railway line in the Maritimes. Shea must have been pleased, for it meant credibility to his plea that Confederation would end unemployment, and it also gave him an opportunity to cheat the workers out of part of their pay by forcing them to take half of it in the form of credit at his store.

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To the West Country merchants, though, Confederation and railways meant the undermining of the closed fishery economy by providing cash and alternative employment. The higher Canadian tariffs would mean a transfer of funds to the mainland from Newfoundland; and since the fishermen were already living at subsistence, it would be impossible for the merchants to pass the cost on to them. Confederation would also entail free trade with Canada, and some of the more astute undoubtedly noticed that thanks to the ingenuity of the Nova Scotia engineer Abraham Gesner and the Yankee investors in Ontario's oil wells, Canada had a glut of mineral oil products of the same type that were busy driving marine mammal oils, Newfoundland's second great staple, out of world markets. Nor would C.F. Bennett, who assumed the leadership of the anti-Confederation Tories, have been pleased to discover that John A. Macdonald, in justifying the $150,000 offer to Newfoundland for its land and resources, pointed to the Bennett mines as examples of what other aspiring entrepreneurs might find waiting for them in the territories. In the assembly elections of 1869 Bennett led the antiConfederationists to a decisive victory, helped considerably by the fact that the fishermen in the merchants' employ had no choice but to vote against Confederation as instructed or face either starvation or debtors' prison. Bennett rewarded himself for his effort in 1872 by abolishing mineral royalties altogether. Thus Newfoundland escaped the fate of its sister Atlantic colonies, and, while dickering over possible entry into Confederation at some future time continued on an intermittent basis, Canadian attention shifted elsewhere. In fact, after 1873, when ocean freight rates began falling, the importance of the Short Ocean Passage, and therefore of Newfoundland's adhesion to the Confederation scheme, declined. What was important thereafter was not the Short Ocean Passage, but the shortest railway route across the continent, and that issue focused Canadian attention westward.

22

Reconquest of the Northwest

THE ANNEXATION OF THE HUDSON'S BAY COMPANY territories was the second objective of the Watkins-Baring plan for the restoration of the Grand Trunk's solvency. Between the Rocky Mountains and the frontiers of Canada stretched 3 million square miles of territory, fully 25% of the total land area of North America, all under the rule of an antique chartered monopoly. Just as with the other pieces of British North America, its history, as the nineteenth century unfolded, was one of struggle by local interests, aided by pressures from outside the colony, to break down the archaic structures of overseas control.

Company Rule After the defeat of the North West Company in a bitter and costly trade war that ended in 1821, a new governor, George Simpson, was sent out to Rupert's Land to restore profitability. Simpson slashed wages and trimmed surplus manpower that had been accumulated during the wars. Together with a corporate reorganization — converting the 1821 partnership agreement with the North West Company into a full merger of the two — the results from 1825 on were rising profits once more. Apart from a few smugglers, or "free traders" as they preferred to be called, the only competition was from John Jacob Astor's old American Fur Company, whose Minnesota trade headquarters at St. Paul became a staging point for the penetration of Rupert's Land. Between them, the two companies managed to soak the area under dispute with whiskey and rum in a struggle to control the trade of the plains tribes, especially the Blackfoot Confederacy. They soon came to a spheres-of-influence arrangement which lasted until the panic of 1837. The American Fur 314

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Company was badly scarred in the panic, neared bankruptcy in 1842, and in 1843 renewed the trade war in an effort to recoup. But in the meantime the Hudson's Bay Company had taken advantage of the truce securing its southern border by consolidating its hold in Ruperts' Land. During the wars the cost of trade, not to speak of the extra manpower required, had risen sharply. Competition among traders of the rival companies, particularly after the Nor'Westers introduced the practice of granting extensive amounts of credit, had meant that Indians could and did repudiate their commercial loyalties — and their debts — and move off to trade at a rival post in response to more gifts. Inside Indian bands rival trade leaders linked to different companies tried to establish dominant influence by the more lavish distribution of gifts, which in turn they had to procure from the companies. In the period before competition became acute, the standard of trade tended to be fixed: once a set of barter prices was established, it tended to persist. Traders in the field might try to raise their returns by fiddling with the quality or quantity of goods offered — the deviation of the actual trading standard from the official one was known, quite aptly, as the "double standard" — but the Indians resisted. During the trade war deviations between the two standards became more common at the same time that debt repudiation and the mounting cost of gifts pressed hard on company finances. After peace was re-established, Simpson tried to cut back sharply on the cost of trade. Over and above closing posts and firing employees, he attempted to cut back on presents, eliminate the use of credit, and reduce the standard of trade. In the forest areas, where game had been depleted by the overhunting that the white traders had encouraged during the period of acute competition, the Indians had been reduced to such a state of dependency on store food and clothing that Simpson's attack on their living standards had some effect. But in the parkland areas where caribou and bison were abundant, not only were the Indians still sufficiently independent to resist, but in fact the company itself tended to depend on them for the provision of food for its more isolated posts. A further motivation for Simpson's policy of closing some of the trading posts was conservation, to give some of the areas exhausted of furs during the period of trade rivalry a chance to recover. Under Indian law, if one group of Indians did not exploit a particular area another was permitted to move in, and the furs were simply sent to a more distant post. The depletion of game animals in some areas permitted the Hudson's Bay Company to begin the job of breaking up the clan economy and substituting the family unit. Intensive exploi-

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tation of small game and fish, which could be conducted on a family basis, replaced the communal hunt for caribou and deer. The Indians could then be settled in well-defined areas, permitting the concept of private property in land to take root in some of the northern areas. In the vast bulk of Rupert's Land, however, such notions were still quite alien. Simpson's attack on the aboriginal lifestyle was dictated by sound business considerations. He had noted the adverse effects on trade of pagan religious practices such as ceasing to hunt in order to engage in long mourning periods after the death of a relative. He therefore advocated, in addition to the policy of encouraging the individualization of economic activity, the christianization of as much of the population as possible. Earlier participants in the debate had argued that christianization would encourage a sedentary existence and impede the hunt for fur-bearing animals, but Simpson noted several possible effects that pointed in the other direction. Christianity, he argued, would over time encourage the Indians to imbibe our manners and customs and imitate us in Dress; our supplies would thus become necessary to them which would increase the consumption of European produce and manufactures and in like measure increase and benefit our trade as they would find it requisite to become more industrious and to turn their attention more seriously to the Chase in order to enable to provide themselves with such supplies. In the 1840's serious difficulties began to beset the company again, particularly as the breakdown of the agreement with the American Fur Company encouraged the smuggling activities of the "free traders". At the same time the opening of China greatly increased the supply of silk, and silk hats began displacing the beaver hat in European fashion. The decline of the demand for beaver occurred simultaneously with a curtailment of supply, as overhunting depleted the beaver in the company's territory. As the problem of smuggling grew in the 1840's, the company stepped up its war against the free traders by tightening its controls on its indentured workers, banning the carriage of goods on company ships for those suspected of interfering with its trade monopoly, instituting mail censorship, and forcing all persons securing land to pledge not to engage in trade or to resell or lease their land without the company's permission, on pain of forfeiture of the land. (The result was to encourage squatting rather than purchase, which created a major problem of ambiguous land titles that would haunt the region in the future). The company also devised a financial system for the colony which

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helped tighten its control. The standard of value for trade was the "made beaver", the skin of an adult male beaver taken in prime condition. It remained a basic unit of account for 150 years, and a token — in the form of coloured sticks, painted porcupine quills, or even muskrat balls — representing a certain value in terms of "made beaver" functioned as money. (These tokens were used as counters at trading posts, and did not generally circulate widely). In 1850 a series of brass coins — representing one, one half, one quarter, and one eighth "made beaver" — were put into circulation. From as early as 1823 the company had issued its own paper money denominated in sterling, but payable only for debts of the Hudson's Bay Company and acceptable only at company stores for goods at prices that were determined by the company. Just as with truck payments and merchants' scrip elsewhere in the colonies, the use of private promissory notes and store credit as money tied the commerce of the area inextricably into the company stores. Specie payments were discouraged, for the widespread use of specie would permit the generalization of trade and encourage smuggling and the development of independent retail traders. The development of free trade-oriented sedition in the colony followed the course of outside pressure against company rule; demands for the termination of the monopoly coming from the United States, Britain, and Canada reinforced the internal discontent. Most immediate was the threat posed by the U.S.'s headlong rush to the Pacific, and American business interests cast covetous eyes on lands the company claimed. The Selkirk grant had extended well below the 49th parallel, and the company hired Daniel Webster, the prominent American Whig married into the Baring family, to try to get the American government to accept its claim. Webster feared that pressing his client's demands too hard would jeopardize his chances of securing election as president, and the legal battle was finally decided in favour of the United States, which acquired the rich agricultural lands south of the 49th parallel when Americans were starting to flow into the area. Fur traders were followed by lumbermen, gold seekers and farmers who destroyed the indigenous economy and the fur trade by attacking the basis of aboriginal economic life, the great herds of buffalo that roamed the central plains.

The Buffalo At its peak the buffalo numbered 40 million and occupied nearly half of the North American continent, though its favoured habitat was the great central prairie region where grew the lush grasses on which the great beasts fed. The treeless prairies permitted winds to sweep

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bare large patches of ground during the winter and to allow yearround grazing. A mature male buffalo could weigh upwards of 2,000 pounds and stand seven feet tall. Given their size, number and dispersion, the North American buffalo was perhaps the greatest game species ever. The buffalo was the chief source of sustenance for the aboriginal peoples of the grasslands. Its meat was their principal food; its hides and robes their clothing and tents; and its bones were used to fashion tools. Small bands of Indians armed with bow and arrow followed the buffalo herds in their meanderings through the prairies. The transformation of their existence began under the influence of a major innovation from the south. After the Spanish conquest of Mexico the native tillers of the soil were decimated, and in their stead came great herds of longhorn cattle imported from Spain. The Spanish pasturage frontier moved north into the Texas and New Mexico areas, and with it came the demand for large numbers of horse-borne workers to herd the cattle. Herds of trained horses, available for Indians to steal, developed alongside the cattle. Moreover, Indians enslaved by the Spanish to work the ranches often deserted and moved north, teaching the other tribes they came into contact with the use and breeding of horses. The geography of the central plains was ideal for the use of horses, and the practice spread rapidly. Horses greatly sped up the process of hunting, and increased the volume of buffalo meat and hides available. The result was to upset the traditional division of labour; for men's work was greatly eased, while the supply of meat and hides that the women processed grew tremendously. Polygamy became more common, especially once trade in buffalo robes with the white men became generalized among the plains tribes. And the increased mobility that horses permitted intensified warfare by facilitating territorial encroachments. The wars became particularly destructive once guns were introduced by the fur traders. In the 1830's and 1840's, in response to the decline in beaver markets in Europe, the American Fur Company and the American petty traders turned to buffalo robes. Buffalo robes were produced with great labour using traditional techniques by the plains Indian women, whose capacity to produce a surplus over the Indians' own requirements was strictly limited. Other buffalo products were also in demand for export — pickled buffalo tongues were regarded as a delicacy, while buffalo fat was used as a fuel in the pre-petroleum age and for making soap and candles. But all of these demands failed to make any significant dent in the number of buffalo, for they were limited by the number of Indians available to hunt and manufacture.

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The situation changed dramatically in the 1860's when eastern industry discovered that buffalo hides could be used for making belts to drive power machinery, and new tanning processes also raised the demand for raw hides. The buffalo hunt grew to a massive scale. Settlers spread across the west, and their fences broke up the buffalo pasture lands. Railways did likewise, as well as greatly increasing the number of hunters and the volume of hides and tongues that could be exported. The buffalo herds were a nuisance to the operation of the trains, and the railway companies made deliberate efforts to slaughter or drive them away. After the annexation of Texas to the United States, Spanish longhorn cattle began to be driven north en masse to market, and the buffalo herds often blocked the route, used up the pasturage, or provided a haven for runaway cattle. Finally, the 1860's saw the last gasp of the American Fur Company, and its demise was followed by a rush of free traders, buffalo hunters, gold seekers and settlers into the western plains. Bitter wars with the plains nations raged as a result, and the American government sent troops to destroy the Indians and impound them in reservations. Early wars had often gone in favour of the Indians, and these defeats caused the American army to turn on the buffalo herds, hoping that their destruction would reduce the Indians to starvation and force them onto the reservations. After the army, settlers, hide and robe hunters, and railways had done their work came the bone hunters — great masses of buffalo bones were gathered up and shipped east as raw material for fertilizer plants and bone China factories. The great herds vanished into the maw of eastern industry with its insatiable demand for raw materials, and by 1873 the American southern plains were largely empty of buffalo. The northern plains followed; and then those of British North America.

The Impact on British North America As the spread of settlement destroyed the buffalo, the Indians, and the fur trade of the American plains, American fur traders encroached ever more into Hudson's Bay Company territories and encouraged the development of anti-company sentiment and action within Rupert's Land. While American traders pushed north, the discontented and the deserters from the Hudson's Bay Company reached south, and together they reoriented the flow of trade enough to seriously erode the company's position. There were two main routes by which trade moved on a northouth axis. From St. Paul, Minnesota, the American traders pushed

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north; and the harder they pushed, the weaker was the Hudson's Bay Company response. The long-run position of the company was eroded by the spread of steam transportation — both rail and river — in the American west, which cut the cost of trade goods and increased the number of competitors the company had to face. In 1845, a company police force was established to enforce the trade controls, but it was soon abandoned when it was found that some of the policemen were themselves busy smuggling. In 1846, under the pretext of defending the area against American expansionism, military government was established with imperial troops to help shore up the monopoly, a clear confession that the company had lost control of the situation. In 1848 the troops were withdrawn and in 1849 the company monopoly was broken. That year it made a last, desperate effort to stamp out the contraband trade, seizing goods and arresting a Metis trader named Guillaume Sayer. But the courthouse in which the trial was to take place was surrounded by armed Metis led by Jean-Louis Kiel. The jury returned a guilty verdict but no fine or punishment was imposed. In short, the company monopoly was a paper tiger, and the Metis streamed from the courtroom shouting, "La commerce est libre; la commerce est libre; vive la liberte!" American encroachment also came from points further west, particularly Fort Benton, Montana, which commanded the Whoop-Up Trail, for 25 years the main artery into the western plains. Fort Benton merchants financed the free traders penetrating the western parts of the Hudson's Bay Company lands much as Pembina merchants did for the eastern plains. The fur traders were accompanied by other freebooters — robe hunters, wolfers and whiskey traders, all moving north. In 1867 the first American direct investment was made in southern Alberta with the establishment of Fort Whoop-Up, the most important of about a dozen whiskey trade posts set up by American merchants in British territory. Staffed by skilled graduates of the bushwhacker gangs of Kansas and Missouri, Fort Whoop-Up sold liquor to the Indians through slits in the heavy wooden barriers erected for "defence", for the trade generated long debauches that saw the Indians attempt to scramble over the barricades or through the windows to get more "whiskey". The "whiskey" was manufactured following variants of a simple formula: one gallon of raw alcohol to three gallons of water, with colour or flavour from one pound of tea or one pound of rank, black chewing tobacco. Some Jamaica ginger or a handful of red pepper might be thrown in to give it tang; and if the Indians were used to Hudson's Bay Company rum, a quart of molasses might be added to simulate the taste. Once the debauches were over, the Indians came forward

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to pay their debts to the traders, giving them anything that was resaleable for cash in the United States — their robes, furs, horses, or even their daughters. It was this "whiskey" trade that stripped many of the plains Indians of their wealth and reduced them to destitution and dependence before the North West Mounted Police came to herd them onto reservations. The American whiskey traders did much to win the British North American west for Canada.

Canadian Encroachments Canadian pressure on the Hudson's Bay Company lands also began in the 1840's, prompted by the push for natural resources by capitalists from both parts of the province. In 1845 a copper rush to the area north of Lake Superior, a spillover from a contemporaneous American boom in Michigan mines, focused attention on its mineral possibilities. It was Canada's first speculative boom in mining, and large amounts of money were wasted exploring for ores that were economically useless. By 1848 the rush was over; companies were broke; and the resources of the area left untapped for several more decades. But the brief excitement did focus attention on the area, and on the anomaly of company rule. A similar controversy sprang up from two distinct quarters in the eastern part of the company's territories. First, Quebec lumbermen began advancing further into the Saguenay country. Second, the fisheries, controlled by anglophone Quebec big business, began encroaching on company territory in the Cote Nord. As the fisheries expanded so did the threat they posed to the company in a territory where the trade monopoly was defended by company armed sloops. The response of the Hudson's Bay Company was, at least in the Labrador region, to move heavily into the fishing business itself, renting capital equipment and the use of the ports of the area to fishermen from Quebec in exchange for a modest rent of half their total catch. Although the company managed to emerge trom the timberland, fisheries, and minerals controversies with its position relatively intact, the new interest Canadian business showed in the hinterland of the province was an ill omen. Added to it was jealousy over the fur trade monopoly which prompted several Montreal and Toronto schemes for new North West Companies. And then came George Brown and his confreres, pushing to open an agrarian hinterland in the prairies for Canada. The turning point again came in the year of world crisis, 1857. The East India Company was phased out, and a British government

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inquiry into the last of the old chartered monopolies began. That year too Toronto big business put its campaign for annexation of the west into high gear. Politically, the seizure of the west for Canada would tilt the political balance in favour of Upper Canada and help put an end to the "French domination" exercised by Cartier and the Grand Trunk. Economically, the Clear Grits hoped that seizure of the prairie lands would rekindle the economic boom. In 1857 therefore, Brown and his friends put together the North West Transportation Company to develop a route from the end of the Great Lakes into the prairies. At the same time Brown's allies were busy in London denouncing company rule before the select committee of inquiry. In Quebec too the opposition was getting stronger, as Quebec City railway promoters advocated vigorous Quebecois colonization of the Northwest. The Hudson's Bay Company was not without friends in Canada. Simpson's extensive investments brought him into close contact with Montreal big business interests, and the Canadian Prime Minister, Francis Hincks, was in Simpson's pocket until his abrupt political demise in 1854. Even after that, the company was still well represented in Canada. Furthermore, the Grand Trunk as yet had no transcontinental ambitions, and the Tories in Canada still opposed annexation of the west. But as British expansion into India and China proceeded and its interests in the Pacific grew, Britain became increasingly concerned to secure the Pacific coast of British North America. The East India Company settlement of 1833 looked like a profitable model for the Hudson's Bay Company, and in 1848 the company hinted it might surrender its property for a guaranteed return of 10% on its capital plus the same trading rights as other British subjects. The British government refused to accept the plan: in India the cost of buying out the chartered monopoly could be passed on to the peasantry, but for Ruperts' Land the cost was more likely to fall on the British taxpayer. However, private interests became more and more interested in the idea of an imperial highway to the Orient running across British North America. In 1862 the Barings and Glyns were involved with a group that requested British government aid for a road and telegraph across British North America. Then in 1863 the nature of the Hudson's Bay Company itself changed as it succumbed to a new stock exchange frenzy sweeping the London capital market. The 1860's mania was compounded of many elements. The rapid growth of international trade produced an explosion in the business of discounting sterling bills of exchange. A new railway-building orgy was in process, flooding the stock exchanges with shares of dubi-

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ous merit. And company organizations and reorganizations were in vogue, as incorporation became the fashion for all manner of previously private firm. The Bubble Act had until 1825 banned the formation of limited liability companies except by special vote of incorporation by Parliament, a situation which produced an open spoils system whereby companies seeking charters of incorporation had to buy Parliament in competition with others intent on doing likewise. In the old days of a capital market dealing largely in "funds" (government bonds), there was no need for limited liability: the wealthy gentry dominated the supply of investment funds, and the government the demand. But once the railway age dawned, middle class savings began to be drawn into corporate finance, and the idea of limited liability companies gradually took hold. With the emergence of general limited liability companies in the financial field came the rise of big investment banking houses specializing in the buying and selling of blocks of corporate securities, and even of entire companies. While these enterprises were much more common on the continent, a few emerged in Britain during the corporate mania of the 1860's. The first major British limited liability investment bank was the International Financial Society, whose objective was to make foreign investments in large-scale works carrying government guarantees. It was closely linked to Lord Brassey, and backed a lot of his European railway operations. It was also well connected to major London financiers, including the Barings and the Glyns. And it was the International Financial Society that Edward Watkin approached in 1863 to buy up and reorganize the Hudson's Bay Company so it could be sold to a new group of investors committed to transferring its territories to Canada — for a price. In 1864 Watkin put together the Confederation coalition. Three years later Confederation with the eastern provinces was a fait accompli, and negotiations with the fur trade company began. In 1869 the terms were finally settled. The company would receive £300,000 in cash and keep one twentieth of the fertile lands plus tracts of land around the fur trade posts, which later became the urban cores of major cities. It also received title to large areas on Vancouver Island. While the fur trade would remain its central preoccupation in the north, in the southern part of its former domains the company was now prepared to change itself into a land speculating operation and a retail chain store to serve the new immigrant population that was expected to follow. The only problem with this neat consummation of the deal was that no one seems to have bothered to ask the existing population of the area how they felt about it.

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The Metis people regarded themselves as a new nation, indigenous to the west, but quite as distinct from the aboriginal population as they were from white traders and settlers. Both the Hudson's Bay Company and the North West Company had encouraged intermarriage to stabilize trade relations with the tribes and to assure a stable, indigenous supply of company servants with families to support to ensure their docility. When engages and traders retired from company service they often married Indian women and settled permanently in the west, again augmenting the Metis population. The trend was particularly strong after Simpson's massive cutbacks. In 1821 the Metis population was reckoned at 500; by 1870 it was 12,000. Economically, Metis society represented a halfway house between two cultures. Modeling themselves on the plains Indians, they adopted the buffalo hunt as the mainstay of their economic life and entered the business of selling buffalo products, particularly pemmican, to the fur trade posts. The hunts were communal affairs and the product distributed among each family participating, with a certain percentage held back for those unable to take part. The men hunted; the women processed the meat and hides. While the buffalo hunt was a great communal event and the main source of income, many Metis also performed other economic functions. Some were voyageurs in company employ; some ran the transportation system by cart from the Red River Valley to St. Paul; many were skilled tradesmen. While these other economic activities tended to produce some class differentiation which the buffalo hunt did not, the class lines were very hazy. Some occupied a slightly higher status by virtue of being the offspring of "gentlemen", i.e. traders with a better education or family background. French Metis were usually the children of the more unskilled workers and voyageurs than were English. But objective economic class differentials were in their infancy in Metis society. Over time something approximating an indigenous middle class emerged, often based on the development of petty handicraft industry. Thus the leader of the buffalo hunt during the 1830's, Cuthbert Grant, ran a water mill, farmed, and had even invested in the fur trade a sum of money he lost as a result of the collapse of the North West Company. Jean-Louis Riel was a company servant who had been trained as a wool carder and had schemes for the establishment of flour and woolen mills in the Red River colony. But the company was the sole source of investment funds and it refused to aid any business that would challenge its monopoly; it therefore opposed not

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only free fur traders, but any business that would produce on-thespot goods competing with the ones the company imported. Only the flour mill was permitted — the woolen industry was discouraged. Kiel was, not unexpectedly, a leader in the subsequent demands for freeing of trade, and the chief of the band that broke the monopoly in 1849. He later set up carding and fulling mills in the area, playing a pioneering role in the growth of local artisanal industry. But Metis society was not left to develop on its own. In advance of the transfer of control, Canada sent survey teams into the colony and along with them, in fact often synonymous with them, came the land grabbers. For the Metis the survey teams were a particular menace, for few Metis held title to their lands. Not only was squatting easier than buying from the company, but the Hudson's Bay Company had encouraged it — not wanting to set a precedent of large-scale land alienation, it preferred to advise the Metis on where they could squat, making no effort subsequently to dislodge them. The Metis therefore came to feel they had de facto title to the land, a feeling the surveyor-land grabber teams spared no effort to dispel. The land speculators who came in went to work on the Indians to buy their aboriginal titles with whiskey, and the Indians, to whom the notion of private property in land was alien, assumed they were simply letting out the use of their territory temporarily. Even in cases where the Metis did hold title from the Hudson's Bay Company there was some question as to whether it was of any value, for it was claimed that Selkirk had never paid the treaty money necessary to extinguish the Indian title. The Canadian land grabbers fanned these suspicions and upset both Metis and established white settlers. The Metis too objected to the political settlement the Canadian government wanted to impose, under the terms of which Ottawa would appoint a governor who in turn would select a territorial council. There would be no local assembly, and all of the lands and resources would simply be transferred from one set of alien rulers, the Hudson's Bay Company directorate, to another, the federal cabinet in Ottawa. A final element in the Metis discontent was the terms of settlement between Canada and the company. There had been no consultation with the wintering partners who were among the most influential members of the Red River community, and none of the £300,000 or the future income from land sales was earmarked for them. Since their economic position was being eroded by other developments, they demanded their share. With the tacit support of some of the white settlers, Louis Riel,

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son of the leader of the 1849 confrontation, and the Metis took control of the government to renegotiate the terms of Confederation. Ottawa reacted by despatching Colonel Garnet Wolseley, freshly back from China where he had commanded Lord Elgin's expedition, to lead a ragtag army of cutthroats and thieves into Manitoba. When the plundering was brought to a halt, assisted by the discovery that much of the property being stolen belonged to the Hudson's Bay Company, the troops had to content themselves with hunting down and murdering Metis leaders. Louis Riel, however, had already escaped. The effect of his stand was that Manitoba entered Confederation not as a colony, but as a province, albeit a very small one and robbed of control over its lands and natural resources. The scene of the action then switched further west as Canada sought to round out its transcontinental empire with the acquisition of territory on the Pacific rim. By so doing it entered what was in effect a new world, for all of the other territories incorporated into the new Dominion, and the one that got away, were essentially part and parcel of the Atlantic economy which had entered the European orbit during the Age of Mercantilism or earlier. But British Columbia's early history was bound up inextricably with the rise of a Pacific economy at a much later stage in the history of European imperialism.

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The Rise of the Pacific Economy

EVEN THOUGH IT WAS THE LURE of the fabled wealth of China, Japan, and the spice islands that initially sent European adventurers off on what was subsequently graced with the term "the Discoveries", China's integration into a world capitalist economy was delayed until well into the nineteenth century. China's economic conquest belongs to the era of the Pacific economy; for several centuries after the Discoveries the Atlantic economy remained the primary focus of attention of the major powers. India, the part of Asia where international rivalries in the seventeenth and eighteenth, and indeed much of the nineteenth centuries centred, was an outgrowth of the development of that Atlantic economy. The signal failure of all efforts to find a North West Passage, a fast water route across the Americas, meant that Asia continued to be commercially accessible only by way of the Atlantic-Cape of Good Hope route. China, on the other hand, was part of a Pacific world, and was opened up as a major chapter, perhaps the major chapter, in the story of the economic conquest of the world's greatest ocean. India was part of the Age of Mercantilism; Indian trade was the objective of great chartered companies; Indian commercial relations with the west formed a cornerstone in the process of creation and maturation of mercantilism. The subjugation of China belonged to the age of "free" trade which saw the decay of mercantilism and regulated commerce, and the tremendous acceleration of multilateral trade in the industrial age after the Napoleonic Wars. The Atlantic powers — the Portuguese, Dutch, French and British — fought to rule decadent Moghul India in the seventeenth and eighteenth centuries. The Pacific powers — Britain from India, 327

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Russia down through its Siberian and central Asian conquests, and the United States after conquering a continent and then launching itself across the Pacific — were the principal antagonists for control of nineteenth century China. And while Britain's early military triumphs in India permitted it a policy of almost unimpeded expansion until it had obtained complete territorial control of the subcontinent, China remained the battleground of the various powers, divided up into their spheres of commercial influence, but never being absorbed bodily by any one of them, despite an early British lead. China was not alone in the Pacific scramble of the nineteenth century. Australia and New Zealand were opened to land speculators, planters, grazers and miners. The South Sea islands were seized as plantations or as commercial and naval bases, and often denuded of population; Japan was similarly "opened" to Western expansion; and the Pacific coast of the North American continent too saw a scramble for occupation by the major powers. But the opening of China was the event that stamped the character of the age; and it was the dominant power of the age, Britain, that initiated the process.

British India and the Opening of China China shared with India the signal disadvantage eastern trade held in western mercantilist eyes: the west's demand for Asian products was not reciprocated by the east's demand for those of the west. In its China trade the East India Company focused its attention on tea, of which China was by far the major world producer. Not until well into the nineteenth century did India become an important source of the commodity whose generalization in consumption throughout the British possessions played such a vital role in public finance and private profit alike (10% of British government tax revenues came from an impost it imposed on tea consumption, a tax whose success depended critically on the ability of the government and the East India Company to enforce the company's monopoly — as Boston merchants were painfully aware). But the more widespread the demand for tea, the more difficult the balance of trade problem that inhered in the China trade became. China did absorb small amounts of finer English woolens and a bit of Cornish tin. Various trinkets and baubles — snuff boxes, musical jewel boxes, etc. — too were popular toys among the Mandarins. But such items paid for only a tiny fraction of Britain's imports of tea, silk and a few other products from China, the great bulk of which had to be covered by silver. China therefore absorbed

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tremendous amounts of silver, which the British secured by trading with or stealing from the Spanish. The drain of silver to China provoked bullionist-style protests and led to a law that required that at least 10% of the value of the company's cargoes to China be in the form of commodities. That still left 90% in the form of silver; and it was difficult in the early years to find even 10% worth of goods the Chinese would accept. The demand grew for commodities to reverse the balance of trade deficit. One such commodity proved to be furs. China in the late eighteenth and early nineteenth centuries had an enormous appetite for the pelts of fur-bearing animals long since exterminated in its own territories. Especially prized were the sea otter pelts derived from the northwest coast of America. While the British actively pursued the sea otter trade, it proved inadequate to deal with the tea trade imbalance. Russian and American competition was one factor, but more important was the existence of structural rigidities in the trade. The tea trade was an East India Company monopoly; trade across the Pacific belonged to the South Sea Company; and the fur trade with the aboriginal populations of America was, in British territory, the property of the Hudson's Bay Company. Jurisdictional and commercial jealousies meant that co-operation between the rival chartered monopolies was too little and too late. And in any event, even the then-abundant sea otter could not finance the British imperial demand for Chinese teas. Two events transformed the structure of British trade to China. In 1779 Spain joined the Franco-American alliance against the British empire and broke up its supply of silver. Even after the restoration of peace the silver supply failed to meet the demands of the tea and silk trades. But the East India Company earlier had taken over the land revenues of Bengal, raising rents in kind, in specified commodities over which it held monopolies of the trade. One of these commodities, opium, proved to be the key to unlocking the China trade, even if it was technically illegal to export it to China.

The Opium Trade Prior to 1763, the year the British conquest of Bengal was recognized by treaty, the Portuguese carried small amounts of opium from Turkey to China and sold it as a medicine. Not until the British conquest of Bengal, and with it the East India Company's power to control the cultivation of certain commodities by demanding them for rental payments, was there a systematic effort to addict the Chinese population to opium.

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In 1773 the East India Company assumed a monopoly on the sale of opium in India. In 1793 it sent an emissary to China who demanded the status of diplomatic representative and requested that China open two ports to British trade, cede some island depots, and establish a tariff. The Chinese ignored the threats, recognizing that behind the request for ports and depots lay the desire of the British government and the East India Company to turn the trickle of smuggled opium into a torrent. The Chinese would accept legitimate traders but not opium dealers, and furthermore restricted the activities of traders to the port of Canton where they could be closely supervised and their contacts with the population at large minimized. Neither condition, obviously, met with the approval of the East India Company or the British government. The British, however, were engrossed in war with France, and not yet ready to force the issue with China. In preparation, however, in 1797 the East India Company added a monopoly of the production to its monopoly of the sale of opium in British India. The next year the company itself ceased direct smuggling of opium to China in favour of licensing others to do so; the sailing orders of Indiamen expressly forbade the carriage of opium. This permitted the Company to disown all responsibility for the drug traffic if the Chinese ever threatened the company's trade in raw cotton, tea and silk because of its alleged involvement in the opium business. The East India Company, pursuing a trade which eventually yielded one-seventh of the gross government revenues of British India and which controlled the economic fortunes of its wealthiest and most populous province, instituted a forced labour system in Bengal to produce opium; refined it in its two factories which held a monopoly of opium manufacture in the British empire; supervised the packaging in a form designed to appeal to Chinese tastes; packed it in sizes convenient for smuggling; carried it to Calcutta; and there sold it at auctions the company conducted to traders whom the company licensed and who had to agree to carry only East India Company opium; and even partly financed the trade by providing commercial credit to the licensed traders. Yet the company loudly proclaimed its innocence of the heinous traffic, for the company itself did not transport opium to China and sell it there. From Calcutta the opium clippers — which were, along with the tea clippers and the illegal slave traders, the fastest ships of the era — ran the drug to an island near Macao, old centre of the Portuguese trade, and sold it to Chinese merchants for final distribution. It was of course illegal, but Chinese imperial officers whose job it was to curb the traffic proved to be amenable to bribery. In 1813 the East India Company lost its monopoly of the India

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trade, and in Britain the pressure mounted to open up the China trades in tea, silk, opium and, it was hoped, cotton cloth manufactures from Manchester. Indian free trade was followed by a sharp increase in the volume of opium smuggled to China, and brought the British government directly into confrontation with that of China. In 1800 the volume of opium making its way to China had still only totaled about 2,000 chests of 133 pounds each, about ten times the annual maximum formerly brought in by the Portuguese. By 1821 it was estimated at 7,000 chests. Three years later it exceeded 12,500, and by 1837 amounted to 39,000 chests costing China about $25 million per year in silver. The British government had demanded diplomatic status for its trade commissioners, a request refused by the Chinese who realized that the British "diplomats" would be simply drug merchants. And this "diplomatic" question, coupled with the establishment of permanent smuggling bases off the Chinese coast defended by British warships, led to rapidly growing tension between Britain and China. The flow of opium continued to accelerate, and by 1833 had succeeded in its primary objective — turning China's traditional balance of trade surplus into a deficit. This objective was all the more urgent since the year 1833 also saw the abolition of all of the East India Company's external trade privileges except the opium trade, and hence Indian governmrnt finance and company dividends became all the more dependent upon it. Opium too took on ever greater significance in the international payments system. The more silver could be drained from China via opium, the more silver was available to British India to finance its own balance-oftrade deficit, and thus the greater India's ability to absorb British manufactured goods. Britain's exports to India therefore depended in good measure on the degradation of the Chinese population and the siphoning off of the Chinese empire's monetary metals, which in turn could be used to finance British trade in the silver-standard countries of the Americas. The importance of the opium trade went far beyond its direct monetary value, though that was considerable by the standards of the time. Opium kept the government revenues of British India in order, maintained production of the principal cash crops of Bengal, and was vital to the financing of the British imperial tea trade and hence to the revenues of the British government itself. It was therefore a striking affirmation of the truths expounded by English classical political economy about the universal benefits of free trade: Bengal's food producing capacity was cut to make room for opium production at a time when episodic famines killed millions of Indians; millions more of Chinese were debased by the drug, while

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the finances and monetary system of the Chinese empire were thrown into turmoil and its public service corrupted; a handful of British merchants made colossal fortunes and retired to country estates; and millions of Britons enjoyed the latest cricket scores over a cup of choice China tea. Who could deny the remarkable civilizing effects of multilateral free trade? The monetary crises of the late 1830's provoked by the drain of silver forced the Chinese authorities to take action. At the same time the victory of free-trade interests in Britain over the East India Company increased the likelihood that the British government would force changes in the Chinese trading structure. The more desirable the Chinese market became, the more intolerable was the close regulation of trade by the Chinese government. But the more active the British traders in selling their wares in China, the more committed the Chinese government became to curbing them. Opium smoking was banned, and a campaign to wipe out Chinese opium retailers was mounted — the main effect of which was to bring the foreign wholesalers more deeply into the actual distribution of opium within China, and make the inevitable clash come all the sooner. In 1839 the Chinese authorities moved on the British drug peddlers, and expelled the British merchants from Canton. The first Opium War followed. In 1840 British frigates bombarded and destroyed three Chinese government junks and blockaded Canton. Military operations ashore saw British soldiers turned loose until the Treaty of Nanking ended the war in 1842. Under the terms of the peace Britain was ceded Hong Kong; five ports were opened to British ships; Britain secured the right to establish consuls at the treaty ports with a rank equal in terms of power wielded to that of Chinese officials; the Chinese tariff was altered to favour British goods; and China paid a cash indemnity of $21 million in Spanish silver — double the actual cost of the military operation, even after excluding a $6 million indemnity for the seized opium. Indemnities in this and future wars were important, for along with "legitimate" trade they assured Britain a balance of payments surplus on its Chinese operations. In return for all these concessions the British government agreed not to support the illegal opium trade. Naturally the treaty was respected meticulously but for one clause. Hong Kong became a second opium trade emporium, from which the traffic was pushed even further into China. Then American and French traders, supported by their national navies, descended on China to demand treatment equal to that accorded the British. Canton-based merchants clamoured for even more concessions, while Chinese resolve to resist them stiffened. The result

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was a second Opium War, largely localized in the Canton area, in 1856. Lord Elgin, the erstwhile Governor of Canada, was dispatched by the British government to deal with the Chinese failure to understand the mutual benefits of free trade. Elgin led the British forces which seized Canton and then marched inland. Under the Treaty of Tientsin in 1858 a new tariff rate even more favourable to the British was agreed upon, China was prohibited from buying any foreign arms — which assured its military weakness in the face of western aggression — and the opium trade was legalized under a special tariff rate. Opium merchants were transformed into honest businessmen. Peking itself, the Forbidden City, was explicitly excluded from the treaty and the operations of foreign merchants. Once again only one clause was violated. Lord Elgin's brother, Frederick Bruce, was sent to China to ratify the Treaty of Tientsin and assume the post of Chief Superintendent of Trade. He then decided to march on Peking to deal directly with the emperor, a flagrantly provocative act and one which precipitated a military disaster for the combined British and French expeditionary force. Elgin returned to take charge of operations and, with his commander-in-chief Garnet Wolseley, captured the Forbidden City, the last great imperial city of the world to taste the fruits of western civilization. Elgin's forces looted and burned the fabled Summer Palace of the emperor and 200 nearby buildings. The opening of China to foreign domination provoked a nationalist uprising against foreign rule in 1861, an uprising crushed by forces led by British general Charles Gordon. All the provisions of the previous treaty were confirmed, and China was forced to pay an indemnity of $13.5 million to cover Britain's military expenses. The British presence and the number of free ports were extended, and a permanent legation established at Peking. Not least important of the provisions of the new treaty, China had a new export: human beings.

The Pacific Slave Trade The western assault on China was the most significant event in the rise of the Pacific economy, but far from the only one. Large tracts of the northwest coast of America and the lands of Australasia were seized from their indigenous inhabitants, the South Sea islands captured, and the trade of western portions of former Spanish America expanded. In all of these areas, as in the new lands opened by the Discoveries three centuries before, the problem of organizing a labour supply was a paramount one — and the solutions were roughly parallel.

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Early Spanish exploration of the Pacific basin, apart from some perfunctory excursions up the North American coast and the establishment of trade stations in the Philippines, was minimal. British penetration of the Pacific actually began with Frances Drake who, with a cargo of loot from Spanish treasure ships and towns, realized that the Spanish navy would likely capture him if he tried to return to England eastward, and therefore chose to sail back via the Pacific. But there was little serious challenge to Spanish claims to the area by other powers until toward the end of the eighteenth century when first British, then American incursions began in earnest. In the interim the British were content to turn over a monopoly of the Pacific trade to the moribund South Sea Company, the weakest and least effective of the English chartered monopoly trading corporations. The Pacific lands and resources remained effectively unexplored and unexploited by European powers. In fact, western influence in the Pacific may have been diminished in the Age of Mercantilism as the West Indies became the cornerstone of empire, and the original rush to the east abated. Japan had been originally exposed to western influence in the sixteenth century by the Spanish, Portuguese and Dutch. Trade was difficult, for apart from firearms, there was little the Japanese could learn from the Europeans, whom they regarded as barbarians. But the Portuguese found gold mines on the island, and by use of priests as agents of subversion, converted certain nobles to Christianity, thus wooing them away from allegiance to their emperor and persuading them to open up mines using their vassals as slave labour. Over the course of 1611 to 1645, bitter and bloody wars were fought to drive the Portuguese out. At the end of them, Japan was able to close itself to the west again. Apart from a residual and minor Dutch trading presence, the sole significant contributions to Japanese civilization Europe left behind were guns, venereal disease and spongecake. In 1853, American gunboats searching for a base for the American China trade reopened Japan, first as a naval base and subsequently as a source of indentured labour for American plantations on the Pacific islands. By that time the Pacific had become a major commercial battleground. The systematic exploitation of the area and its resources began first with pirates diversifying out of the Caribbean, and then with the whale and seal fisheries. Until the American Revolution Britain depended on New England for its whale oil, but after the revolution the British domestic industry grew rapidly at the same time the extermination of the Atlantic schools of whales shifted the main locus of activity to the Pacific. The objective of British policy was not only to free itself of dependence on American sperm whale oil but also to

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corner the business of supplying all Europe from the abundant schools of the Pacific. To do so meant breaking the power of the East India Company and the South Sea Company. The former freely conceded the business, in which it had no ambitions in any event; the latter was bought off by licence fees. The British ships were soon joined by American ones, and by the 1820's ships of New England and British North America were active throughout the Pacific. Commercial contact with the aboriginal population came as an offshoot of the whale fishery and, in the case of the Pacific coast of America and Australia, the seal fishery. Ships calling at the islands traded for the products of the area — sandlewood, tortoise shells, mother-of-pearl, etc. — with the aboriginal population. At this stage the products desired were the output of the aboriginal economy itself, and the effect of white contact was to commercialize and corrupt an existing socioeconomic structure. Native chiefs would trade the labour of their people, who were ordered to cut sandlewood or gather other products, for guns, rum and European tools. The European products would make traditional warfare more destructive, destroy aboriginal skills, render the population dependent on western tools, and spread alcoholism and diseases contracted from the white traders. The aboriginal products for the most part went to China to be re-exchanged for tea, silk, cotton and porcelains. A second European group responsible for early contact were the escaped criminals, castaways, and deserters who formed outlaw societies on the islands, aiding native chiefs in their wars or sometimes displacing them altogether. These petty conquistadors were not immediately amenable to the control of any national authority, for the process of European annexation had not yet begun and the abolition of East India Company-South Sea Company authority, always more nominal than real, left a power vacuum. The search for exploitable resources of the lands themselves began for the British with Captain William Bligh's celebrated 1787 voyage on the Bounty, seeking breadfruit as a potential cheap slave food for the British West Indies after the American Revolution broke up its customary food supply. After the close of the Napoleonic Wars, Bligh was followed by aspiring planters searching for lands for the cultivation of sugar, cotton, indigo and other tropical products formerly produced by the plantations of the British West Indies. In the 1830's and 1840's the spread of scientific agriculture in Britain and in Western Europe raised the demand for fertilizers and led to a rush to exploit the great guano deposits of Peru, Western Australia and other areas. Peru was especially favoured, for guano was valuable as fertilizer only where it had not been leached of its nitrogen content by rainfall, and the Peruvian coast received almost no rain-

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fall. The profits were enormous, for the yields from the fertilizer, and therefore its price, were high, while costs of production were low. There were virtually no overheads. Mining was done by a ship putting in on the waterless, treeless coast or offshore islands for several months and setting slave labour to work. If the overloaded ships did not sink they returned to Liverpool, which dominated the guano trade, to discharge their precious cargoes. The last great commodity to propel the rush to the Pacific was gold. In 1837 the Siberian gold strikes attracted attention to the possibility of a new Pacific Eldorado. California turned golden in 1848, Australia in 1851, and British Columbia a few years later. Finally, shaping the destiny of the area, came the opening of China itself and the American Civil War, the first producing a scramble for a share of a vast new market accessible via the Pacific and its islands, the second curbing the American supply of raw cotton and encouraging cotton plantations throughout the Pacific. All of these developments, unlike the early age of piracy, fur trading and whale hunting, required a settled cheap labour force to work the new resources. The first labour force in the newly opened territories of resource exploitation was the convict labour sent to Australia. It was also an extremely cheap labour force for the colonies. Dumping of convicts began in earnest in the 1790's as the progress of the Industrial Revolution and enclosures reduced increasing numbers to pauperism and raised crime rates. Dumping criminals in Australia both helped maintain social peace in England and cut the demands Poor Relief made on the public purse. Unlike the population of the nearby islands, whose enslavement required kidnapping and then transporting them to the place of work by private enterprise, with white convict labour the job of kidnapping was handled by British "justice", and the government took care of the costs of transportation. However, the supply of white slave labour was far from adequate to the needs of the area. Planters and merchants therefore turned to the South Sea islands themselves. Unlike the Atlantic slave trade, the Pacific slave trade was not organized into great monopolies. Slave hunts were conducted by small-scale enterprise over wide areas. The techniques varied. Chiefs of various islands were bribed to sell their people into slavery; wars among the tribes were encouraged by the slave traders, who then bought the captives; or slaving could be conducted directly by the Europeans by running down and sinking fishing canoes, or pulling up beside them and dropping rocks on them. The survivors would be picked up and, apart from the sick and old who were tossed overboard, carried off for sale. Entire islands were denuded of population to fill the growing needs of the cotton or sugar plantations of the Pa-

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cific, and the voracious appetite for slaves exhibited by the guano mines, in which few survived. However, particularly after the American Civil War cotton boom, the supply of "blackbirds", as the Pacific slaves were known, was still short of demand. Fortunately an alternative source of slave labour emerged. Just as the extermination of the native population and the inadequacy of supply of white convict or contract labour for the early development of plantations in the West Indies and the Atlantic coast of the Americas had led to the rapid growth of the African slave trade, the inadequacy of supply of convict labour and of "blackbirds" in the Pacific led to the discovery of another seemingly inexhaustible supply of slave labour, and gave rise to the coolie kidnapping trade which spread a captive Chinese population through the Pacific states and on into the West Indies as well. The trade in fact began in the West Indies after the abolition of black slavery in 1833. Under the terms of abolition the slaves were to spend six years as "apprentices" tied to the plantations (four years for domestic slaves), in theory to ease the slaves' adjustment to a system of wage labour, in reality to ease the planters' adjustment to a system of wage labour. Few planters acknowledged any practical difference between slavery and "apprenticeship". Moreover, the blacks refused to co-operate in the adjustment process, and could not be tempted back into the grueling and debilitating work in the cane fields as wage labour. The British tried to meet the ensuing labour supply crisis in part in Africa itself. Cheered on from the pulpit and the Parliamentary benches, the British navy ranged the Atlantic, nobly and energetically capturing illegal slave-trading vessels and "freeing" their cargoes in Sierra Leone, regardless of where they originated. Once in Sierra Leone, British merchants cajoled the abandoned blacks into agreeing to contracts of indenture in the West Indies. Even more important for solving the post-abolition labour supply crisis was the traffic in Chinese indentured labour. In the early trade, based on the "contract system", contractors interested in Chinese labour went mainly to areas of Chinese settlement outside China and placed orders with Chinese merchants for delivery of labour gangs. The first Chinese contract workers arrived in the British West Indies in 1838. The British planters also turned to sub-Sahara West Africa, Brazil, India, and other populous areas for contract labour. Then in 1849 the labour merchants turned their attention to China, whose teeming population seemed to be a potentially limitless source of virtual slave labour, comparable to sub-Sahara West Africa in the golden days of the Atlantic slave trade. The activities of the slave hunters in China became especially vigorous after the gold rushes drove up the demand for labour in the

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Pacific states and raised the retail price of Chinese coolies to as much as $1,000 a man. A well-organized and profitable coolie labour trade sprang up largely under British direction, a trade referred to in the commercial jargon of the day as "the buying and selling of pigs". British firms established at the Treaty Ports would be engaged by prospective employers or associations of employers or by merchants from places where labour demand was high to fill their orders. There were various means of recruiting labour, of which kidnapping (or "pigstealing") was one. Very useful too were Chinese laws which said that Chinese who owed debts could be sold to third parties who agreed to settle the debt. They could also be won at card games. The "pigs" were rounded up and herded into emigrant depots that the gentlemen running the business referred to as "pig-pens". Those too weak or ill to be shipped out were thrown out (and might die in the streets before they got back to the distant villages from where they had been kidnapped); the rest were dispatched to the places where they would fetch the best prices. In the first season of open migration, official data showed a mortality rate aboard ship of 10% of the coolie cargo. One Nova Scotian coolie trader, the Zetland, sailed in 1855 with 600 coolies aboard, along with a food supply for 40 days: the trip lasted 152. Some 200 coolies died of hunger while 45 committed suicide. But such incidents were no deterrent to the traffic. Technically, the Chinese labourers' emigration was all voluntary: slavery was illegal in the British West Indies, Australia, and California. The Chinese "pigs" selected were often given a choice: they could either sign the contracts agreeing to indenture themselves, or be shot, drowned, or strung up by the thumbs until they either changed their minds and signed, or died. In the late 1850's, as the great Pacific boom moved into full swing and with it the demand for labour, Chinese hostility to the trade rose. The Chinese people objected to the kidnapping gangs' activities, and fear of kidnapping became acute enough in Canton in 1859 to provoke a nearinsurrection. The other source of hostility was the Chinese imperial government, which felt obliged to point out to the British that emigration for the Chinese was illegal. The British, naturally, were shocked to learn that they had been engaged in an illegal activity, and so in 1860 inserted a clause in the Treaty of Peking legalizing "pig-stealing". Appropriately, the first legalized load of coolies sailed off from mainland China to the British West Indies in a ship called the Lord Elgin.

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The United States and the Pacific Economy While it was Britain which took the lead in the opening of the Pacific basin, the colonization of new lands, the spread of plantations, and the subjugation of China, the United States was not far behind. American ambitions in the Pacific had long historical roots. Even at the time of the American Revolution Thomas Jefferson spoke of a "North American route to India". The American rush to the Pacific was spearheaded by the fur traders, especially John Jacob Astor who, with Jefferson's active aid and assistance, bullied his way around and eventually across the continent to tap the China fur market. At about the same time New England whalers and sealers went seeking the strategic oils in the Pacific. The seal, too, yielded sealskins much coveted in China, though considerably less so than the precious sea otter pelt that drove the American fur traders up the North American coast. The rapid extermination of the sea otter led the American traders to switch to seal skins, and later opium, for the China trade. The United States first tried to break into the opium business with the Turkish product, but Bengali was sufficiently entrenched as to prevent any serious American encroachment, so American traders switched from competition to co-operation, becoming active partners in the carrying of East India Company opium under licence. The early fur and opium trades were central to shaping American consciousness about the possibilities of a Pacific empire, and in fact preceded and helped precipitate American seizure and settlement of the Pacific coast of the American continent. The territorial struggle was twofold. American seal and fur hunters moving south initiated the clash with Mexico over California, while the same interests heading north collided with British fur traders in the Oregon Country. The Oregon Country was one of the theatres of war in 1812, for by then it was clear that control of the mouth of the Columbia River would be vital to the carriage of freight bound for the Far East. Oregon fever was rendered all the more acute by the lure of more free homestead land during the great American migration wave of the 1840's. Behind the demands for seizure of California and Oregon, and underlying the search for Pacific coast trade ports, were the burgeoning railway interests of the northeastern United States aspiring to push forward transcontinental railways. A Pacific railway, it was hoped, would give the U.S. the fastest, cheapest route to the Far East, much better than anything the British possessed — although the actual construction of the Pacific railway project was delayed for some time by sectional conflict and quarreling over routes. The Oregon question was settled when the British ceded the

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territory; the California question was settled when the Americans seized the territory. External impediments to America's Pacific ambitions were thus removed — the internal ones persisted until 1866. The year after the seizure of California the discovery of gold there sent Shockwaves throughout the western world. Until then California had been regarded as a sun-parched wilderness whose strategic value far exceeded its intrinsic merits. Settlement was sparse. The discovery of easily accessible alluvial gold in California in 1848 followed two years of commercial distress and acute deflation, and the sudden expansion of the world's stock of monetary metal reversed a long-run deflation and general decline in the volume of precious metals available for circulation. The gold rush was a vital part of the story of the great commercial revival of the 1850's, for the new gold supplies permitted the generalization of the gold standard, and thus were a critically important step in the move toward greater freedom of international exchange. The gold rushes, moreover, produced the first integrated Pacific trading system in the Americas, as Chilean cereals, Mexican coffee and cocoa, Australian mutton, wool, sugar and grain, Chinese rice and sugar, and even some Japanese produce began moving toward the United States. Then too came the trans-Pacific migration of Chinese coolie labour. At the same time a new transcontinental and trans-Atlantic rush of population occurred as native Americans swarmed to California, helping to open up a gap in the American northeastern labour market which European immigrants, including the Irish paupers, filled. The phenomenal rush of settlement, a pattern duplicated in Australia three years later, created almost overnight a large new white market. In 1849, the year the scramble got underway, American (and British North American) shipping resources were strained to carry passengers and commodities to California. By 1850 the easily worked placer deposits were largely gone, and the capital intensity of the industry grew as mining of quartz replaced working of alluvial deposits. The result was to encourage an influx of Chinese labour to work the mines or the placer deposits that were too poor for the whites to bother with — the meager wages paid (often in credit at a company store) to the Chinese labourers made the low-productivity deposits still profitable to mine. This Chinese influx came on what was known as the "credit ticket" system. Chinese brokers paid for the cost of emigration, and the resulting debt kept the labourer in bondage to the broker until it was discharged. The Chinese were also put to work on construction projects.

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White bosses preferred Chinese labour over white: it was cheap; it was extremely docile, since the debts to the brokers could only be discharged by continuous employment at low pay until their savings were adequate; and gangs equipped with their own headmen could be made to order for projects without the negotiation and search required for white labour. The business was exceedingly well organized. If any Chinese was unfit for work because of the after-effects of an opium debauch, illness, or flogging by the headmen, others were immediately available to replace him. The lack of women — apart from some debt slaves brought out by brokers to staff brothels — meant wages could be kept low, since there were no dependents to be supported. The falling productivity of the placers, the influx of Chinese, and the rising capital intensity of gold mining combined to push the white miners who could not organize into large companies out of California in search for gold elsewhere. Some went to Australia; others pushed north into Oregon, where Indian wars and lack of gold dictated a move even further north, into British North America. While the California rush was in full swing, the China trade booming, and Oregon open for settlement, the railway question became increasingly important and the sectional conflict in the United States all the more acute. Northern interests aspired to seize British America both because it would be free territory to swing the balance against the South, and because it was felt that the fastest and best route for the Pacific railway lay across British American soil. The North wanted a northwestern route to the Pacific; the South wanted a southwestern route. The outbreak of the Civil War ended the deadlock. Northern interests proceeded with their plans, chartering the Union Pacific, Central Pacific, and Northern Pacific railways, followed after the war by the Kansas Pacific and Southern Pacific. The Union Pacific came first. It was chartered in 1862 and routed through Nebraska and Nevada, its act of incorporation giving it permission to take all of the timber, stone and other building materials that it needed free of charge from public lands. Over the course of its construction, in return for $436,000 distributed to sundry congressmen, the company received construction subsidies of between $16,000 and $48,000 per mile plus a land grant of 12 million acres. Another million acres were received over and above the land grant. The Central Pacific followed. Its four promoters paid in a total of $50,000 of the line's $25 million capital, and then awarded themselves the contract for construction. On top of the subscriptions of private bond and stock holders, the government "loaned" the line $26 million and gave it 9 million acres of land.

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The Northern Pacific was less fortunate. This line, planned to run from Lake Superior to Puget Sound, went to Congress for cash aid — and ran into the solid opposition of the Union Pacific forces. In the end the promoters received no cash, and had to content themselves with a land grant of a mere 47 million acres. The line was built in spite of such appalling handicaps and eventually fell into the hands of Jay Cooke, who planned to use it to link up to the Grand Trunk. The Northern Pacific thus became a vital piece in the game of transcontinental railway politics in British North America as well, a game whose stakes mounted with the incorporation of a Pacific coast province into the new Dominion of Canada.

24

Fur Trade and Pacific Empire

SPAIN HAD A TENUOUS CLAIM to the Pacific Ocean, and the Pacific coast of North America, ever since Balboa had sighted it in 1513 following an expedition of "discovery" across Central America. While there was some penetration of the area by others, including a 1577 visit to California by Francis Drake, there was little consistent challenge to Spanish claims until the mid to late eighteenth century, when rival claimants converged on the northwest coast of America from four directions. Russian fur traders moved across Siberia and then on to Alaska; the British launched themselves across the Pacific from India and China; American fur traders led by John Jacob Astor moved up the coast; and Alexander Mackenzie led the Nor'Westers from Montreal across the continent to the Pacific. These encroachments, which were prompted by the opening of the China trade and the accompanying scramble for the lands and resources of the Pacific, provoked a half-hearted, and quickly dispelled, Spanish effort to enforce its claims.

The Rise of the Pacific Fur Trade Since remote times certain animal pelts — those of the silver fox, the fur seal, and especially the sea otter — were highly prized in China, whose local sources of furs suffered early exhaustion. Not until the middle of the eighteenth century did European traders, anxious to find a light, valuable commodity in great demand in China to balance tea and silk imports, awaken to the existence of great herds of sea otter along the northwest coast of North America. The trade was pioneered by Russian fur traders who, encouraged by Peter the 343

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Great's imperial ambitions, expanded across Siberia and opened a Russia-China fur trade through Mongolia. Peter the Great then employed the Danish adventurer Vitus Bering to follow the track of the silver fox and sea otter, first to the Aleutian Archipelago and then to mainland Alaska. From Kamchatka, where Bering opened up the sea otter trade, Russian adventurers descended on Alaska and precipitated pitched battles with the Aleuts and with each other. Eventually the Russian empire's Wild East settled down. By 1799 a single monopoly corporation, the Russian American Fur Company, controlled the fur trade and went through the usual empty motions of colonizing Alaska and bringing Christian civilization to its unfortunate aboriginal population in order to conform to the conditions of its charter. British official interest in the area, commencing in the middle of the eighteenth century, sprang from different motivations. Britain was at that point unaware of the existence of the abundant supplies of sea otter pelts on the northwest coast of America, but was still obsessed with the search for a North West Passage to replace the long and dangerous Cape of Good Hope route to Asia. While the search was a failure from the Pacific side, just as it had been from the Atlantic two centuries before, Captain James Cook's voyage of 1776 in quest of the elusive passage inadvertently triggered off a scramble of British capital into the area. That year Cook's ships stopped off the coast and bartered brass and iron tools with the Indians for furs and pelts. The Indians who Cook's men encountered, much as with Jacques Carrier over two centuries before, were already acquainted with European trade goods and took the active part of initiating the exchange. At Canton the pelts, which had been purchased with scraps of metal, sold for upwards of $120 each. The East India Company took note of the new trade potential. One basic structural factor inhibiting the early development of the British Pacific coast fur trade was the continued existence of the old mercantile monopolies. In theory the South Sea Company had exclusive rights to British trade across the Pacific, while the East India Company held a monopoly of access to the China market. Thus early British traders had to find a way around the monopoly restrictions either by securing licences from the company or taking the risk inherent in smuggling. Two expeditions under the command of John Meares circumvented the South Sea Company-East India Company monopoly by sailing under a Portuguese flag in vessels nominally owned by a Portuguese Macao firm, a ruse which paid the additional dividend of permitting Meares's cargoes to avoid the heavy port charges the Chinese officials at Macao then levied on all but Portuguese ships. In 1788 Meares's expedition landed at Nootka

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Sound, where he established a trading post and a shipyard. These, the first permanent structures raised on the shore by white traders, were built by Chinese labour imported for the purpose. Meares had come equipped with copper, iron, and other commodities known to be in demand, and began trading. The Spanish, who had viewed with growing alarm the Russian and subsequently the British encroachments on an area to which they still laid claim, were especially perturbed by the establishment of a settled trading post with an unmistakable sign of permanence to it. They therefore stepped in and destroyed Meares's installations. Backed up by its French alliance, Spain stood ready to defy the British, until the French Revolution broke up the Bourbon Family Compact and left Spain facing Britain alone. A hasty Spanish retreat resulted in an agreement on the part of Spain to recognize British sovereignty in the area and to reimburse Meares for his losses. The British government then sent Captain George Vancouver, a veteran of the Cook voyages, to the area to consolidate the British claim. Meares took advantage of the Spanish retreat to step up his illegal trade to China at a time when the agitation by "free traders" against the South Sea and East India Companies was gathering momentum. But they were unsuccessful in breaking the East India Company's hold for some decades. In the interim Meares's and other interloping ships had to fly the American or Portuguese flags when conducting the coastal trade with the Indians or when carrying the pelts from Nootka Sound to China. American incursion into the Pacific fur trade began in 1788 in response to the loss of the British imperial trade in the wake of the American Revolution. The fact that the Spanish and French imperial trading systems remained equally closed to them meant that the United States had to find its own means of acquiring Chinese goods, especially tea and silk. Hence the American traders turned to the sea otter, and later the fur seal trade. American trade prospered from the start, unhampered as it was by the chartered company monopolies. An additional boost to the American Pacific fur trade came in 1791 when a Russian-Chinese border dispute led to the Chinese banning the Russian fur trade. In response, the Russian Alaska traders formed joint ventures with American firms and exported their furs to China via the American trade network. By the beginning of the nineteenth century the American traders had driven the British out of the Pacific fur trade. However, by that time a new source of competition for the British Columbia coastal trade had emerged. In 1793 the Montreal fur trader Alexander Mackenzie reached the Pacific from Canada by land. The Pacific coast trade had not yet

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attracted the attention of the Hudson's Bay Company; and the split of the North West Company into two rival organizations, one headed by Mackenzie, led to Mackenzie's going to London to try to get a charter for a Pacific fur trade monopoly company. Political and financial problems thwarted the project and it failed to attract sufficient investment funds to establish a trading concern or to buy itself a charter of monopoly. However, the subsequent healing of the split in Nor'Wester ranks in 1804 and the intensified trade war with the Hudson's Bay Company that followed drove the North West Company to a more intensive activity in the sea otter trade, and led in 1806 to the company establishing British Columbia's first interior trading post. Like the English traders, those of Canada were hampered by the East India Company monopoly of the China trade, which aided the America competition by interfering with the return flow of cargo on British ships. Faced with a growing American threat in 1812, and the breakdown of their commercial relations with John Jacob Astor, the North West Company managed to arrive at an agreement with the East India Company whereby the North West Company sent its furs to China on East India Company ships while the East India Company shipped its tea to Canada through the constituent Montreal merchant houses of the North West Company. The outbreak of war in 1812 was followed a year later by the seizure of Fort Astoria in the Oregon Country by North West Company forces and the British navy. The American Fur Company was driven out of the Pacific coast trade, and the North West Company firmly established — until the merger with the Hudson's Bay Company in 1821 brought that firm for the first time to the Pacific and secured for it the addition of a monopoly of the British Pacific northwest coast trade to its existing charter. But conditions had changed drastically by the time the Hudson's Bay Company secured its position on the Pacific coast fur trade. The fabulously profitable sea otter had been hunted close to extinction by the turn of the century, and traders turned to the fur seals whose pelts, while worth far less than those of the sea otter, had the virtue of vast supply — until they too were decimated. The pressure for ever-increasing export of opium and manufactured goods to China became especially acute after the sharp drop in the Pacific fur supply. For the fur traders, the rapid decline in the sea otter and seal populations forced them to search inland for other types of furs as a replacement — which served to accelerate contact and conflict with the aboriginal population of the area that produced the coveted pelts.

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Amerindians of British Columbia The early fur trade was almost exclusively based on marine mammals, and white-Indian contact was largely with coastal tribes. After the Aleuts in Russian territory the next group down the coast were the Tlingit, who occupied the Alaska panhandle. Then came the Haida of the Queen Charlotte Islands and the Tsimshian on the mainland just to the south. On Vancouver Island, the north was occupied by the Bella Coola; the east and the adjoining mainland were the habitat of the Kwakiutl; while the west coast of the inland was occupied by the Nootka. On the southern part of the island and the adjacent mainland, the Coast Salish were settled. While there were substantial differences between them, nonetheless the chief structural attributes of their economies and societies were remarkably similar. The most important determinant of the economic structure of primitive societies is the condition of the food supply and the nature of the principal food source. For the eastern Algonquians, woodland game and fresh water fish were the principal foods, supplemented by wild fruits. As a hunting and gathering people, they were forced to pursue a nomadic existence. By contrast, the Iroquois-Huron group was a largely settled, agricultural people whose principal food was corn. The economic and social life of the plains tribes revolved around the buffalo hunt, and they too were a nomadic hunting and gathering people. On the Pacific coast the principal food was the salmon, and the result was a sedentary people whose lifestyle in some ways blended the benefits of a tillage economy in terms of social stability with the capacity for absorption and application of western technology to the food-gathering process more typical of the nomadic peoples. The Pacific coast peoples were favourably placed for the solution to the food supply problem. Salmon in the rivers flowing to the Pacific was abundant and readily accessible; and the gathering, preparing and preserving of salmon was performed with relative ease. Other species of fish were also sought, especially oolichan, a type of herring valued for its oil. Seals were also taken for their pelts and oils. Off the west coast of Vancouver Island, in Nootka territory, whale hunting was practiced. The sea, too, provided clothing in the form of seal skins and sea otter pelts. On land game abounded, though hunting for meat and furs was far less important to their subsistence than was fishing. The most important game was mountain goat, prized for both its wool and its flesh, and deer. Wild berries and seaweeds were also gathered. Agriculture, on the other hand, was almost unknown before European contact. The sole crop

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grown was a tobacco-related plant prized for ceremonial functions. The reliance on the teeming supplies of salmon in the coastal rivers lent a remarkable stability to the social life of the Pacific coast peoples. They were the most settled of any North American aboriginal group, even more so than the Huron-Iroquois peoples, for whom periodic soil exhaustion forced occasional migration. The harvest of the sea, unlike that of the land, was completely renewable. There was a seasonal pattern to the salmon harvest too that approximated that of agriculture. Once the technique of preserving fish had been mastered, the year's food supply could be secured in a few months, freeing the men the rest of the year for hunting fur-bearing marine mammals or for ceremonial and other pursuits. The leisure time for activities other than food-gathering was all the greater, given the ease of access to the abundant salmon and the lack of preparatory clearing or harvesting work that typified the agricultural peoples of the east. In Huronia the corn supply, obtained in the summer by the labour of the women, tided the tribe over the winter and freed the men from the obligation of hunting, thus permitting the conduct of trade with the hunting and gathering peoples who produced the furs and pelts. On the Pacific coast the salmon, captured and preserved in the summer, freed the men for hunting sea otter and other marine pelts that were in prime condition in the winter. The ability to accumulate surplus food in the summer permitted a more complex division of labour than that which prevailed in eastern Canada or on the plains, and with it a more clearly class-differentiated society. It opened up the potential of much "higher" level of development of art and technology, and with it a capacity to adopt new techniques from outside. Wood working techniques, using cedar trees, were advanced in the Pacific. The houses were permanent structures. Canoes that could hold up to 50 people and which were very stable and seaworthy were made from hollowed-out logs, rather than hides and bark. The totem poles required an expenditure of time, skill and effort that other aboriginal groups in British North American would have found difficult or impossible. There was a division of labour by sex. Men fished, hunted, and built houses: women undertook household manufacturing operations, the preservation offish, extraction of oils, and the making of clothing. It was the women's role to process the hides and furs the men captured to prepare them both for household use and for exchange. Since women were the most important source of household labour, a man's wealth and status was enhanced by the number of wives he had. Household labour was also provided by slaves whose ownership served to further enhance the status of the male. Men, on the other hand, manufactured not for the household but for the vil-

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lage as well, and the tools and instruments they fashioned followed standardized patterns and techniques. Commodities produced were redistributed by the usual means in aboriginal American societies — barter, redistribution feasts, reciprocal gift giving, taxes to build up communal stores — as well as by a mechanism that was uniquely tied up with the social structure of the west coast Indians. The class structure of the Pacific coast peoples was a complex one. At the top of the clan social ladder was a hereditary chief. The clan village was divided into "houses", each headed by a lesser "noble", with "commoners" and slaves below. In fact, however, the terminology is a European import; only the slaves really corresponded closely to their counterparts in European society. Within the noble and commoner classes there were numerous gradations. Men could change their class, albeit with difficulty, either up or down if they possessed special skills or qualities, or lacked the skills and qualities necessary to their status. Social class in general, however, was based in a complex way on heredity and wealth; one was useless without the other. Wealth was essential to claiming one's hereditary privileges, but it did not create such privileges. Status was inherited, but had to be confirmed by the display and distribution of wealth. Chiefs and nobles were by birth custodians of certain wealth and non-material status symbols accumulated by the lineage, provided their rank was confirmed, and were entitled to make use of such properties for economic and ceremonial functions — in contrast to the east, where much of the wealth in the form of commodities accumulated over an individual's lifetime was buried with that individual, hence precluding the accumulation of lineage wealth. Status also inhered in skill at the hunt. The greatest skills of the tribe were the ability to hunt seals, sea otters and whales, and these skills, handed down through generations, conferred noble status. Thus the nobles were really an elite among a village of producers, rather than a class of parasitical rentiers living off the efforts of others, and were differentiated from commoners only in that their parents possessed enough wealth to have gone through the ceremonies necessary to confer noble status on their offspring. Trade between villages and between tribes was common before the fur trade era, and generally involved the exchange of commodities fashioned from the resource base of the particular area the village occupied. The Tlingit traded sea otter pelts, copper, and cedar blankets for slaves and shell ornaments from the south. The Haida, who were the most heavily dependent on the sea of all the Pacific coast peoples and also the most wealthy and powerful, were particularly well endowed with supplies of fur seals and sea otter, and exchanged their pelts, along with dried fish and seaweed, to the

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Tsimshian for oolichan oil, blankets, berries, copper and slaves. Bargaining over prices and quality was sharp. Trade was preceded by military alliances — of necessity, since war was a more common state of relations between the Haida and their neighbours than was trade. War supplemented the inflow of commodities by the capture of slaves, who could be exploited domestically or ransomed back to their village. The Tsimshian traded extensively, both because their geographic location put them in a strategic position to intermediate between other tribes and because they held a near monopoly on the supply of oolichan. They also had access to supplies of mountain goat, whose wool figured heavily in their trade relations. The same commodities — sea otter and fur seal pelts, copper, blankets, slaves, and oolichan oil — were the chief commodities exchanged among the other tribes as well, except for the Nootka who, highly dependent on the sea, controlled the coastal whale fishery and used whale oil and meat as well as other marine-derived goods in their commerce. External commerce or warfare was an essential part of the process by which the men of the villages, particularly the nobles, acquired the wealth on which their social status depended. Property accumulation, however, was not for the purposes of holding wealth; rather the opposite — to give it away or destroy it. Central to the process of determining status was the potlatch ceremony, which provided the driving force behind individual production and accumulation. Potlatches were held for a variety of reasons associated with the gaining or maintaining of status—for it was necessary to resort to potlatch not only to establish rank, but also to hold it in the face of challenges. The noble status of a child was determined by the number and quality of potlatches given by the parents. Adults also were required to give housebuilding and funeral potlatches. Threats to status had to be met by face-saving potlatches. And especially spectacular were the vengeance potlatches. An insulted man gave away or destroyed property, and if his antagonist did not want to carry a lifelong disgrace, he had to destroy the same amount of property as his challenger did. The rivalry for status was intense, and frequent challenges produced a constant escalation of the stakes. The more property a man gave away or destroyed, the better his claim to status. As a result there was massive destruction of canoes and other property, murdering of slaves, breaking up of ceremonial tokens, and great feasts to consume surplus food. At the bottom of the class hierarchy came the slaves. Slaves came from diverse origins: they were captured in war, purchased from other villages, or, more rarely, acquired through lending and borrowing activities. Chiefs, nobles, and commoners could all own

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slaves, and hence the captives of war were divided up among them in proportion to rank. Warfare between villages was frequent and intense. The objectives were economic as well as social; plunder and slaves were necessary for the confirmation of the status of a warrior who distinguished himself in battle. Slaves, too, could be purchased from other villages who had captives from wars. And for the conduct of trade between villages, debts from trade were often secured by leaving behind a hostage who would be enslaved if the debt was unpaid. The slave was regarded as both a symbol of wealth and status, and a producer. The slaves manned canoes, hunted and fished for the common products, and did heavy and menial household tasks. As the private property of his owner, the slave could be sold internally or externally at prices that varied with the state of demand. He was fed left-over food, and forbidden to marry or to own property. He could be destroyed at the potlatch and similar ceremonial functions.

Impact of the Fur Trade Many of these customs changed under the influence of contact with white traders. The first contacts appear to have been with the Russian traders. Vitus Bering's 1741 expedition of fur traders into Tlingit country produced an immediate armed clash, an omen for the future. In 1774 Spanish ships made contact with some of the southern nations, and the Russians extended their activities to Haida country. But the intensive history of white-Indian contact begins with Captain James Cook's arrival on the coast in 1778, which set off the scramble for sea otter pelts by British and American traders. The trade was fantastically profitable in the early years, before the Indians began to glean some notion of the value of the pelts. In addition to the trade of western trinkets for furs, early white traders also conducted a coastal trade in fish oils and other products between the various Indian nations. If lucky, a single voyage could yield enough profit for the captain to be able to retire in comfort, and few ships in the early years made more than three voyages. Since most had no intention of going back, at least to the particular area where the year's trading occurred, Indians were frequently cheated and robbed, and armed clashes were common. In exchange for furs the Indians demanded many different commodities. Baubles and trinkets sufficed only in the very earliest years; the Indians quickly developed a demand for iron and copper. Copper was demanded for its ceremonial value, iron for its utility.

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The Pacific nations quickly learned the exchange value of their furs, and began bargaining sharply. Prices rose very quickly in the 1790's, and in some areas tenfold increases were reported in a few years. The notion of standardized goods with prices attached that fluctuated in response to scarcity or bargaining skill was already accepted to some degree by the Pacific coast peoples before the European traders arrived. Moreover, the particular European goods they demanded often changed. Initially most of the demand was for producers' goods — knives, chisels, fishhooks, etc. Then it shifted to consumers goods, of which cloth blankets were particularly wellreceived since cedar bark blankets already played a vital role in aboriginal exchange and potlatch ceremonies. Finally came luxuries such as rum, tobacco and molasses. Thus, unlike in eastern Canada, there was no traditional set of trade goods or trade terms. This volatility of tastes led to a pronounced uncertainty in trade — European traders might find that during their voyage the Indians had shifted completely their set of demands to new goods or drastically revised their price demands. Moreover, freedom of trade, the absence of organized European trade monopolies which could impose fixed terms of trade and tradition in the selection of trade goods, meant gluts of a particular commodity were a constant danger, and the operations were not very profitable for some of the early trading ventures. While the furs were always of much greater value than the goods exchanged for them, the gross profits on trade had to be sufficient to also cover the heavy fixed costs of a long ocean voyage with a full ship and crew. Volatility of tastes and the threat of competition from other traders forced the European traders to stay for longer and longer periods on the coast. Since an adequate supply of furs was essential to a profitable voyage, the Europeans took to year-round trading and permanent trading posts. The economics of overhead costs dictated the transition from a maritime to a settled trading pattern. The Indian economies and societies proved remarkably adaptable in the short run to trade with the Europeans. Their business astuteness was a major nuisance to the traders, particularly their failure to be cozened by poor quality goods or trinkets. This adaptability to western goods and techniques was greatest in the case of the Haida, the wealthiest and most powerful nation, who had control of the best sea otter hunting grounds, and who were the most skilled hunters and navigators of the coast. In addition to being adept at securing effective bargains from Europeans for sea otter pelts, once the sea otter was decimated the Haida managed to substitute other commodities such as seal skins, whale oils, and even an adaptation of their traditional art works to suit white fancies. The Haida too

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showed a very advanced facility in adopting European technology. They had previously understood the importance of fertilizing fields with seaweed for their tobacco crops, but other forms of horticulture played no role in their social system until contact with white traders was regularized. Then, while abandoning their own tobacco fields in favour of European imports, the Haida from the late eighteenth century began growing potatoes and beans to sell to the white traders from whom they had derived the seeds, and to exchange with the Tsimshian for oolichan oil. Other striking manifestations of Haida adaptability were their rapid comprehension of the use of sails, and their consequent modification of them to a model appropriate for their canoes. And their skill as hunters was sufficiently widely appreciated for them to be hired by white sealing expeditions for hunts as far away as California. White contact with the Pacific tribes had numerous negative effects as well, which in a short time overwhelmed the positive ones. European diseases took their toll. Alcohol soon became a prized trade and ceremonial good. The destructiveness of war was greatly enhanced by guns and by the competition for the control of trade routes once external trade with the whites became an essential part of their economic life. However, the social disruptions caused by the fur trade — disease, alcoholism, intensification of wars as commercial rivalry for control of trade routes went hand in hand with the acquisition of the means of mass destruction — represented more a corruption of the existing social order than its overthrow. The dismemberment of the aboriginal social system came later, as a byproduct of the gold rushes of mid-century — which also served to overthrow the fur trade monopoly that the Hudson's Bay Company had managed to establish on the coast.

25

From Company Colony to Company Province

THE MERGER OF THE NORTH WEST COMPANY into the Hudson's Bay Company in 1821 brought the latter to the Pacific coast for the first time, and its trade monopoly, though not its proprietary rights, was extended to include the area of British North America between the Rocky Mountains and the coast. The company obtained a monopoly of the British empire's Pacific coast fur trade at a time when economic and political pressures on its charter were becoming acute. The sea otter and fur seal were largely exterminated in its territory by the demands of the China trade, and even the beaver would soon be threatened, ironically in part by the growing popularity of the return flow of Chinese silk among the European public. At the same time the company was under siege from Russian traders to the north, American interests to the south, anti-monopoly elements in England, and a growing body of disaffected within the colony. But it was something quite distinct and unexpected — gold — that caused its ultimate overthrow.

The Colonization of Vancouver Island The Russian threat was easiest to meet. A British-Russian treaty ceded the whole of the interior of British Columbia to Britain, and eliminated one source of competition. Not so stable was the southern frontier, where British-American conflict over the Oregon country threatened to lead to war. The British authorities pressed the Hudson's Bay Company to make some effort to colonize the Oregon territory in the hopes of offsetting American claims. As BritishAmerican rivalries over the China trade intensified, the strategic importance of the Oregon country as a stepping stone to the Orient 354

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was increasingly recognized. An influx of American settlers into the area precipitated a confrontation, and in 1846 an agreement ceded the prime agricultural lands to the United States while Britain kept title to the northern areas with their fur, timber and prospective mineral wealth. The Hudson's Bay Company was forced to suspend its operations in Oregon and shift its headquarters north to Vancouver Island. Oregon had fallen to the United States, and California was soon to follow; Britain wanted a Pacific coast colony as a counterpoise to American designs on the area. In 1847 the Hudson's Bay Company offered to supervise colonization of British Columbia and Vancouver Island if it were ceded title to the land, but the anti-monopoly climate of the time prevented the deal from being made. Hence in 1849, the same year its trade monopoly in Rupert's Land was broken by the Metis, a modified proposal was advanced and accepted. Under it the company was ceded Vancouver Island in perpetuity for a rent of seven shillings a year, in return for which it would sell land at "reasonable" prices to British subjects — carefully reserving to itself forever all mineral and fishing rights on the lands sold. Ten percent of the proceeds of land sales and mineral and timber royalties was to go to the company as profit: the other 90% was to be spent on improvements which the company would undertake. The company itself was to supervise the arrangement to ensure that the funds spent on development did not get siphoned off in profits, and in the event the company failed to live up to its obligations, the charter was revokable in five years' time with full compensation for all of its monies spent on development. But the company largely ignored its colonization obligations, trusting in its political influence in England to keep its charter from being revoked. While some farming, commercial fishing, and timbering developed, they were marginal to the economy of pre-gold rush British Columbia. The area was still first and foremost a fur trade entrepot. As the sea otters and fur seals were slaughtered, the importance of land mammals grew, and with it contact between white traders and the interior tribes. The same problems plagued the interior as the marine trade: the Indians were astute businessmen who haggled and bargained intensely, whose tastes and demands were subject to sudden change, and who recognized quickly the economic value of a middleman position in commerce. The fur trade posts in the interior were on occasion surrounded by Indians who blocked other tribes from making direct contact with the company. One advantage to the company, however, lay in the fact that with the decline of American competition and the success of its spheres-of-influence arrangement with the Russians, there was little likelihood of debt repudiation. As

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the Indians' dependence on European goods grew, the company could tighten its grip by extending credit to the hunters who were tied into the company's trading nexus. Symbolic of the chains of dependence was the fact that after the establishment of Fort Rupert in 1849 the Hudson's Bay Company blanket rapidly displaced the cedar blanket in potlatch ceremonies as the basic unit of account. The Indians' astuteness in economic affairs was demonstrated too in the early history of the second most important industry of pregold rush British Columbia. In 1839, coal deposits were reported on Vancouver Island. It was an opportune find, for the subsequent development of a Pacific economy went hand in hand with the switch from wind to steam power at sea. The company sent an exploration team to the site and they sank a preliminary shaft — only to be surrounded by angry Kwakiutl Indians who insisted that they would mine the coal, hitherto completely alien to their material life, and sell it to the company. The impasse lasted a decade until Fort Rupert was built, and mining began in 1849, by which time the British navy was anxiously searching for a Pacific base and coaling station. That year the company brought out a Scottish coal master and 80 skilled miners who were put to work, aided by Indians hired for surface work. The division of labour — whites performing the skilled underground operations with non-white unskilled surface workers — was a portent for the future in British Columbia. So too were the industrial relations prevalent in the mines. The white workers were paid one shilling per day plus their "housing"; they were responsible, however, for their own food, clothing, etc. — procurable only at company stores at prices set by the company. Conditions in the mines, the truck system of payment, and the lure of California kept the mining camps a hotbed of dissent against company rule, and miners regularly broke their contracts and deserted to California. Initially, the coal seems exploited were confined to the Fort Rupert area. However, poor quality of coal and labour discontent led in 1852 to two decisive changes. Nanaimo became the centre of mining, and a new Scottish coal-master, Robert Dunsmuir, was brought out to superintend operations. His success in dealing with the coal seams and the miners set in motion the process of his eventual rise to the position of "boss" of the province, and laid the basis for Britain to establish its Pacific squadron headquarters nearby at Esquimalt. What followed was a scenario well rehearsed in the British American colonies. The company's tight monopoly of coal deposits, of the best lands, of fishing rights, and its efforts to control cutting of timber led to growing hostility within the colony as well as outside it.

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Some colonists had actually arrived before the gold rush, and those who had secured freehold title to land became the focal point of internal political dissent. Opposition to company rule, to its trade monopoly and tight political control, was therefore already entrenched before the gold rush intervened to knock the Hudson's Bay Company out of the seat of economic and political power on the west coast of British North America.

Impact of the Gold Rush The discovery of commercially profitable alluvial gold deposits transformed the economies of Vancouver Island and mainland British Columbia. By focusing attention on the interior's resource potential and inducing an inrush of free capital to exploit these resources, it spelled the end of the company's rule. As with Nova Scotia at the same time, the surge of free capital into the resource industries not only overthrew an imperially sanctioned monopoly, it also ended up carrying the area into Confederation. Gold was known to exist in the area since the earliest days of the sea otter trade, for the Indians of the Pacific coast used it in small quantities for ornaments. The early fur traders' evidently avid interest in gold made the Indians quickly appreciate its value and guard the secrets of their sources of gold from the white traders. In 1850 the first rumours about the gold potential of British Columbia began circulating in California and abroad. That year Haida Indians discovered alluvial gold on the Queen Charlotte Islands and traded it to the Hudson's Bay Company. Within a year gold fever had risen to such proportions that ships in Victoria harbour had trouble holding onto their crews. In 1851 a Hudson's Bay Company exploration party was attacked in the Queen Charlotte Islands by the Haida, who seized their gold. The next year an American schooner from California carrying fortune hunters was seized and sacked by the Haida, who held the miners for ransom. No real rush to the islands followed for, apart from Haida hostility, the early explorations revealed the alluvial deposits were of little value, and California was not played out. In the interim the Hudson's Bay Company began a policy of encouraging Indians to pan for gold and trade it to the company, and to explore further into the British Columbia mainland. The company hoped that by using the Indians for exploration and mining it could keep control of the gold resources of the area. In fact the success of the Indians in finding gold ensured the overthrow of the company, for it showed that there was gold in commercial quanti-

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ties. In 1857 came the Fraser strike just at a time when California seemed on its last legs, the world economy faced a financial crisis, and the charter of the Hudson's Bay Company was under serious scrutiny in London. In 1858 the company sent 800 ounces of gold to be minted in San Francisco, and the rush was on. In the three months of May, June and July of 1858 some 18,000 people left California for the Fraser, while on Vancouver Island mills closed, ships lost their crews, and soldiers deserted. The wave was reinforced by a rush of prospectors from Oregon, Washington, Australia, the British Isles, and the eastern provinces of British North America. The impact of the flood of white miners on the native peoples of the area was traumatic. There were immediate violent clashes as miners sought to drive the Indians out of the gold-bearing areas, resisted with all the more force by the Indians who had learned from their dealings with the company the exchange value of gold. The old fur trade economy had had its brutal facets, and had degraded and demoralized the Indians and their social structure by the introduction of guns, alcohol and disease; but for the most part the social structures, while corrupted, had remained intact, and with them had remained some reciprocity in the relationship of Indian and white. The gold rush overthrew those structures completely, for the Indians were at best redundant, at worst an obstacle to the exploitation of the new staple. The miners' greed provoked wars, and set off a cycle of reprisal and counter-reprisal. Many Indians, deprived of their traditional livelihood by the destruction of the fur trade in certain areas and by their physical displacement from their lands and villages, were reduced to cheap wage labour in the gold fields and mining camps. Others drifted off to Victoria to peddle pelts, carvings, or their daughters and female slaves. Alcoholism and venereal disease spread. Then in 1862 came a massive smallpox epidemic. Many of the Indians who survived were assured a future of destitution and dependence by the succeeding pattern of treatment of Indian lands. From 1864 on, British Columbia and Vancouver Island, whose governments were in the hands of land speculators, refused to recognize any aboriginal title to land; the existing reserves were attacked by fortune-hunters and speculators and carved down; and the policy was adopted of reserving ten acres per Indian family in an area that had a short time before hosted the most populous, wealthy, and culturally advanced aboriginal population of British North America. The sleepy fur trade fort of Victoria was transformed almost overnight into a boom town. Victoria had grown but little during the

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California boom, serving as a centre for the export of timber and coal. It also exported people, and the company found its operations in Victoria deranged by the constant desertions of its servants. Trade and financial links to San Francisco, then, already existed before the gold frontier shifted north and reversed the flow of commodities and people. The rush had made California a centre for the development of gold mining technology, and it exported its skilled labour and machinery to all of the British empire's Pacific gold fields — Australia, New Zealand and British Columbia. Moreover, the accumulation of capital in the hands of California merchants made them eager to invest in gold fields elsewhere. As San Francisco merchants established branches or affiliates or even moved their main offices there, Victoria became an American town under British jurisdiction. Shops, warehouses, wharves and houses were all built with San Francisco capital. Shipping lines, assay companies, express companies and wholesale houses all superintended a flow of goods north and gold dust back south again. The Hudson's Bay Company initially reacted by trying to monopolize the carrying trade of the area and by attempting (illegally) to impose its own licensing system on the miners on the mainland. But the Colonial Secretary ruled that the company's monopoly was restricted to the fur trade. Even that limited monopoly proved unenforceable in the face of thousands of miners wandering the mainland and capable of dealing with the Indians. Nonetheless, the rush brought great profit to the company, which ran a longestablished shipping line, had control of warehouses, sawmills and coal mines, and held great tracts of prime agricultural and urban land. The business of selling town lots in Victoria to the influx of businessmen at a time when land values were skyrocketing was extremely lucrative. In 1858 Vancouver Island was re-annexed by the Crown, and mainland British Columbia was established as a separate colony. Nonetheless the company retained tide to lands and coal mines of the island and was in a favourable position to continue to control a sizable part of the mainland trade. That year, however, the gold mining technique began shifting, with dramatic effects on the economy of the area. The initial rush of activity had exhausted itself in just over a year. In 1859 high waters on the Fraser and the depletion of surface gold led to the mining frontier shifting inland to the Caribou area, and the capital intensity of mining rose. That year 3,900 miners left British Columbia to return to San Francisco. In addition to the rise in capital equipment costs as the mining operations were forced deeper below the surface, the shift of the frontier inland drove up transportation and supply costs. For the ordinary miners the returns

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were low, and rapidly eaten up, literally, by the cost of basic provisions. The bulk of miners returned home poorer than when they arrived, while a few Victoria and San Francisco merchants piled up fortunes. The shift of the frontier inland and the abandoning of surface placer deposits that would no longer support white miners also encouraged an influx of Chinese labour to work the poorest and abandoned placers and to move into the cheap labour-based service industries. It paralleled to earlier developments in California, and the same labour contracting companies and mining organizations were involved in both cases.

The Highway to Ottawa The shift of the mining frontier inland demanded heavy government expenditure for public works. Especially pressing was the demand for roads into the interior, and the resulting government expenditure on road building played the same role in British Columbia history that railway building did elsewhere in British North America, resulting in a pile-up of external debt and incipient bankruptcy finally warded off only by Confederation. The road-building program was designed to solve two problems at once, both stemming from the same underlying cause. The shift of the mining frontier inland and the accompanying rise in the capital intensity of mining raised mining supply costs and resulted in a net displacement of miners. Building a system of roads into the interior would at one and the same time deal with white unemployment and rising transportation costs. It was also hoped that penetration of the interior would refuel the mining boom, on which so much future income had been mortgaged. The problem for British Columbia lay in the inherent nature of gold as a staple, and its incapacity to generate self-sustaining growth or diversification. Linkages to further processing industries were non-existent. Nor did the industry stimulate other industries producing essential inputs and equipment, for the simple tools of alluvial gold mining were readily imported from California, often by the migrating miners themselves. Success of gold in inducing economic development in British Columbia had to turn on the capacity of gold mining to generate mass purchasing power which in turn would stimulate industrial growth; but few miners made significant amounts of money, and the pile-up of great fortunes in the hands of a few Victoria merchants induced more investment in country estates in England than it did in manufacturing in British Columbia. No

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!

consumer or producer goods industries (apart from a little farming, lumbering and coal mining which antedated the gold rush) really developed in the area, because the merchants, with their San Francisco links, imported whatever commodities were needed from their parent firms or affiliates in the United States. The demand for final goods and services tended moreover to be choked off quickly by the rising capital intensity of mining, which reduced immigration. While the shift in mining techniques also induced unemployment and in the short run created a potential white proletariat, there was no demand for labour in manufacturing; and therefore, to the extent that the unemployment was relieved within British Columbia, it had to be done through jobs created in the public works sector. But the collapse of the boom, the plunging land values, and falling off of imports and immigration, crippled the mainland government's current revenues as well. Customs duty receipts and mining licence receipts fell exactly when the government had to undertake the road building program to try to alleviate unemployment and rejuvenate the mining industry. The government had to resort to deficit spending, and its debt grew at an alarming rate. There were three options open. The first, the issue of government paper money, was quickly abandoned in the face of bank opposition. The second, borrowing from the imperially-chartered and London-controlled Bank of British Columbia, was a short-run alternative. A third source of funds increasingly resorted to was the sale of bonds abroad, chiefly in England. From the proceeds of these borrowings the mainland government undertook to build the Great North Road into the Cariboo. The road would have the additional advantage of making the internal trade converge on the Fraser River and help keep the area under British commercial control. Both white and Indian labour was used to build the road. A new round of Indian wars was precipitated by the maltreatment of Indian road workers and the threat to the land claims of the interior tribes that the road represented. The cost of suppressing the uprising further raised the debt the road building program was inducing. In 1859 the two colonies together had a total debt of $30,500; by the time the roads were finished in 1865 the total debts reached $1.4 million, and the gold rush was over. The governments of both colonies were approaching bankruptcy. So also was the City of Victoria, which had managed to meet its bills only by borrowing from the government of Vancouver Island, until that government too reached the breaking point. Floating debts to the banks continued to accumulate. In 1865 a Vancouver Island issue of three-year 12% bonds proved unsalable; pressure mounted to merge the two bankrupt colonies and annex them to Canada.

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The fiscal theory behind the union would have had a familiar ring to Canadian politicians who were veterans of the Act of Union debate or the Confederation schemes. Merging the two administrations was expected to cut government expenditures by eliminating duplications in government function and thus permit a larger share of government current revenues to go into debt service payments to foreign capitalist. The larger fiscal unit too would improve the colony's credit rating. The tax base would be expanded by eliminating the obstructionist Vancouver Island assembly, while Victoria merchants with trade debts to pay in England or San Francisco would secure control of the mainland trade. The theory was excellent: the only problem was that it did not work. Revenues from gold kept declining as the exodus of miners continued. With it came a falling off of customs receipts, made even worse by the expansion of farming on Vancouver Island which displaced foodstuffs that were imported and formerly subject to tariff charges. The budget deficit grew worse; debt grew even further; the roads fell into disrepair. A more drastic solution was called for. A pro-annexationist party, largely comprised of American emigres, issued a manifesto in which union with the United States was advocated on the grounds that "it would result at once in opening to us an unrestricted market for our produce, bring in an influx of population, and with it induce the investment of capital in our coal and quartz mines and in our forests." As with the annexationists in Canada a decade and a half before, those in British Columbia saw an influx of American capital to exploit the abundant natural resources of the colony as the salvation to economic distress, and annexation as the means of securing them. Another group, based on the so-called Company-Family Compact — the old Company servants and their friends on Vancouver Island — wanted to keep it as a crown colony. To them (much like Joseph Howe's followers in Nova Scotia with respect to the British Atlantic trade), the colony's future lay in the Pacific imperial trade. English newspapers of the time reflecting this view cited Victoria as a potential "Liverpool of the Pacific" with its magnificent harbour nearby at Esquimalt and its great coal deposits to fuel calling steamships; as a free port Victoria might aspire to the status of a great Pacific trade emporium like Singapore or Hong Kong. Confederation, on the other hand, meant heavy development and railway expenditures that would tax Vancouver Island commerce for the benefit of the mainland. In the 1868 vote for the elected legislative council seats, commercial Vancouver Island was solidly and-

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Confederation while the resource industry-based mainland returned all but one pro-Confederation member. While a pro-Confederation party led by emigre Canadians made a great deal of noise, the real influence in favour of Confederation was that of the British government. It made its wishes known in 1868 when it refused to guarantee a colonial loan at a time when interest charges were consuming a third of colonial government receipts. The message was clear: relief from the burden of debt charges and, in the short run, from the need to incur further debt, lay in Ottawa. British bondholders and investors in timber, coal and commercial establishments were pro-Confederation. So too were the imperial banks, whose short-run accommodation kept the colony afloat and who, like the banks in Canada, were anxious about repayment. Beyond the question of security for British capital was the strategic interest Britain developed in the area. British Columbia was regarded as vital to the British position on the Pacific as an offset to California and Oregon, a strategic importance enhanced after Russia and America collaborated on the cession of Alaska to the United States in the hopes that it would be a step toward squeezing the British out of the Pacific. One way of securing the area was to run a railway across British North America. Sandford Fleming's vision of an "all red route" of steamships and railways found increasing favour with imperial strategists. Vancouver Island would play in the scheme a role parallel to that of Nova Scotia-Cape Breton: great coal deposits for fueling steamships and railways were available; and the two areas would be docking points for Pacific and Atlantic steamships respectively, the west and east termini of a railway "from Europe to China". Samuel Cunard, the steamship magnate and Nova Scotia expatriate living in England who had long defended the General Mining Association's control of the Nova Scotia coal fields, now urged upon the British government the imperial importance of the Vancouver Island coal fields as well. In 1871 British Columbia entered Confederation. Its debts were assumed by the federal government, which also took over a long list of public functions the province could no longer afford to maintain — post, telegraph, customs administration, the Pacific fisheries, militia, penitentiaries, etc. British Columbia was given six representatives in the House of Commons, a remarkable over-representation given that its population, excluding Indians, who could not vote, totaled 6,500 — and even that included Chinese, who also were denied a vote. All of the new Members of Parliament from British Columbia were staunchly Tory. Most important of the Confederation clauses was one stipulating that a railway to the Pacific would be built within five years. The

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Liberal Party opposed the clause as sheer folly; sensible Tories too balked at it; but Cartier, the Grand Trunk's man in Ottawa, insisted that if the railway clause were not inserted he and his bloc of 50 moutons in the House of Commons would precipitate the fall of the government. With the capture of Prince Edward Island two years later, Edward Watkin's northern vision was on its way to fulfillment. The first step in making his dream come true — a railway right-of-way a man usque ad marem — was accomplished. Unfortunately, a stockholder's coup had already dumped him from the presidency of the Grand Trunk, whose directorate now refused to proceed with the agreement they had made with the Canadian political elite. But other willing hands were waiting to take their place as a new age unfolded in which transcontinental railways assumed yet greater strategic and commercial value.

V

The Age of High Imperialism

To open to civilization the only part of our globe where it has not yet penetrated, to pierce the darkness which envelops whole populations, is a crusade, if I may say so, a crusade worthy of this century of progress. King Leopold II, 1876 Morality is all right, but how about dividends? Kaiser Wilhelm II The British Empire stands for tolerance and the development of individuality — whether it be that of Dutch Boers in Africa, Dutch burghers in Ceylon, French Canadians, Hindu rajahs, Malayan peasants, or African savages. L.C.A. Knowles, 1928 The Indians and the Metis of the Northwest will be held down with a firm hand till the West is over-run and controlled by white settlers. Sir John A. MacDonald

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Imperialist Rivalries, 1873-1914

THE PERIOD OF HISTORY from the crash of 1873 to the outbreak of the First World War witnessed the most intensive scramble for empire by the European powers since the age of the Discoveries, a scramble that culminated in the virtual complete division of the world — apart from the American territories previously liberated from European rule — into European-based imperial systems. In place of the redundant offspring of a rotting Iberian feudal aristocracy grasping for fortune abroad — Pizarro, Cortez, de Gama and their like — there sprang up a parvenu group of adventurers from the middle classes of industrial Britain — Stanley, Rhodes, Gordon and their fellow-travellers, British and European — to inaugurate the new wave of "discovery", much of whose focus was on sub-Saharan Africa. The rivalry culminated in the monumental struggle over the division of spoils in 1914-1918, which tore the European social fabric asunder and gave birth to the new world power, the Union of Soviet Socialist Republics, whose rise to global rivalry with the United States effectively marked the end of the European Age of world domination.

Causes of the New Imperialism Many factors combined to set in motion the new scramble for overseas territory. The spread of industrialization competitive with Britain was certainly one of them. Such industrialization was more powerful in states which possessed their own strong interior resource base, opened by railways, than in the Atlantic economic powers that were formerly dominant. Thus the United States, Germany and 367

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even Russia were on the rise, France and Britain on the wane. Over the period 1885 to 1913 British industrial production rose at an annual rate of 2.11%; German rose at 4.5%; American at 5.2%; and Russian at 5.75%. In 1860 Britain accounted for 25% of world industrial output; in 1913 it accounted for under 10%, and the United States produced nearly four times as much industrial output as Britain. All of this new industrial output, at least over the period from 1873 to 1896, flowed onto world markets in which the prices of manufactured goods were already falling. Protectionism, cartelization, and then the search for overseas markets became almost universal behaviour among the industrial powers. A second factor explaining the new rush for empire was the revolution in transportation and communication. The period from 1849 to 1873 had been marked by an enormous, if erratic, boom in investment in railways, steamships, telegraphs, and related iron and steel production. The subsequent imperialism saw as one of its main prizes the contracts to build railways and associated facilities in the as-yet unopened parts of the world; investment in steamships was encouraged by the fall in ocean freight rates, which struck disproportionately harder on the less efficient sailing vessel; and both strategic and commercial considerations dictated the expansion of telegraph communication between centres of empire and the colonies. Industrialization, in combination with the impact of the railway and steamship in cheapening and facilitating commodity movements, led to a surge in the European demand for primary products from overseas. From the grain-growing nations came a flow of wheat to feed the rising urban industrial population of Europe, a division of labour further solidified by the impact of cheap American, Indian and Russian grain in driving European grain farmers into pasturage, urban employment, urban unemployment, or emigration. The international grain trade was old; what was new was its scale. Similarly cotton, a traditional tropical export, increased in importance as new industrial capacity was added in Europe; and Egypt, India and many other countries produced a product for world markets that until recently had been dominated by British imports from the American south. In response to new industrial demand, rubber flowed in everrising volume from the vast virtual slave plantations of the Congo, the Amazon Valley, Malaysia and Ceylon. Petroleum, replacing the oils of the increasingly rare whales and seals, poured forth into world trade from the United States, Mexico and Russia. Nitrates and phosphates to fertilize Europe's exhausted soil and replace the largely depleted guano deposits of the Pacific coast of South America came from North Africa, South America, even Quebec. Coconut palm oil,

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tin, sugar from new plantations, and many other products flowed from the colonial colonies to the metropoles in exchange for manufactured goods. The acceleration of trade, particularly in tropical products, led directly to territorial annexation. The aboriginal governments were regarded as commercially unreliable, and traders demanded a government that would institute written tariffs, stable royalty and tax arrangements (if any), and the general acceptance of western commercial law. Such had been unnecessary in the era of chartered monopolies which had made their own law and could adapt it to aboriginal conditions: but open, competitive trading, at least from the point of view of the Europeans, required stable and well-codified commercial law. The old mercantile monopolies had restricted themselves to peripheral contact because they typically traded for the products of the aboriginal economy itself— furs, slaves, African pepper. In the late nineteenth century new products foreign to the aboriginal economy or, if known, demanded in quantities the aboriginal society could not produce, necessitated the overthrow of those societies and the institution of a regime appropriate to a mining and plantation economy. That required mobilizing a labour force — converting the aboriginal population from subsistence farming, artisanal production, and herding, to a mass labour force for the production of export staples. A standard device was the institution of taxes payable in the coveted commodity or in cash, which cash could only be obtained from labour in the staple-producing sector. In any event, the aboriginal society and government had to go. Furthermore, competition among rival industrial nations encouraged annexation of territory to turn it into an exclusive sphere of exploitation for the nationals of the annexing power. A fourth feature of the new imperialism was the export of capital, particularly in the period after 1896, on a scale never before seen. Netherlands had long been the world financial entrepot and the Spanish silver dollar the dominant medium of exchange. But during the Napoleonic Wars the world financial centre switched to London, and by the time of the railway boom the British capital market was uniquely capable of sustaining a large volume of long-term capital exports at the same time the sterling bill of exchange became the principal medium for financing world commodity movements. After the 1880's the outflow of capital accelerated enormously. By 1914 40% of British wealth took the form of overseas assets, and returns on Britain's overseas investments accounted for 10% of its national income. Capital flowed into government debt, into railways, mines and plantations abroad, but only to a very limited degree into industrial direct investments. It meant that the British bond holder be-

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came a powerful vested interest, perhaps the most powerful vested interest, for the making of British foreign and colonial policy and for the exercise of extraterritorial control. France and Germany began to vie with Britain in the business of overseas lending; so indeed did the United States at a later period. But Britain remained dominant until 1914. The sharply increased role of the state in socioeconomic affairs, both internal and external, was at once cause and consequence of the imperialist rivalries of the age. The late nineteenth century saw the birth of the "welfare" state in response to the social pressures that industrialization, urbanization, proletarianization, and the emergence of mass labour movements exerted. An increasingly large percentage of the population of Europe lost the socioeconomic independence farm life had given them when they became urban wageworkers, and the intensity of cyclical downturns forced some sort of response to the resulting social distress. More important than the welfare functions of the state were its warfare ones, both economic and military — tariffs and commercial policy to regulate trade, state loans to selected business interests to foster accumulation and development, and the sharp rise in state spending on standing armies and navies. Militarism was a response to the growing international tension that imperialism engendered, as well as to the rising capitalintensity of warfare after the American Civil War and the FrancoPrussian War and the lobbying of the great arms manufacturers whose political and economic influence was rising rapidly.

The British Economy in the Age of Imperialism Britain began the era as the dominant financial and commercial power, against which other countries ranged themselves. The prelude to the Age of High Imperialism had been the heyday of laissez-faire in 1849-1873, when steam power on land and sea had revolutionary effects on the British economy, and the world context in which it found itself. World trade grew phenomenally, and British trade along with it. Another far-reaching effect of the Age of Steam and Steel was the transformation of the British capital market. Traditionally, investments in securities ("funds") were a prerogative of old established wealth, of merchants and gentry. But the railway age created a demand for capital on such a scale that institutions emerged to effectively mobilize middle class savings. These capital market institutions were now ready to put a rising share of British savings, middle and upper class alike, to work abroad well in advance of any parallel movement elsewhere.

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Another result of the railway-steamship age had been increased multilateralism in trade, which meant a shift of British trade away from the empire (except India). British grain imports came heavily from the American west; its timber trade switched from British North America back to Baltic sources; its raw cotton came mainly from the American south; its chief exports were cotton textiles to India and iron and steel products to countries building railway systems. Colonies such as Canada were insignificant and, indeed, were encouraged to negotiate reciprocal trade ties to the United States in the hope that offering semi-annexation of Canada to the American North would allow Britain a better conduit for the flow of its manufactured goods around American tariffs. A good part of the British indifference to the idea of closed spheres of colonial influence (apart, again, from India) lay in the state of its agriculture. Having completed the rationalization of agriculture on capitalist lines and dropped tariff protection to inflated rentier incomes, British agriculture thrived at mid-century. In part its success was linked to the opening of the Pacific economy, to the exploitation of Peruvian guano deposits, which permitted Britain as late as 1868 to provide fully 80% of its own agricultural product needs. But ten years later that figure had dropped to 50%. The turnaround had been prompted by several factors, some short-term and some, more ominously, long-term. In the short run came a series of bad harvests. But in the long run the position of British agriculture was threatened by population growth; rising living standards driving demand beyond the capacity of an already intensively worked soil to meet; and by the opening of the great American plains, which flooded world markets with cheap grain and livestock. This last development was accentuated by rapidly falling rail and steamship rates, and by the development of cold storage and refrigeration techniques. The lag of domestic production behind demand grew alongside a steadily rising demand for imported raw materials. The result was a steadily rising import bill that had to be financed by manufactured exports — at a time when industrial competition assured that raw material prices (except grains) did not fall as quickly as manufactured goods prices. To pay for its imports of raw materials and food, Britain therefore had to export more manufactures. Yet the need to export more manufactures occurred at precisely the time when competition in export markets was becoming more acute, particularly from Germany. The phenomenal German economic expansion began in the wake of the Franco-Prussian War for European hegemony. The Prussian victory tilted the balance of continental power toward Germany, cost France a major centre of its textile manufactures (Alsace) and of

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its iron mines (Lorraine), both of which had been seized by France after the Thirty Years' War that it had fought against Spain on German soil nearly two and a half centuries before. Germany also forced the French to pay an indemnity that not only fully reimbursed the Prussian state for the cost of the war but left it with a hefty surplus that could be invested to foster industrial growth. For the united Germany that emerged in its wake, the war had been a sound business proposition, and the example of the commercial value of war was widely appreciated in Germany and abroad. It also left France eager for revenge and, by upsetting the traditional European balance of power, helped inaugurate a new boom in the arms trade. With the crash of 1873 protectionism took hold in many countries. For the British the already severe blow that the German industrial boom portended was further exacerbated by the wave of protectionism, that saw the repudiation of several commercial treaties carefully negotiated by the British with European states in the 1840's, 1850's and 1860's. Thus Germany represented not only competition in trade, but competition for a volume of trade that threatened to shrink. The new German state enthusiastically encouraged industrial capital accumulation by tariffs, by encouraging the stealing of industrial techniques, and by subsidies to the shipping industry to build up a national merchant marine. German commercial agents fanned out across the world. By the early 1880's Britain found itself facing competitive German goods in its Pacific markets, in the Argentine, in the Turkish empire, and in South Africa and the Boer republics, all areas that the British had long considered their own spheres of commercial influence. British iron and steel felt the bite of competition strongly — even the Canadian Pacific Railway proudly advertised wheels that had been manufactured by Krupp. Germany, lacking a tradition of tropical colonies, quickly developed substitutes for their products. While the British textile industry continued to rely on natural dyes such as indigo, Germany pioneered many types of chemical dyes. While Britain's sugar industry continued to be oriented toward refining tropical cane, Germany developed a domestic sugar beet industry. Moreover, Germany did not hesitate to enter fields of enterprises where there was no temperate or chemical substitute for an overseas product: its seizure of South West Africa permitted it to challenge Britain's hold on the world diamond trade. By the end of the 1880's the threat of competition from Germany induced near-paranoia among English manufacturers. Only the empire — or better still, an empire hermetically sealed by tariff walls — seemed safe.

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Even before the crash socioeconomic forces were working for the restoration of imperialism in Britain. The simple fact of population growth in the old colonies of white settlement automatically increased their importance as markets, as did improved transportation and communication within the empire. Heavy unemployment emerged even before the crash, and with it agitation for industrial protection and/or state aid to emigration to the colonies of white settlement. The crash itself was followed by a Tory victory at the polls which in turn led to the seizure of the Fiji islands as a base for defending the Pacific trade routes. Imperialist sentiment in the 1870's was essentially conservative in nature, looking toward a defence of existing markets by protective tariffs and intra-imperial co-operation. Articulating these twin objectives was the Fair Trade League, which called for an end to long-term commercial treaties, free trade in raw materials, duties on manufactures plus reciprocal trade agreements, free food imports from the empire only, and a diversion of the flow of emigrants to empire destinations. The focus of attention was in the existing empire in the 1870's. However, by the 1880's Tory imperialism called not only for the integration of the empire, but its actual expansion. In response, the Imperial Federation League spread out across Britain and the white settler states to propagandize in favour of closer political ties. Of all the white settler states, Canada had the strongest Imperial Federation movement. The Canadian High Commissioner in London, Charles Tupper, lent credibility and implicit Conservative Party endorsement to the notion, while in Canada Conservatives stamped the hustings with the concept. The growth of the Imperial Federation League in the largest of the white Dominions grew out of the economic crisis in which it found itself in the 1880's. The Prime Minister, John A. Macdonald, pronounced clearly what he regarded as Canada's sole options for economic advance. Independence is a farce. Canada must belong either to the British system or the American one....If we had to make the choice between independence and annexation, I would rather that we should have annexation and join with the United States at once.

But Imperial Federation kept the British option open to the Canadian Tories. On the other hand the Liberal Party, reflecting its agrarian-small business roots, opted in favour of freer trade and closer commercial ties with the United States, and until 1891 continued a fruitless battle to sell its political option. By 1896 both parties

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had endorsed essentially the same platform — closer imperial trade ties and tariff protection. Despite the agitation at home and abroad, Britain did not make the transition to a high tariff strategy. Given its continued preeminence in financing and carrying world trade, its predisposition to continued free trade was strong. This essentially commercial and financial motivation for the defence of the status quo was reinforced by certain industrial factors. The cotton industry, the embodiment of the old Industrial Revolution, remained free-trade in its orientation; it had nothing to gain from protective tariffs at home or abroad. On the contrary — free trade meant free access to the Indian market, the key to the survival of Britain's antiquated industrial base. Iron and steel interests on the other hand often favoured protection in the face of deteriorating foreign markets for railway equipment, arms and similar products. It was a mayor of Birmingham, Britain's iron and steel centre, one Joseph Chamberlain, who led the agitation for a revival of protection and imperialism. In 1896 the Congress of Chambers of Commerce, prodded by Birmingham, declared in favour of Commercial Union with the Colonies. "We should grant to the colonies the monopoly of our market for their raw materials," the Congress proposed, "and they would give us the monopoly of their markets for manufactures." It was a clear call for a return to exclusivist spheres of influence and a regulated structure of imperial trade, with the metropole monopolizing the manufacturing facilities while the colonial system absorbed the finished products and poured out its raw produce in exchange. It was such a conception that led not just Britain but all the major industrial powers to cast a covetous eye about the globe for more territories to add to their national preserve.

Finance and Empire Britain was exceptional not only in the extent of its empire and continued commitment to free trade, but also in the enormity of its capital exports. Not only was Britain by 1914 drawing 10% of its national income from the direct returns on overseas investments, it was reaping other, possibly even more valuable benefits. As British capital poured into railways, mines and plantations abroad, new markets and new sources of raw materials were opened up, and the cheapening of raw material and food imports by itself may have been worth more than the direct cash flow from the investment. Moreover, the American Civil War and the rise of steam restored to Britain dominance in the world carrying trade, so that even trade

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that never touched British shores brought profits to British shipping companies and banks. The outflow of capital from Britain tended to move in fits and starts, depending on a combination of internal financial conditions and external investment opportunities. At the time of Canadian Confederation, British lending was in one of its temporary impasses following the crash of a major financial house. But after 1867 the capital outflow recovered, and moved strongly toward Europe and India. The crash of 1873 curbed it once more, and it remained in a semi-comatose state until economic recovery in the later 1870's. Then the rate of overseas lending began to climb. While checked briefly in 1883-84, by 1885 a combination of low domestic interest and profit rates and land and gold fever abroad interacted to send it soaring. Australia, the Argentine, the United States, South Africa and Canada were the main targets of the new wave of promotions, and the relative shift away from European lending toward that in colonial economies of white settlement became a permanent trend. In 1889-90 the overseas spending spree came to a traumatic end. An Australian drought struck at land company securities; a South African mining bubble burst; but especially important were events in the Argentine. British investment in the Argentine began in the 1860's with a series of government and railway loans. A good part of the government debt resulted from the Paraguayan Wars, in which Brazil and Argentina joined to exterminate 75% of that country's population. For Britain it was an excellent business proposition: British financiers put up the cash, and the money was spent by Argentina buying the necessary hardware from British arms manufacturers. War finance was soon joined by railway finance, also particularly lucrative because Argentine railway lines had state guarantees of profitability. While the later part of the 1870's saw a decline in British investment in the Argentine, it picked up again in 1882, and moved increasingly into private, unguaranteed railway securities, land companies, and public utilities. As world freight rates fell, Argentine agricultural exports joined the outpourings from the United States in flooding to European markets, feeding not only the British working class but also the enthusiasm of British capitalists for investment in land and colonization companies. A scramble for railway charters kept the mania alive as British-Argentine trade ties grew. Then in 1889-90 came revolution and financial collapse. The revolution and the financial debacle that went with it sprang from a complex interplay of socioeconomic classes. Agribusiness interests were very strong in the Argentine, and their demands for credit kept the banks pouring out torrents of inconvertible paper

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money. While the credit and inflation of the domestic price level improved the position of the rural debtor class vis-a-vis the urban creditor, it had serious repercussions further down the line. Argentinian currency depreciated relative to sterling, and since overseas debts had to be paid in sterling or gold, the burden of repayment got heavier on the taxpaying public, while the inflation eroded the purchasing power of the proletariat and triggered a wave of industrial unrest. When the inflation in the price of land also choked off the immigration boom, land values collapsed, spreading distress and discontent back into the rural districts. With the rise of revolutionary agitation, Argentina suspended payment on its foreign debt. The repercussions in Britain were traumatic. For some time the House of Baring had been involved in Argentine public utilities, land grant bonds, and state government debentures, and the accumulated portfolios were suddenly worthless. The City of London's second most prestigious financial institution thus came tumbling down, and the big banks had to mount a major resuscitation operation to prop it up again. But Barings as a great imperial institution was finished, and the new, reorganized bank, a joint stock operation instead of the old private bank, bore little resemblance apart from the name to the old godfather of imperialist finance. The next few years were bad ones for British finance. In fact so shaken was the London capital market by the Baring crisis that Berlin and Paris were able to begin for the first time in many years to make serious inroads in the business of overseas lending. The effects of the Argentine-Baring collapse were compounded in 1893 by an American panic which put half of the American railway system into receivership, and a string of defaults or near-defaults in Latin America, Portugal, Greece, Spain and Serbia. A brief recovery of the lending process was again cut short, this time by the Boer War. That war was a turning point in international financial affairs for many reasons. In terms of the overall outflow of British investment it embraced two contradictory tendencies. On the one hand the long period of financial distress, losses on overseas loans, and liquidation of portfolios meant that the lust for gold which played a vital role in precipitating the war was at a peak, and the London exchange shook with excitement as noblemen, parliamentarians, bankers and pickpockets rushed to boom South African gold mining stocks. But standing in the way was a handful of Dutch peasants in the heart of Africa; and the war that was required to remove that obstacle drove up the English national debt, draining more and more surplus savings into government bonds, and greatly raised the temperature of international relations and therefore the shares of the big armaments companies.

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After the war there was something of an upswing in the rate of lending, but not until 1904 was there a sharp recovery, and then, for the next ten years, the flood of British capital overseas continued without serious abatement until by 1914 it was estimated to have cumulated to about £4 billion. By country, the United States was by far the single largest borrower, with Canada second by the time of the First World War. In fact, Canada showed signs of catching up had the free flow of capital continued. Over the fiscal year 1908-09 Canada topped the borrowing list, absorbing double the amount of British capital that the United States did. Only the Argentine, another "wheat boom" country, came close to matching Canadian borrowings that year. Of the total of British overseas lending, somewhat under one half went to the Empire and of this, the bulk went to older colonies and dominions of white settlement rather than new acquisitions. And in fact in the context of deteriorating relations between the major European powers, Britain made a conscious effort to improve the credit rating of its colonies in the London capital market by opening up previously forbidden sources of capital to them. On the other hand, about 20% of British lending went to the United States, and a little less than another 20% to Latin America. By the end of 1913 British investments inside Europe were less than 6% of total British overseas lending, and the bulk of this went to Russia. European lending was largely the prerogative of France and Germany, while Britain focused on the colonies and semi-colonies abroad. Canada alone absorbed well over double the amount of British capital as all of Europe, including the Russian empire. Thus, by 1914 the new imperialism reached its zenith as the great powers of the age, led by Britain, staked their claims to territory, raw material resources, commercial spheres of influence, and fields of investment. Within the closed imperial networks taking shape, and a context of acute international economic rivalry, self-governing colonies such as Canada strove once more to tie their prospects of economic expansion to the engine of imperial growth.

27

A Railway from Europe to China

IF THE RENEWED ENCROACHMENTS of British civilization after 1873 met with resistance in many parts of the world, such was hardly the case in Canada. Indeed the Tory oligarchy which held office for most of the three decades after Confederation was comprised in good measure of many of the same men, or close associates of them, who had greeted British moves toward decolonization in the late 1840's with a shower of rotten eggs for the governor-general. "A British subject I was born, and a British subject I will die," proclaimed John A. Macdonald proudly, and his governments were pleased at the revival of interest in colonies and colonization shown by England's politicians and businessmen. But that revival of interest took some time to come. In the wake of the American Civil War and France's abortive Mexican adventure, Britain decided to abandon the North American continent militarily to the United States while retaining its financial and commercial interests, interests which seemed to be best secured by AngloAmerican rapprochement. Between the fortified naval bases and coaling stations at Halifax and Esquimalt there stretched a vast tract of nominally British land whose timber resources were irrelevant in the face of the resumption of the Baltic timber trade, whose grain-producing abilities were at the time a pittance compared to the United States and India, whose mineral resources were largely unknown, and whose capacity to absorb British goods was miniscule compared to China, India, Latin America and the United States. Not until the opening of the Suez Canal and the first American transcontinental railroad, followed by the crash of 1873 and the ensuing depression, did the imperialist revival slowly transform British attitudes toward its largest and, on the surface, least useful 378

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colony. Until then, from the Canadian point of view, the best that could be hoped for was to exploit its potential intermediary position between Britain and America by tying its prospects for economic growth to commodities and trade patterns determined in the context of Anglo-American trade relations, and attracting the leftovers from the trans-Atlantic movements of capital and labour, as well as whatever could be coaxed into moving north from the United States.

Genesis of the National Policy While forces that would shake the existing world empires and bring centuries of European world domination to an end were gathering in the United States, north of the border John A. Macdonald and his Conservative party were busy calculating how best to win the contest for control of Parliament with the Brown-Mackenzie Liberals. The depression that followed the crash of 1863 had profound reverberations across British North America, and out of it came the opportunity for Macdonald, temporarily pushed out of power by railway scandals, to patch together a new coalition of regional and class interests that would shortly propel him into office once more. A new international economic order was taking shape out of the Great Depression of 1870's, one of the worst depressions in history. The depression spawned competitive industrialization drives behind national tariff walls, but railways, telegraphs and steamships would knit the world trading community as never before despite these tariffs. Defensive strategies and commercial considerations would prompt a rush to grab the resources of the continental interior, pushing mining enterprises and grain and livestock farms into the frontiers of "civilization", aided by another great surge of transAtlantic and trans-Pacific migration. What was required was the capacity to tap the imperial financial fount, something assured to those countries with resources to pledge for collateral in addition to the legislative structures and political will to ensure the free convertibility of foreign credits into gold and foreign exchange when the time of reckoning accounts arrived. All this might have been perceivable to an acute observer — into which category John A. Macdonald hardly fits. Macdonald's reaction to the changing economic and political circumstances consisted of uninspired ad hoc-ery. Bit by bit, policy measures that protected industries, built railroads, opened the west, and guaranteed access to the British capital market, were concocted. But it was a set of policies inspired by the short-term pursuit of

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political advantage or the need to pay off political debts. Once again, railways led the way. Railways and the Canadian state structure were not merely closely linked: they were inseparable. Confederation itself was an act of public-railway Gnance advocated and largely arranged by the Grand Trunk Railway to prepare the way for transcontinental expansion. "Railways are my politics," declared the Hamilton merchant-prince Allan MacNab in the 1850's, defining in a phrase the level of political principle and public morality that motivated Canadian state action. His words were echoed some 80 years later by Edward Beatty, President of the Canadian Pacific Railway, when he announced in 1934: "We long ago ceased to fear the oppression of the state, for we long ago realized that we were the state."

Promoting a Pacific Railway The principal impetus to the building of the GTR in the 1850's had been not a Canadian, but an imperial commercial objective — to draw the trade of the American midwest off to Britain along the St. Lawrence. Similarly, the Pacific railway project that inaugurated the new orgy of railway building had, at least in part, an imperial intent — to convey the trade of Asia to Britain over British soil. The immediate objective of Confederation, however, was not the Pacific railway — that had to await the entry of British Columbia and the purchase of Rupert's Land — but the Intercolonial Railroad, slated to be built with public money and then given to the Grand Trunk. It was finally completed in 1876, following the Baie des Chaleurs route through northern New Brunswick. The competition of seaborne commerce kept it from generating adequate traffic to cover costs, but its objectives were not to service local traffic needs in any case. Rather, it had two purposes. One was to form a major link in Sandford Fleming's Short Ocean Passage, and that scheme still awaited the building of the Newfoundland Railway. A further objective of the northern route was to generate patronage in an area where the Tories had important political debts to settle. As a business proposition the railway line was a complete failure, but as a political tool it was a great success, not least because successive federal ministries could dangle it before the major trunk railway lines as a potential reward for political support. Once the ICR was well in progress, and Rupert's Land secured from the Hudson's Bay Company and its indigenous population, attention could focus on the Pacific railway project. In the 1850's American promoters had begun wooing British capi-

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tal for transcontinental schemes that would involve running much of the western portion through British North America, where the route was shorter and the passes through the Rockies easier. Some parallel plans were hatched in British North America at the same time. Indeed in the 1860's there was a flurry of activity on both sides of the border with regard to telegraph, highway and railway projects directed westward. But it was the establishment of the American transcontinental that forced the hands of the British railway planners. The year 1869 was a fateful one for railway politics. It saw the opening of the Franco-Egyptian Suez Canal with its implicit threat to British control of the East Indian trade. It saw as well the junction in Utah of the Central Pacific and the Union Pacific, giving America its fast route from Atlantic to Pacific and a quantum leap forward in its possibilities for Pacific commerce. In 1869 too the transfer of Rupert's Land from the Hudson's Bay Company to the Dominion was completed, and the British government was sufficiently concerned with the possibilities of its own interoceanic railway link as to despatch the veteran of the Opium Wars, Garnet Wolseley, to pacify the area. But 1869 also saw a stockholders' coup that ousted Edward Watkin from the GTR presidency and brought to the fore a new set of controlling interests committed to retrenchment and opposed to transcontinental expansion. After that, Canadian Pacific railway schemes required the emergence of alternative business interest groups, and complementary development in the United States. In 1866 the charter for the Northern Pacific was acquired by a New England group who hoped to link up to the GTR and draw western traffic through Canada and down to Boston. They applied to Congress for financial aid, but the Union Pacific and Central Pacific had already bought the House of Representatives, and no cash was forthcoming. The railway line instead had to finance itself through its land grant and by the issue of bonds, partly secured on that land grant. The investment banker they turned to to market their securities was Jay Cooke. Cooke went to Europe to sell the Northern Pacific securities, but the Franco-Prussian War shook up bond markets there. He then turned northward, aiming to link up with the Canadian Pacific railway project in order to secure Canadian and British money and Canadian traffic to make his railway viable. Easing the post-Civil War legacy of Anglo-American hostility, manifested in part by a high American tariff, was one objective of the British diplomatic offensive in the late 1860's; and as in the past it found its remaining North American possessions a handy tool to achieve that goal. Tariffs, reciprocity, inland fisheries, and economic

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hegemony of the continent were all at stake when Britain moved into the series of negotiations which culminated in the Treaty of Washington in 1871. The United States had abandoned Reciprocity in 1866, but Canada had maintained it, continuing to give the U.S. free access to the St. Lawrence waterway system and continuing the duty-free status of most of the items on the free list in the Reciprocity Treaty. At the same time, it tended to take a conciliatory view on the outstanding question of American access to the Canadian fisheries. But in 1870 the new minister of finance, Francis Hincks, having returned from his Caribbean sojourn and having been parachuted into one of the new ridings in British Columbia that Macdonald and Carrier kept for such purposes, brought down his budget, imposing new duties on coal, salt, grain and flour, in a triple effort to reward the Nova Scoria coal mine owners for their pro-Confederation stance, to raise money for the Pacific railway then being planned, and to serve as a bargaining counter for a revival of Reciprocity. At the same time the fisheries issue heated up, as Canada, in the hopes of using the fishery issue as an instrument for the renewal of Reciprocity, began to apply more stringent conditions to limit American access. When the United States negotiators refused to budge from their hard-line stand on Reciprocity, Macdonald, pushed by Francis Hincks and an array of prominent Tories demanding cash for the Pacific railway, agreed to sell rights to the inland fisheries to the U.S. for a cash consideration to be subsequently determined, and for a British government guarantee of bonds issued to finance the transcontinental railway. The treaty caused outrage in Canada, not merely in Nova Scoria which saw its seaborne interests once again sacrificed to interior development, but also in Ontario, where George Brown used it to consolidate the Reform-Liberal opposition to Macdonald's so-called Liberal-Conservative government. Macdonald found himself on increasingly shaky ground. The earlier defection of Ontario Liberals, first George Brown, and then others, had led him to bring the scandal-tainted Francis Hincks back into the cabinet. More desertions were to follow. In the meantime Hugh Allan, a Montreal financier and shipping tycoon with Pacific railway ambitions, and Jay Cooke found a method for advancing their respective interests at the expense of the Canadian public purse. Under the terms of their deal the Northern cific Railway would, in effect, run through British North America west of Winnipeg in the guise of the Canadian Pacific. In conjunction with Allan's schemes, the result would be a railway line from Montreal, terminus of the Allan Steamship Line, to Sault Ste. Marie, then southward through Michigan and Wisconsin to link to

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the Northern Pacific, thus avoiding the expensive and barren region north of Lake Superior. Then the line would swing north again into Manitoba and cross the continent to the Pacific along British territory. The key link was the stretch from Minnesota north to Manitoba, the St. Paul, Minnesota, and Manitoba Railroad, which Cooke acquired in 1870. To deal with British and Canadian objections to a route running partially through American territory, Allan and Cooke planned to assent in the contract to building north of Superior, then delay that stretch as long as possible to keep up the flow of traffic through the Northern Pacific and to the Allan Line. But to accomplish all these objectives, Allan had to get rid of or buy off a lot of opposition. The central figure in the anti-Allan camp was George-Etienne Cartier, the GTR's solicitor and parliamentary advocate, and the man who was effectively prime minister of Canada, though racism and political expediency required that the Tories make a public showing of keeping John A. Macdonald in the post. Cartier and the fifty or more moutons he commanded in the House of Commons determined the dispensation of railway jobs, and therefore Allan's first major task was to destroy Carrier's political base — bribing newspaper writers, ingratiating himself with the church hierarchy in Quebec, and purchasing the allegiance of the Tory machine. Cartier soon capitulated. The GTR, until then backing a rival group of aspirants for the railway charter, was promised a gift in the form of the ICR — built with $36 million of public money — to keep it quiet. Allan drew up a long list of Toronto politicians and businessmen who had to be squared away with gifts of stock or cash, and money was poured into the Tory coffers to fight the election of 1872. The precise details of the charter were worked out by Minister of Finance Francis Hincks for the government, and by Allan's solicitor, John J.C. Abbot, a future prime minister and first dean of McGill University's law faculty. In exchange for a flow of money and favours to the federal Tory elite, Allan was to get a grant of $30 million in cash, 50 million acres of public land, and an array of other subsidies — for instance, the guarantee that Crown lands would not be sold for less than $2.50 per acre to avoid them competing with Allan's lands on the market, and a pledge by the federal government that it would undertake to extinguish Indian title to the lands which it and the railway company had already undertaken to sell. Unfortunately for Allan and the Tory schemers, some of those left out in the division of the spoils broke into Abbot's office and stole incriminating correspondence. The opposition newspapers treated die Canadian electorate to the spectacle of a ministry bought and paid for by the Montreal shipping magnate in return for the pledge

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of many millions of dollars worth of public assets. John A. Macdonald desperately sought to shore up his Liberal-Conservative government, but desertions from the ranks finally forced his resignation, and Alexander Mackenzie's small-business-oriented Liberal Party came to power. Mackenzie's Liberals, in keeping with their low taxation-low profile government ideology, pursued a cautious railway policy, partly as a result of political principle and partly by virtue of the force of circumstances. The year 1873, when Mackenzie came to power, was also marked by a massive international commercial and financial crisis, and it was succeeded by years of deep depression. One of the consequences of the crash was the bankruptcy of Jay Cooke and much of the American railway system. As the depression caused agricultural prices and farm incomes to plummet, imports and therefore government revenues fell, at a time when the financial crisis made it virtually impossible to unload more railway securities in London. Therefore the Pacific railway, built as a public work under government control, crept ahead slowly during the Mackenzie years, while the hordes of disappointed Tory job seekers and contractors joined Macdonald in jeering from the opposition benches. The new government sent George Brown on a pilgrimage to Washington to try to secure the renewal of Reciprocity. The Treaty of Washington had left the amount of the cash award for the fisheries concession undetermined, and it was the Liberals' hope that the cash due could be converted into tariff concessions. Given the character of the incumbent Grant administration, the strategy was inappropriate: a wiser course of action would have been to take the cash and then buy the American Senate to assure the passage of Reciprocity. Instead, Brown attempted, unsuccessfully, to negotiate a straightforward swap. But the prevailing industrial and agricultural depression made tariff* concessions difficult to secure. Moreover, Grant conducted a continuous flirtation with annexationism, both as a means of revenging ills inflicted on the United States by Britain during the Civil War and of reuniting North and South through a crusade for territorial expansion. Brown returned to Canada emptyhanded, while the Tory opposition plotted a new commercial strategy for an electoral comeback.

TariffPolicies and the New Toryism For Nova Scotia, and to a lesser degree New Brunswick, the early decades of union with Canada saw a betrayal of the promises held out by Confederation. The old economy based on the sea continued

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its inexorable decline. The fisheries were battered by American competition, both directly through the encroachment of American fishermen in Maritime waters — a situation aggravated by the Treaty of Washington — and indirectly by the flow of cheap American beef and pork into European markets. Furthermore, the crisis of 1873 was followed by more than two decades of declining freight rates, throwing the balance of advantage decisively to the steamship. Both the St. John and Halifax carrying trades, and the building of ocean-going vessels, the industrial mainstay of the two mainland Maritime provinces, were hit hard. On top of that came the dumping of sugar, cane and beet onto world markets by the United States, Germany, France and Belgium, which undermined the foundation of the West India carrying trade that the principal Maritime ports conducted. There were few compensating developments in the new resource industries. Nova Scotia's industrial expectations had been built on its coal and iron deposits, and by the hope that the bulky nature of the minerals and ores would lead industry to migrate there. Little of it came to pass, however, as mines closed, trade with the United States dried up, miners starved, and villages were depopulated. In 1875 the coal mine owners began demanding protection, the development of local manufactures that would consume their coal, and a trade association to regulate output, prices and wages. They complained of the competition of British coal in Quebec and the Maritimes, and of American coal in Ontario. A heavy burden of fixed interest debt, owed in good part to financial interests in Britain or in Montreal, weighed the industry down. In the absence of tariffs to permit it to push up prices, the only means of making its coal commercially viable was to attack wages, either directly through reducing the wage rates, or indirectly by the truck system of payments and the related accoutrements of company stores, company housing and company doctors. The iron and steel industry was in little better shape. Like coal, it expanded in the hopes that Confederation would create an industrial revolution in Nova Scotia, hopes that were dashed by the slow development of consuming industries, British and American competition, and a heavy burden of fixed interest debt. For both of these industries Macdonald and the Tories offered a panacea. More railways meant more demand for iron, steel and coal, and high tariffs would both generate the revenue to finance railway building out of the public purse and protect the dividends of British and Canadian investors in the steel and coal industries of the province. More railways meant in particular the rapid prosecution of the Pacific railway and the penetration of the West. And that was only possible if the Dominion's credit were adequate to permit it to

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borrow heavily in London to bolster local tax resources. Railways, westward expansion, high tariffs, and monetary and fiscal orthodoxy to reassure British investors of Canada's fidelity to the gold standard would function as interrelated parts of a national development policy. Such was the view articulated by the former prime ministers of New Brunswick and Nova Scotia, Leonard Tilley and Charles Tupper, respectively. It remained only to put Macdonald back in power and the two aforementioned gentlemen in the finance and railway ministries to make it happen. But it required more than the approval of investors in Nova Scotia steel and coal industries to restore the Tories to power. More broadly based support among big business was needed, and here the notion of development through high tariffs struck a responsive chord in the ears of the Halifax and St. John West India traders who had seen their business wrecked by the depression-induced dumping of sugar. A tariff on refined sugars, while leaving raw sugar free or taxed at a much lower rate, would permit the building up of a sugar refining industry in the Maritimes that would revive the West India trade — Maritime fish, timber, coal and the like would move to the Caribbean in exchange for raw sugar — and it would give the Maritimes a manufactured good capable of export across Canada on the newly built railways. In Quebec the prospects of protectionism and more railway construction also met with favour among a growing portion of the business community that counted most, the Montreal wholesale merchants who had begun to assert their control over the production of the goods whose marketing they had long controlled. At the centre of the Montreal commercial community stood the wholesale dry goods importers, tied into the British imperial trade on the one hand and the Tory Party on the other. Until 1873 Canada ran a balance of trade surplus with the United States — exporting raw materials and re-exporting British manufactured goods — while it ran a deficit with Britain. The Montreal wholesale houses imported cotton, wool, hardware, sugar-based products, and tea from Britain and the empire, and superintended the export of grain, timber and British goods to the United States and staples to Britain. AH of these transactions were supported by their British correspondents who advanced the goods they needed on credit. But during the 1870's this triangular trade pattern was broken. Not only did the growth of manufacturing industries in the United States increasingly displace British goods, including those flowing through Montreal, but the American firms began energetically exporting across the border into Ontario. The response of Montreal big business was to swing from its traditional free-trade stance into the protectionist camp with a

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view to sealing the border to American manufactures, protecting the investments Montreal commercial capitalists were making in manufacturing, and forcing American firms who wanted to regain the Canadian market to leap the tariff wall and establish manufacturing branch plants inside Canada. In Ontario the Conservative party's selling job was more difficult, and the business community's attachment to the Liberal Party deeply rooted. The Tory appeal was twofold. To farmers whose markets were disrupted by cheap American grains and livestock and who were searching for alternative crops to make their debilitated soils pay, Macdonald offered a railway that would open yet more prairie land for grain cultivation. For the dispossessed farmer, driven into the cities by debt or failing soil, the appeal might have been successful; for the farmer who had already made the transition to dairying, it was not, for behind the railway he saw the tariff and high taxation. Furthermore, tariffs and railways might open the West, but they would do so on terms dictated by their traditional enemy, Montreal big business. Ontario agriculture would vote itself a farm, but not a tariff. On the other hand, the notion of a protective tariff had a certain appeal to some Ontario small-scale manufacturers, though far from all of them. Unlike Montreal manufacturers whose scale of plant was large and whose markets were destined to be national, Ontario manufacturers tended to have a strictly local orientation and their profitability traditionally depended on the degree of prosperity of the surrounding agricultural hinterland. For Montreal, tariffs could be an instrument of commercial aggression; for Ontario they were at best defensive. And Ontario firms, specializing in craft-type products dependent on cheap inputs of iron, steel and coal, saw behind the Tory party's National Policy the hand of Nova Scotia coal and steel interests plotting to seal the border to cheap American coal and steel, and Montreal hardware, sugar and cotton magnates eyeing the Ontario market. To some Ontario manufacturers it was their patriotic duty to accept higher coal and iron costs if they were compensated for by a rise in finished product tariffs; to others, the existing tariff schedule was more than adequate. Ontario business entered the election of 1878 divided. In the west, in the new province of Manitoba, farm opinion faced an impasse. The Tories promised a tariff, further hampering the development of commercial ties to the United States. But they also promised a railway which might make those ties irrelevant. However, the farm opinion was not the decisive one: Manitoba politics was run by the land speculators and grain dealers who wanted rapid immigration and a border sealed from the competition of the American

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grain traders. Manitoba rallied to the Tory cause. So too did British Columbia. The gold fields were idle and there was little to replace them. The great collieries, like those in Nova Scotia, were partially closed by depression, and wracked by labour strife when operational. The year before the election a major strike had to be broken by militia. The timber industry collapsed in 1870 and looked upon railway construction to buoy up the demand: directly, through its requirement for building materials, and indirectly, through the creation of a market in the treeless prairies equivalent to that which made the American Pacific timber industry prosper. The timber and coal interests were joined by the array of Tory camp followers promised jobs and contracts by Macdonald. The Macdonald-Tupper-Tilley forces swept back into power in the 1878 election, and the next year began putting their program into effect. A high tariff yielded additional government revenues and therefore improved Canada's borrowing capacity in London, thus producing funds for government-sponsored capital projects, particularly the transcontinental railway. In the context of a revival of world economic conditions it also helped stimulate a private investment boom. And the surge of railway construction in the west set off a sudden rise in the population, and a tremendous speculative wave of land deals. It appeared that Macdonald was vindicated. Certainly prominent railway promoters felt so.

Resurrecting the Pacific Railway For a time Macdonald and his Minister of Railways, Charles Tupper, continued the Mackenzie policy of slow construction of the railway as a public work. But in 1879 prosperity returned as a new high tariff yielded a larger budget surplus and the gloom overhanging world money markets was dispelled. Macdonald therefore changed government policy again and decreed in favour of a private syndicate. Central to the new syndicate was Donald Smith, the future Lord Strathcona, who had risen through the ranks of the Hudson's Bay Company officialdom and had cultivated close relations with Montreal's financial and commercial community where his cousin, George Stephen, held the rank of wholesale import merchant and president of the Bank of Montreal. In 1869 John A. Macdonald had sent Smith to Fort Garry to try to bribe Louis Riel to leave the country. While in Manitoba Smith began laying the foundations of his western empire, and was soon appointed land commissioner of a reorganized Hudson's Bay Company whose principal hopes of future

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profits depended on the opening of the Canadian west to colonization and settlement. When the first Macdonald government granted the charter for the Pacific railway to Allan's syndicate in 1871, Donald Smith was slated to be a member. His presence was expected to ensure close co-operation with the Hudson's Bay Company in the matter of land sales and especially to secure its influence among London bankers in marketing Pacific railway securities. But Smith's name was not included in the final syndicate and, although Macdonald and the Tories continued to expect his assistance in Parliament, Smith bolted the Tory cause. His desertion was a crucial factor precipitating the fall of the first Macdonald government. Behind Smith's change of allegiance were his ambitions in the west. Given the Allan-Cooke plan to connect the Northern Pacific to a line through the Canadian west, a key link in the chain would be the charter to build from Pembina on the Minnesota-Manitoba border to Fort Garry. Smith, Stephen, and their associates tried to secure control of that vital charter, but Macdonald, under pressure to break the overt American railway connections that provided his political enemies with ammunition to attack his railway policy, blocked the moves. Smith's ambitions were further thwarted when Hugh Allan was forced to withdraw from the contract altogether. This was a major blow for the Hudson's Bay Company, whose future profitability hinged heavily on the potential for land sales, and whose equity had shot up after the Allan contract was concluded. Pressure from pro-government circles began to build for the government itself to construct the railway and to give away the western lands free of charge to try to restore its political credibility in Ontario. Public construction and free land constituted a body blow to the hopes of the Hudson's Bay Company shareholders for recouping their fortunes, threatened by the loss of the trading monopoly, from land sale revenues. With the Liberal Party in power and Jay Cooke bankrupt, Smith and his business associates tried to get control not merely of the Pembina branch charter — which a Tory Senate spitefully refused them — but the Minnesota link itself. One of the many casualties of the 1873 crash was the St. Paul, Minneapolis, and Manitoba line. Already looted to the brink of insolvency by its contractors, the crash bankrupted it completely. Its Dutch bond holders had taken control, and a bankruptcy court appointed a receiver to manage it on their behalf. Smith, along with George Stephen of the Bank of Montreal, JJ. Hill, a Canadian businessman living in St. Paul, and Norman Kittson, the former Pembina manager of the American Fur Company, then allegedly arranged with the railway's receiver that

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he would deliberately mismanage the line to drive down the price of the bonds. Then, using money from the Bank of Montreal (taken illegally, some said), the group bought the bonds from the Dutch financiers and secured control of the railway, along with a huge grant of Minnesota lands. The coup made them all instant millionaires — all, that is, except the unfortunate receiver, who was refused his share of the take; for many years he unsuccessfully pursued his former partners through the American courts. It was to the St. Paul railway gang, minus the receiver, that Macdonald and Tupper turned in 1880 to build the Pacific railway. Soon control over this corporate behemoth, and thus over much of the economic destiny of Canada, was ceded to JJ. Hill, who was intent on building a transportation empire in the American West; William Van Home, a gifted American railway engineer; George Stephen of the Bank of Montreal; and Donald Smith of the Hudson's Bay Company. Under the terms of the new contract, huge gifts of cash and completed lines and surveys were supplemented by a land grant of 25 million acres and a variety of tax concessions. Construction and operating materials were exempted from duty; land granted was exempted for twenty years after the grant — an exemption that was extended and even introduced into the legislation establishing the new provinces of Alberta and Saskatchewan in 1905; the equity was "forever" tax exempt; and western monopoly was guaranteed. To assure continuity of control, the transfer of stock to non-shareholders was subjected to a directors' veto until the completion of the contract. Rates charged were exempt from government interference until the profit rate reached 10% — a day that could be put off forever simply by suitably watering the stock. In return, the railway corporation poured money into the Tory Party coffers and provided its supporters with jobs and contracts. This the symbiotic relationship blossomed to such a degree that Conservative governments met every future company lament about financial stringency or pending bankruptcy with further largesse from the public purse. The year 1883 saw the end of the prosperity associated with railway building and a rush of investment funds into the lands and resources of the Canadian west. It also witnessed an international financial crisis that messed up railway financing. And it marked the completion of the reorganized Northern Pacific from Lake Superior to Puget Sound on the Pacific Coast. The CPR made a number of crucial decisions. William Van Home, the American engineer in charge of its construction, pushed for a route north of Superior to make the line independent of, and competitive with, the Northern Pacific. Van Home's hope was that the transcontinental long-distance traffic the CPR would attract away from the American

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railways would permit the CPR to run profitably through an area where there was no local traffic potential. But by pursuing that policy the railway syndicate had to break its link with JJ. Hill. Hill soon found his St. Paul, Minneapolis, and Manitoba railway squeezed between two full transcontinental lines from north and south, and therefore made the decision to convert it into a fully fledged transcontinental system, the Great Northern, in its own right. But the decision to build the CPR north of Superior also meant a greatly expanded financial commitment at a time when private capital markets were once again unreceptive to railway securities, or at least to those of the CPR. And that situation owed something to the fact that the GTR was active in London, employing its connections in an effort to destroy the CPR's credit. Hence all the greater reliance had to be put on the financial generosity of the Canadian federal government. It was George Stephen's job to wheedle, beg or extort from the federal government enough additional financial aid to enable rapid completion of the CPR, and for the next few years public finance and railway finance were so interlinked as to draw Macdonald's memorable outburst: "the day the CPR goes bust, the Conservative Party goes bust the day after."

Defensive Expansionism The Grand Trunk was far from silent during these years of feverish activity elsewhere in Canada. While it had lost its transcontinental ambitions, it continued to fight to defend and extend its powers in central Canada and in the east. It had expected to acquire the ICR free of cost once it was completed. But the break with the Tories over the Allan contract, followed by Mackenzie's commitment to the principal of public ownership, and the growing estrangement with the CPR and therefore the Tory Party after Macdonald's return to power, all worked against it. Meanwhile, the CPR began invading GTR territory to generate revenues while its transcontinental stretch was under construction. The CPR put its government subsidies to work buying up existing small railways (which had already been built with government money; thus the public paid twice and promoters collected twice for the same chunk of railway). The GTR replied in kind, also stepping up its pace of absorption. And both took aim at a third rival, the Great Western. If the CPR secured it, the result would be that there would continue to be two main trunk lines through Ontario. But in 1882 the GTR absorbed its old rival, forcing the CPR to put public money

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to work to build a third line through an area that had already proved itself incapable of supporting two. For the GTR the absorption of the Great Western marked the peak of its period of financial recovery. It had consolidated its hold on Ontario and the through routes from Montreal to Chicago. But the times were in favour of transcontinental traffic, and the extra load of maintenance and debt service charges the merger saddled it with meant the end of any possible expansion for more than two decades. Furthermore, its developing links to the Liberal Party cost it the long-coveted ICR connection into the Maritimes. To try to keep the GTR's loyalty, John A. Macdonald had offered it any public money that the CPR left behind in its periodic raids on the treasury. In 1882 he pleaded with the general manager to "put (his) shoulder to the wheel and help us as of yore in the Elections. In return for such aid I shall endeavour to do all I properly can for the GTR." His appeal appears to have succeeded. Both of the big railway companies worked avidly for the Tory cause, ferrying Canadians resident in the United States to their former constituencies free of charge to vote Conservative. But as the tension between the CPR and the GTR mounted in eastern Canada, relations between the GTR and the Conservative Party soured. By the time of the 1891 election the Grand Trunk, on orders from London, put all its resources into the battle against Macdonald, while the CPR's Van Home took the field for the government. Charles Tupper offered to drop the duty on American coal — which would save the GTR an estimated £50,000 a year — in exchange for its support in delivering the vote of its employees. The offer was declined. But the CPR's support — Tories were returned in every riding but one through which its main line passed — was enough to give the Conservatives a narrow victory over the GTR-Liberal alliance in the 1891 general election. Further west, railway politics were far from quiet during the 1880's. In Manitoba, the CPR monopoly clause had long rankled agribusiness and farm interests, and prompted a number of railway charters designed to link southward to the Great Northern and give Manitoba an alternative trade outlet through the United States. At the behest of the CPR, Ottawa disallowed these charters. The last big effort by Manitoba was mounted in 1887 when the Red River Valley Railway was planned to run south to link to the American transcontinentals, while another line ran north to Hudson's Bay. When Ottawa disallowed this charter too, the government of Manitoba decided to ignore it and proceeded as planned. The federal government then used its financial and judicial clout to derail this north-south line long enough to allow completion of the CPR. That

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accomplished, Ottawa backed off from its granite opposition to competition for the CPR — but by then, with its line fully operational, the CPR too was less in need of help from the federal government.

The Next Round The last years of Tory rule saw little railway development. Deep depression discouraged further projects, and government revenues were shaky, railway profits small or non-existent. The GTR continued to run at a loss, and even the CPR missed a dividend payment. Furthermore, the early 1890's saw derangement of world security markets. The crisis in the Argentine brought down the Barings and threw the City of London into turmoil, while the Panic of 1893 precipitated the collapse of about half of the American railways. And, in any event, both the CPR and the GTR used all their political clout to stop further cash subsidies to railways: any new lines would have to build on their own resources, a fact which would hinder the competitive position of new railways vis-a-vis the established lines. Finally, there was little more prime land available to give away from the federal public domain, and therefore no real possibilities of financing railways largely through land grants. But in 1896 prosperity returned, federal government revenues improved (largely from the tariff), international capital markets became receptive to government and railway bonds, and the west began filling with settlers who agitated for railways competitive with the CPR. And the new prime minister, Wilfrid Laurier, who had overseen the conversion of the small business Liberals into a big business Whig party, came to power with heavy political debts to the GTR. The GTR had refrained from transcontinental expansion, unable to bear the costs, but it still dreamed of controlling the grain trade of the American west. As a Canada-U.S. trunk line its financial fortunes were bound up in the possibilities for renewal of Reciprocity and a revitalization of Canada-U.S. trade. Hence the GTR's links with the Liberal Party were logical ones. However, while the Liberal Party triumphed in 1896, it was only by virtue of having wooed big business support by endorsing the tariff and imperial preference. Moreover, American support for Reciprocity with Canada was not as forthcoming as had been assumed. It was clear that the real action would lie in the direction of transcontinental traffic. In 1902, the GTR reached an agreement with Laurier for government aid to restructure the entire GTR system on a transcontinental

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basis, largely at public expense, with the new line terminating well north of Vancouver, at a point reckoned to be significantly closer to Asia than was the CPR's Pacific terminus. The objective was to simultaneously open more mining and timber lands in northern Ontario and Quebec, tap the prairie grain trade north of the area plagued by the competition of the American lines, and capture a piece of the imperial freight traffic to Japan and China. But before the undertaking could begin, there was some opposition to be dispensed with, particularly from another group of Liberal Partyoriented promoters with transcontinental ambitions of their own. The Canadian Northern Railway was the brainchild of two minor businessmen from small-town Ontario, William Mackenzie and Donald Mann, who had joined the migration of enterprising fortune seekers westward and had begun their railway careers with the principal contracting firm on the CPR main line. From there they went on to utility, tramway and railway operations across Canada, the United States, the Caribbean and Latin America. But the foundation of their empire was laid in Manitoba, where they picked up a series of small chartered railways in receivership, as well as the usual accompanying government land grants and guarantees of their bond issues. From this they put together the first piece of what became a massive, integrated transportation conglomerate. In 1898 their emerging Canadian Northern system established a direct link from Manitoba to Lake Superior, putting it in a position to offer competition with the CPR in the grain export business. Then in 1901 it entered a deal with the Manitoba government that shook the citadels of eastern finance and sent the CPR scampering to Winnipeg and Ottawa in a vain attempt to stop it. Some 354 miles of Northern Pacific-owned railway were bought by the provincial government and given to the CNR, along with a guarantee of bonds worth $20,000 per mile for 290 miles of new construction. The government guarantee reduced the interest rate at which the line could borrow, and in turn the CNR would be able to reduce freight rates below the level charged by the CPR. In a stroke, a provincial government — and a western one at that — was in a position to influence the structure of freight rates in Canada. The deal also gave the CNR powerful political allies in the Manitoba government, and through it to the federal Liberal cabinet, where sympathetic ministers would argue its case for receiving federal aid in becoming a transcontinental line. On the other hand, Laurier and the Quebec wing tended to favour the Grand Trunk system, and bitter cabinet battles between supporters of the rival corporations followed. The GTR was a huge London-based company with long ties to the Liberal Party, particularly its Quebec wing;

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the CNR, on the other hand, was powerful in the west, which Laurier needed to keep him in power, and it had strong links to the Liberal Party's Toronto financial establishment. When the logical merger efforts failed, the typically Liberal compromise was to aid both. The CNR's political loyalty was essential, for the Liberal Party's ties to the GTR were a major bone of contention in the 1904 election, an election in which the CPR pitched in with all its forces to try to re-elect the Conservatives. But the Liberal victory provided a green light for two more transcontinental lines, those of the GTR and the CNR. This was the beginning of a process by which the Canadian government acting on behalf of private railways would load itself with foreign debt that would be an enormous drain on the country's productive apparatus for decades. Even after the defeat of the Liberal government in 1911, the flow of federal government aid to the new railways continued, with the result that Canada by 1914 had two almost-completed new transcontinental transportation conglomerates at a time when war would stop the capital inflow, dry up immigration, put an end to the building boom, and bring both railways to the point of bankruptcy.

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The Contest for the Continental Interior, 1873-1914

THE CIVIL WAR WAS A PERIOD of tremendous expansion of productivity in the United States in both the North and West; and after the war the South recovered quickly, so that all regions were soon producing large and destabilizing surpluses of their particular specialties. The stimulus of wartime demand fostered the growth of big business enterprise in many lines of northern industry, while the drain of manpower into the army encouraged mechanization. After the war, the existence of the accumulated industrial capacity interacted with the railway network to encourage the development of a national marketing outlook among northeastern manufacturing firms — and with it a commitment to the maintenance of high tariffs to defend that national market from European, particularly British, industry. Similar developments took place in farming, though with drastically different results. Until the 1850's the standard farming unit was small, working partly for the market and partly for the maintenance of the farm family. Mechanization was limited, and high labour costs and the prohibition of slavery had prevented the development of plantation farming in the West. But the great grain bonanza of the 1850's changed the western American agricultural economy. Fresh soil and the absence of accumulated debt permitted the ready growth of capital-intensive, mechanized farming oriented overwhelmingly toward the production of cash crops for the market. After the war the rapid drive westward continued, converting the American West into an enormous granary and livestock farm whose exports shook the foundations of European agriculture in the 1870's and 1880's. Total 396

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acreage under cultivation in the United States tripled between 1860 and 1880, while acreage in the old diversified areas of the East actually declined. The Civil War had destroyed the South's cotton economy, but after the war a cotton monoculture was quickly restored, albeit with a system of debt peonage replacing legal slavery as the dominant form of organizing production. With the restoration of cotton came the rapid growth of a cotton textile industry capable of producing masses of the same kind of cheap goods that Britain had used to destroy India's cotton industry. Thus while the industrial North concentrated on retaining control of the national market, or at best expanding it into Canada, the West and the South produced a new breed of agribusiness interests intent on breaking into world markets to dump their vast surpluses and battling the North for control over the commercial and financial system. In a sense the issues were much the same as before the Civil War, but without the complication of the slave-state-vs.-free-state controversy. Agribusiness interests, including southern cotton factories, demanded low tariffs, not only as a means of reducing the price of their imports, but also to lever down other countries' tariffs. In the context of the Crash of 1873 and the depression that followed, many European countries began erecting tariff and other barriers to American grain and meat products to defend their agricultural base. Tariff bargaining was one possible solution. Another was for the United States to expand its exports into the non-European world, especially Latin America and Asia. On this last question the drive for markets and the demand of agribusiness for increased freedom of exchange within the United States coincided and focused on the monetary system. During the Civil War, the exigencies of war-time finance had forced Washington to suspend gold payments and to have recourse to the printing press. "Greenbacks", inconvertible notes issued by the federal government, assumed an increasingly important role in the circulatory system, and were supplemented by bank notes issued by national banks against a reserve of federal government bonds. At the same time, the notes of state and local banks were taxed out of existence. In 1873, when crisis, deflation, and depression hit the farm and small business class hard, the federal government announced its intention to return to the gold standard, to demonetize silver, and to phase out the Greenbacks. From that moment on until the issue was finally settled in the 1896 election, an alliance of silver-mining interests and agrarian expansionists took form, an alliance committed to fighting against deflationary policies in general and for the remonetizing of silver in particular.

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For the silver-mining interests in the West the issues were obvious — remonetization would drive the price of silver up. For the agribusiness expansionists, the issues were more subtle and complicated. For one thing, remonetization of silver — and the preservation of federally-issued Greenbacks — would serve to reduce the real burden of farm debt by inflating the domestic price level. But much more than that was involved. A silver standard would require a declaration of financial independence from Britain and from the New York financiers who defended the gold standard which gave London and Liverpool control of world commodity markets. Moreover, demonetization of silver had meant low prices for that metal, which devalued the Indian rupee compared to gold and thereby made it cheap for British commercial interests to buy Indian wheat and cotton and sell it in Europe in competition with the products of the American South and West. Furthermore, Latin America and China were still silver-standard countries, and the remonetization of silver in the United States was expected to help open up these markets to American agricultural produce. The impetus for market expansion in the United States thus came from the agribusiness sector. The joint agitation for free coinage of silver, low tariffs and foreign markets reached its peak in the 1896 presidential campaign which pitted William Jennings Bryan on a low-tariff, free-silver platform against William McKinley on a reciprocity, international bimetallism platform. McKinley's victory effectively spelled the end of free silver, for it came at a time when global economic forces were once more producing secular inflation. But his program of reciprocity also meant the conversion of at least part of eastern big business to at least part of the agribusiness sectors' low tariff demands. For, by 1896, industrial interests had begun to join with agribusiness in favour of market expansion abroad. The turning point was the Panic of 1893 and the industrial depression that followed, which fostered both the concentration of enterprise in giant firms and the accumulation of great stocks of unsold goods. While American capital had begun to move abroad in the 1880's in search of cheap raw materials, after 1893 the primary concern became the marketing of surpluses of manufactured goods. With the conversion of northern big business to overseas expansion, and with the long-standing demands of agribusiness for just such a course of action, the stage was set for commercial diplomacy and war to achieve American economic goals abroad on a hitherto unprecedented scale. Reciprocal tariff reduction, the seizure of plantations and naval bases abroad, and the competition with the European powers for spheres of commercial influence launched the United States into the game of great power politics, and incidentally produced a revival of its interest

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in economic expansion to the north, where the British empire was by this time intent on consolidating its hold.

Early Land Policy In 1869 Garnet Wolseley and his troops were sent to Manitoba to crush the Metis unrest, establish federal jurisdiction, facilitate the operation of the federal surveyers, and open the land for colonization. In the wake of the expedition came a mini-land boom around the Fort Garry (Winnipeg) area as the Metis were defrauded of their lands by speculators intent on securing the best farm land near the fort. By the middle of the decade the Metis had been driven from the area. In 1872, in imitation of American policy and in an effort to recoup its crumbling fortunes in Ontario by catering to the demands for free land, the Macdonald government passed the Homestead Act which granted free homesteads of 160 acres and pre-emption rights to an adjoining quarter section to all would-be settlers. The Act included a five-year residency requirement for the securing of clear title. But the next year the intent of the act was subverted by the deal worked out with Hugh Allan's company to build the Pacific railway. The railway company was ceded 50 million acres of land, while government land was to be sold for a minimum of $2.50 per acre to preclude it interfering with sales of railway land. The only free land available was to be so far from the railway line that no one would want it. Furthermore, the Hudson's Bay Company still had residual rights to one twentieth of the fertile lands of the province, and was intriguing to expand its share. In 1873 the Allan syndicate and the Macdonald government both came to abrupt ends, and in their place emerged the Mackenzie government, heavily influenced by Ontario small business and committed to low taxation, slow railway building, and the genuine opening of the west to settlement. Under Mackenzie's regime the system of railway land grants was stopped, in keeping with his policy of breaking up large and potentially speculative holdings of land. But he then undermined his own policy by encouraging the formation of a series of colonization companies to which the government proposed to sell land cheaply in return for them handling all of the expenses of colonization and the settlement of a minimum of 64 families per township. In 1877 the schemes were abandoned; not one of them had succeeded. That year marked the high point of rational settlement policy, for it ended large-scale, publicly fostered land holding operations (apart from the residual claims of the Hudson's Bay Company); thereafter Crown lands were to go only to bonafide settlers.

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But one other preliminary had to be taken care of. Federal government responsibility for extinguishing aboriginal title to the land had been built into the terms of the Allan railway contract. While the Allan scheme was abandoned, Mackenzie nonetheless set out to herd the Indians onto a group of reservations that were set up at the rate of 160 acres per family of five. The ensuing treaties meant a complete revolution in the lifestyle of the prairie Indians, if they agreed to abide by their terms; for until then they had been nomadic hunters who ranged at will and to whom tillage, private property in land, and the primacy of the nuclear family as a producing unit were completely alien. Reservation life could mean starvation as well as socioeconomic upheaval. But as long as there were no settlers in any number, and the buffalo continued to be abundant, the Indians were quite willing to sign the treaties, collect a few presents, and continue just as before. The Decline of the Aboriginal Economy The buffalo hunt had long been the centre of the socioeconomic existence of the plains tribes, and the horse the principal piece of capital equipment. A man's wealth was reckoned by the number of horses he owned, by the number of wives he had to do the heavy work of tanning hides, scraping and preparing robes, and manufacturing pemmican; and by the size of his tipi, which in turn reflected the size of his household. This aboriginal economic and social structure was already under attack before the reservation phase began. A diptheria epidemic in 1836, followed by smallpox the next year, raged through the plains tribes, wiping out two thirds of the Blackfoot population. In 1869 and 1870 came another series of epidemics. On top of this came the destructive impact of alcohol, and the United States army, which slaughtered large numbers of the migratory bands. The conflicts reached a new level of intensity about the time of the Civil War. The populating of the American West by white settlers was proceeding rapidly with the encouragement of the North, which hoped to use the expanding West to tilt the political balance away from the South, as well as use it to stake a claim to the Pacific coast and pre-empt British moves. And white population growth intensified the conflict with the plains tribes. The greatest of the plains tribes of the American west were the Sioux, who had fought for the British during the American Revolution and the War of 1812, had collected military decorations, and then been abandoned. In 1862 American encroachments on Sioux land in Minnesota precipitated war, and the Sioux moved

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north to Fort Garry to claim protection from the British. They were first ignored, then pushed out. In 1868 the Black Hills area of the Dakotas was declared by the United States government to be a Sioux reservation, from which all whites were barred. The land was useless for farming but good for hunting, so the Sioux problem appeared suitably resolved. But soon the Northern Pacific Railway began poking into the area, in open defiance of the treaty, looking for the shortest route to the Pacific. Then in 1873 American interlopers reported gold; in 1874 the U.S. government violated its own treaty and sent General Guster with 1,200 soldiers, cannon, Catling guns, and a gang of experienced miners into the area. Custer's expedition confirmed the gold find and sent out a general call for prospectors; and, as a result, the last great Sioux war was on. Sitting Bull tried to unite all the plains tribes, but the Blackfoot in Canada under Crowfoot refused to join, and even volunteered warriors to defend white lives and property. Sitting Bull and the survivors moved to Canada and vainly claimed British citizenship once more. The same scenario was repeated elsewhere. The Nez Perce of Idaho were not migratory hunters, but farmers whose horsebreeding skills were famous. In 1860 they were pushed out by gold seekers and moved into the Oregon country. Then they were pushed out again. The American government lied to them and collaborated in defrauding them; and a brief but bloody war saw the remnants of this nation too flee to Canada in vain pursuit of British protection. The largest tribes on the Canadian side were the plains Cree and the Blackfoot, the former beaver hunters and trappers, the latter buffalo hunters who sold meat, horses and other necessary products to the white traders. Both groups, but particularly the Blackfoot, were hurt by the decline of the fur trade and by the ravages of disease and alcohol. By 1874, several years before the buffalo had disappeared, the once-mighty Blackfoot were reported to be on the verge of complete destitution. Over the 1870's land grabbers, as well as Metis, Cree, and American Indian refugees, increasingly crowded the Blackfoot hunting lands while the buffalo steadily declined in number. In 1877 Crowfoot led his nation into treaty relations with the Canadian government, by which some poor farming land was ceded to them. The winter of 1877-78 was the worst in decades for the Indians. The buffalo failed to arrive, and famine was so severe that some areas reported cannibalism. Very few posts had relief rations, and cattle ranchers reported the growing incidence of cattle theft. The situation was explosive until the Canadian authorities persuaded the Indians to migrate across the border to the United States, the process of persuasion being powerfully aided by the absence of ade-

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quate relief rations, as well as the American army and buffalo hunters' having burned the prairie grasses near the border to impede the northward movement of the herds and to cut off supplies to Sitting Bull. The Canadian government co-operated in the effort to starve Sitting Bull's people into returning to face the American armies, for their presence in Canada was widely regarded as being bad for business. And at a time when the Pacific railway project was burdening the public purse, the last thing the Canadian authorities wanted was the expense of feeding more Indians. Soon Montana was crammed with returned American Indians and refugee Canadian ones. The settlers began to fear for their scalps and the ranchers, with better reason, for their cattle, which were considerably more edible. The American army then undertook to drive the Indians back north again, many more starving en route. By 1881 the buffalo were gone, and the Indians on the Canadian side were reduced to dependence on government-issued rations. With a new CPR syndicate fondling its multi-million acre land grant, the government decreed that the only way for Indians to secure rations would be to go to the reservation and accept the dictates of the Indian agent. Thus the Canadian Indians were "peacefully" settled onto the reservations, where they were treated to the spectacle of the Macdonald government handing out their hunting lands to its political confreres.

Land Policy and the End of the Aboriginal Economy John A. Macdonald had returned to office in 1878, and rational development planning came to an immediate end. He himself assumed the post of Minister of the Interior to keep control of the patronage in his own hands. The CPR syndicate was granted its 20 million acres, and no effort was made to renew the discussion, begun by Mackenzie, with the Hudson's Bay Company on the sale of its land to the federal government. In fact, a few years later company holdings were actually expanded by making its one twentieth share applicable to an area bounded in the west by the summit, rather than the foothills of the Rockies. In order once more to keep government lands from impeding sales by the big private landholders, all of the odd numbered sections of the remaining lands were held back as Crown lands for sale rather than being available as free homestead land. And pre-emption rights were rescinded so that settlers selecting 160 acres of free homestead land were at the mercy of the railway and land companies if they wanted to extend their holdings. The years 1880-83 were ones of international prosperity, rapid

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railway construction, and land fever in the newly opened west. In the first half of the decade 166,400 immigrants arrived in the Canadian west — of which over half soon moved on. Most of the transients were railway workers; many were fortune seekers and speculators. A wave of speculation, fed by eastern Canadian and British money and by the Hudson's Bay Company policy of rapid sales of land on credit, produced an array of paper fortunes, but little settlement. The CPR by contrast refrained from selling its lands, instead encouraging a policy of rapid settlement and the giveaway of government land in the hopes that population increase would generate traffic revenue and raise the value of its land holdings. In the middle of the boom John A. Macdonald turned loose his party's faithful, and there followed a series of grabs for timber, minerals and land. In addition the colonization companies, which had been discredited in the Mackenzie period, were revived and ceded blocks of odd-numbered sections outside the CPR belt for one dollar per acre. Tory businessmen also set up colonization railways and small railways that were to be financed by land grants rather than cash subsidies, and were given gifts of land and other forms of state aid before tumbling into the laps of the big trunk lines. Securing land from the government was one thing — selling it to settlers quite another. To secure colonists the Dominion authorities, led by High Commissioner Alexander Gait and backed up by the Department of Agriculture, spread false and misleading information about climate and living conditions in the west. Some of the immigrants who were attracted from Britain succumbed to the unexpected severity of the physical climate; others returned home discouraged. In the end all but one of the colonization companies defaulted on their payments and were liquidated, though not before the government, in spite of them not having lived up to the terms of their grants, confirmed their titles to their lands, and those of a lot of highly placed individual fortune hunters drawn from the Canadian and British economic and social elites. Another prize of the early scramble was grazing land — available for one cent an acre. The Texas range movement spread northward in the 1870's and by the 1880's, secured by the arrival of the North West Mounted Police and the departure of the buffalo and Blackfoot, it was spilling across the border. Though land grabs continued to be the hallmark of western Canadian experience for the rest of the Tory years, the main wave ended in 1883 with a crash brought on by an international financial crisis. Again paper fortunes vanished, and the masses of land sold on credit by the Hudson's Bay Company and other major landholders went into default. Railway construction slowed as funds dried up, and

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much of the recent immigrant population moved out again, back east or across the border. But the crisis and the land grabs that preceded it did have one permanent effect: the spread of land companies and "surveyors" once again threatened the Metis and even some of the older established white settlers. Meanwhile, relations between settlers and the Indians they were displacing were approaching a flashpoint.

The Northwest Rebellion The food crisis of 1877-78 spelled the doom of the traditional economy of the prairies. The concentration of Metis and Indians, swollen by refugees from south of the border, led to the overkilling of the rapidly dwindling buffalo herds. A migration to the United States was followed by a forced migration back again, and during the winter of 1882-83 starving Indians converged on Fort Walsh, where they were kept on a ration of two days of food per week and no protection from the cold — part of a deliberate strategy to force them onto the reservations. Some were starved into submission, lured by the promise of full rations. Once on the reserves, a few efforts were made to teach them farming, while customs like the traditional dances were suppressed on the grounds of their "heathenism". In fact the dances were communal gatherings, and allowing them to continue would encourage the retention of tribal identity and hinder the process of breaking them up into families of farmers. Moreover, the dances were political, and stirred the warriors to rebellion. They needed very little stirring. Their hostility increased as they understood fully the implications of the treaties. Private property in land was completely alien to their socioeconomic system; to them the treaties had conferred upon the white man only temporary use of tribal hunting territories. The Crees, led by Big Bear and Poundmaker, refused to accept the treaties, although Crowfoot of the Blackfoot did (receiving as his reward a life-long free pass on the CPR). In 1883 economic crisis hit, import tariff revenues collapsed, and the state cut back unnecessary expenditures in favour of keeping up a flow of subsidy money to the CPR. Low-priority items such as rations to the Indians were cut back. Such food as they did continue to receive was sometimes inedible — a government inspector once described the flour ration in beautifully elliptical language as "not quite unfit for food". Across the border the American Blackfoot were destroyed as a community, 25% of them dying of starvation during the winter of 1883-84 and many more physically or psychologically

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crippled by malnutrition. In Canada the Indians began drifting off the reserves to join the resistance led by Big Bear and Poundmaker. Unrest was also growing steadily among the Metis. They demanded, in the face of a new set of surveyors and land companies, recognition of their own "aboriginal" title and a Manitoba-type settlement to their land claims. The completion of the railway had compounded their problems, for not only did it symbolize the end of the fur trade economy — and coincide with the final extinction of the buffalo — but it also meant the triumph of east-west rail-borne commerce over the north-south transportation and trading system that the Metis had operated. The coinciding end of the land and construction boom brought heavy unemployment and a sharpened awareness of the fundamental change in economic circumstances. The white settlers had their own set of grievances to add to the boiling pot. The Northwest had been created as a territory rather than a province, and thus was directly under Ottawa's control. The settlers demanded responsible government as well as alleviation of a long list of economic grievances. Notable among the grievances were the CPR monopoly and the insecurity of land titles. The CPR was accused of teaming up with the Montreal milling and grain-dealing firm Ogilvie's to monopolize grain purchases in the area, cheating the farmers and manipulating prices. And the CPR's choice of a southerly route had left many of the more northerly settlements stranded. In11883 the Manitoba and Northwest Farmers' Protective Union held a convention at Winnipeg and called for free trade in agricultural implements, an end to the CPR monopoly, local control of railway charters and Crown lands, a railway to Hudson's Bay, and the ceding of power to the municipal governments to build grain elevators, mills, and warehouses that would operate independently of the existing monopoly. In 1884 a meeting between white settlers and Metis was held in the District of Lome, and the major question debated was whether to consult Louis Riel. When the meeting voted to bring back the exiled leader, Ottawa made a number of largely successful efforts to buy off the white settlers and English-speaking Metis. The next year the French Metis and Indians, led by Riel, rose in rebellion and Ottawa sent General Middleton, a veteran of the Indian Mutiny, to solve the aboriginal problem. In the end several Indians were executed; others were imprisoned along with the secretary of the settlers' union; and Riel was hung. At last the west stood open for white settlement. But where were the settlers?

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Emigration, 1870-1896 Until 1896 Canada's population growth rate was less than the birth rate, as native-born Canadians joined the flow of trans-Atlantic immigrants heading to the United States, to the mills of New England, the mines and forests of Michigan, or the farms of the West. Quebec suffered the most acutely. Its flow of population southward became pronounced after the crisis of 1837 and intense during the 1860's. By 1873 there was estimated to be 800,000 Canadians, of which half were francophones, living in the United States. During the 1870's Quebec saw another 100,000 to 200,000 drift south to New England, where large emigre communities were growing, and the Quebecois displaced the Irish in the textile mills and in unskilled seasonal work. The communities took root and grew in part because whole families could find work in the mills, where child labour was much appreciated. The outflow was fed by the ongoing agricultural crisis — poor land, competition of cheap American grain, high mortgage and rental payments. By 1873 it was estimated that fully a third of Quebec's farm land lay idle. The crash of 1873 temporarily eased the drain as a result of the high unemployment it produced in the United States, and it provided a short-lived opportunity for Quebec to try to repatriate its population. The emigration was blamed by some politicians and businessmen on the lack of industrialization, and calls were heard for protective tariffs, industrial development grants, and bonuses to encourage the influx of British and American industrial investments. Tax exemptions and cash subsidies to industrial firms began to be granted by municipalities, while some business interests lobbied for protection. Quebec assembly members voted cash grants for the colonization railways they were busy promoting, ostensibly to open new agricultural land, in fact to expand the lumbering frontier. Even before the crash politicians and business leaders, headed by GeorgeEtienne Cartier, envisioned Manitoba as a New Quebec, as a Paraguay of the North, where the surplus population could be sent and held in joint obeisance to the Tory party and the Catholic church. But the capture of Manitoba by the Ontario-Clear Grits dashed these hopes, and the other policies turned out to be equally futile. Even with the high tariff of 1879, the return of prosperity to the United States revived the population drain. In fact, after the 1870's the flow of Quebec emigrants to the United States actually worsened as the extermination of the plains tribes opened a vast new area to colonization. The cheap American grain coupled with falling ocean freight rates in the 1870's destroyed much

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European cereal culture and put the coup de grace to that of Quebec and Ontario, forcing a switch to capital-intensive pasturage or an even greater regression to self sufficiency, both of which generated migration to the American West. Moreover, behind the new American tariff barriers, industry and the concomitant demand for labour grew rapidly. Labour recruiters were eager for Quebecois workers, who were thought to be cheap, reliable and docile, particularly if a priest could be induced to migrate with them. The language barriers too impeded unionization and made Quebecois workers ideal for strikebreaking. The exodus peaked in 1891, and was not reversed until the Panic of 1893 and ensuing industrial depression in the United States. Quebec's vulnerability in this period of economic crises was due to a mixture of factors, of which control of government policy by a few vested interests was not the least. Quebec's options were constrained by federal control of most of the tools of development, including the bulk of the fiscal resources, and by the control of those political instruments that were within Quebec's constitutional power by the anglophone business elite of the province. The Quebec cabinet was further constrained to report to a legislature, the lower house of which contained a deliberate over-representation of anglophone areas while the upper house was just as deliberately designed as a bastion of anglophone business influence. The combination of federal usurpation of most of the power to direct economic affairs, the institutionalized entrenchment of anglophone business power within Quebec, and the continued ideological and political authority of the Church meant that Quebec government "development" efforts would be predominantly twofold: public monies would largely go to projects that aided primarily the transcontinental and international ambitions of Montreal big business, rather than those projects whose social utility was more uniquely Quebecois; and every crisis in economic and commercial affairs that increased the amount of urban or rural distress would be met by an appeal for more colonization of the interior of the province to increase the amount of poor land on which uncompetitive crops could sometimes be grown in the short season during which agriculture was feasible. Agriculture did modernize by default, and the dairy industry added to the demographic malaise by displacing yet more labour. Industry did develop too, but in a way that made effective use of only one Quebec resource — the cheap, unskilled labour being displaced from agriculture. And the rate, extent and progress of that industry depended on developments in a broader Canadian setting over which Quebec had no control. Many of the same factors at work in rural Quebec affected

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Ontario agriculture and induced a similar exodus of population, though not as severe as that of Quebec. Ontario too saw the eclipse of its cereal culture and a switch to pasturage, particularly for dairying. Despite a rapidly growing international market as a result of the development of steam navigation, the rise of dairying entailed a relative displacement of labour. The high cost of further land clearance in Ontario and the slow pace of industrialization combined with the switch to pasturage to produce a flow of farm population to Manitoba, then to the Dakotas — encouraged by liberal American land laws, the energetic recruitment activities of American government emigration agents, and a more rational, compact settlement pattern than prevailed in Canada. The lumber camps and mines of Michigan also provided a magnet for Ontario's surplus population where once more they were useful for strikebreaking. The peak, as in Quebec, came in 1891, and the flow reversed in 1893. In Nova Scotia problems began with the end of Reciprocity and the loss of the New England market for coal, which led to the drift of miners southward. Farmers followed, for the farm population had long been overflowing the marginal land. In 1885 another collapse of the fishing industry followed the termination of the Treaty of Washington, inducing another exodus of skilled workers, while little of the industrialization promised at Confederation occurred to stem the outflow. In New Brunswick a sharp decline of wooden shipbuilding after 1873 drew carpenters and other skilled craftsmen to New England cities, and a decline in the timber trade drained skilled operatives off to the Maine lumber camps.

Immigration, 1870-1896 Given all this, it is hardly surprising that the tremendous movement of populations across the Atlantic in response to agricultural distress, industrial crisis and the disruption of war in late nineteenth century Europe largely by-passed Canada. Most who moved to the United States were bound as cheap labour for the industrial east — they went to the U.S. looking for family farms and found instead sweat shops and unventilated mine shafts. In Britain the period after 1873 witnessed the steady decline of grain farming and a movement to pasturage, displacing tenant farm labourers who drifted off first to the cities to bolster the ranks of the urban unemployed, then overseas. The movement out of Britain had to be at the emigres' own expense; no state aid was forthcoming until 1888, and even then it was little. Left to their own devices the emigrants went to the United States as their first choice, then to

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Australia, New Zealand, South Africa after the gold strikes of 1885, often even Brazil and the Argentine in preference to Canada. Scotland and Ireland were also hit hard by the post-1873 depression, and in Ireland the situation was complicated by even more famines, political repression, and the almost total lack of poor relief. The Irish sensibly eschewed all things British and went en masse to the United States, as did most of the Scots. Western European states tended for economic and military reasons to oppose the emigration of their peasant and artisan population. Until 1898 Germany prohibited emigration, and even after it was allowed impeded the movement of population to Canada as part of its campaign of economic warfare against Britain: those dispossessed peasants and displaced artisans who did leave Germany went to the United States. France also opposed emigration. It had lost many millions of people in wars and social upheaval between 1789 and 1848, and was trying to nurture population growth at home. Those French who did emigrate were encouraged to settle in France's Algerian colony rather than Canada. Canada did undertake efforts to attract immigrants, but these efforts were largely ineffective. After 1873 the Dominion launched an advertising campaign in northern Europe, hired hacks to write letters to British newspapers eulogizing Canada, employed agents to tour Britain giving speeches, and hounded successful farmers to write home about their experiences. The transportation companies also ran propaganda campaigns. The Allan company was rewarded for service to the Tory cause in 1872 by the award of a special bonus for the carriage of immigrants. Later, other lines got equal treatment. Bonuses were also handed out to booking agents, and fares for agricultural labour and female domestic servants were subsidized until the late 1880's. Some bonuses were also offered to employers to bring out certain types of labour. All of this activity yielded few results. Some Mennonites fleeing conscription in imperial Russia were given free land and exemption from military service in Canada in 1874-75, but many of the new arrivals drifted off to the United States. In the 1870's and 1880's industrial and agricultural crisis in Iceland was worsened by a volcanic eruption and a few settlers were tempted to Canada by the railway companies seeking contract labour. The Icelandic settlers were dumped in Ontario, where they were pushed into railway work camps or forced to subsist on poor relief. A later group which settled in Manitoba was decimated by famine and smallpox. By 1880 more than half of the Icelandic immigrants to Canada could be found in the Dakotas. The most successful immigrants into Canada were expert American Mormon farmers and skilled cowhands whose com-

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ing had nothing whatsoever to do with Canadian immigration policy. Neither did the reversal of population flows after 1896.

The Tide Turns While the Canadian business and political elite looked longingly across the Atlantic for a shift in the trans-oceanic movements of capital and labour and the opening of new markets for export staples, in fact the forces that were at work to spark the recovery emanated from a completely different direction. The 1880's were years of frantic mineral development in the United States, and some of the excitement spilled over into Canada, particularly in British Columbia but also to some degree in Ontario and Quebec. In B.C. the decline of placer gold mining had not been offset by the development of gold-bearing quartz deposits as many had hoped, but when the American silver rush picked up steam, it triggered parallel activity in the Pacific province. While British Columbia's silver and other metals led the way, many other regions of Canada succumbed to the excitement of prospective mineral wealth in the late 1870's and especially throughout the 1880's. Asbestos and phosphates in Quebec, and gold, silver, iron, nickel and copper in Ontario were all rapidly developed. Gold was sought in Saskatchewan, and manganese in New Brunswick. But the real rush was yet to come. And it came as the final link in a golden chain that had spread northward from Peru and Mexico, leaped to Siberia, moved south again to California, then north to Oregon and British Columbia until it finally pointed to the Klondike. The discovery of placer gold in Bonanza Creek sent tremours of excitement around the world that exceeded the frenzy generated by most of the earlier rushes of the century, for it came at the end of decades of depression and deflation during which the purchasing power of gold rose steadily while the cost of equipment necessary to mine it fell. It came shortly after the defeat of William Jennings Bryan in the United States had seemed to ring the death knell of the free silver movement and confirm the process of steady internationalization of the gold standard. It came at a time when an efficient, rapid system of global communication and transportation was in place. And it came at a time when the demand for gold was being driven up even further by the scramble of central banks to prepare for war over the colonial division of the world by stockpiling war chests of gold. As a result of all of these factors, and the lies carefully disseminated by Seattle transportation and supply companies

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about conditions in the Klondike, many thousands stampeded toward the gold fields, some dying of exhaustion, disease, starvation or exposure en route, many more succumbing to such afflictions on site, and a very few piling up immense fortunes, chiefly out of selling liquor, operating whorehouses, or running gambling activities. The rush focused world attention on Canada and its resources, induced a wave of investments from foreign capitalists, and turned the Canadian balance of trade in the country's favour for the first time, apart from a few random years, in many decades. Canada became the world's third largest gold producer, and for several years minerals were its leading commodity export. But mineral development on its own could not generate the pattern of extensive growth that Canadian politicians and business figures wanted. Mining was either short-lived, as placer gold always was, or capital-intensive and geographically specific. Given the almost complete absence of refining and further processing facilities in Canada, the export of mineral products, occurring as it did in the form of crude or at best concentrated ores, could do little to obviate the pressing need for population growth and the extension of the family farm frontier that Canadian economic and political leaders had been trained by American example from a by-gone century to identify with economic progress. By the later 1890's the Dakotas and other grain-producing areas of the United States were in a state of crisis, with yields falling due to the soil exhaustion that resulted from continuous wheat cultivation. Not only did the crisis make the area less attractive to European immigrants but it also induced a flow of emigre Canadians back north, and they were joined by American farmers fleeing bad times and the banks. From 1896 to 1911 a million Americans from the overpopulated Mississippi Valley farm states moved north. The American government as well as the railway and land companies fought the movement — attacking the wages of farm labour to try to make farming cheaper, massacring more Indians and seizing their land to open it to white colonization. But there was little else that could be done, for the American west, given the state of technique, market conditions, and the choice of crops, had reached a limit to its capacity to absorb more family farm units. Canadian immigration policy had little bearing on this population movement, and when it became clear after 1907 that most of the American farm population willing to move had done so, Ottawa's attention focused more and more on eastern Europe, where the great grain fields of the steppe regions promised a peasant population with the appropriate skills for Canadian conditions. While Americans continued to be the single largest nationality in the roster of early

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twentieth century immigrants and British second, eastern Europeans soon ran a close third — much to the disgust of some of Canada's intellectual leaders who were intent on preserving the mythical purity of their Anglo-Saxon-Norman blood.

Asian Immigration The demands for cheap labour for the industrializing east and the construction camps in the west, together with the need to fill the prairies to assure the dividends of railway and land company shareholders, forced many to swallow their racial prejudices against the Ukrainians and Poles. But Pacific coast circumstances were different: certain ethnic groups were willing to migrate en masse, and the role of federal immigration policy was usually to stop them. The first Asian immigrants into British Columbia came via California, from which they were driven by white mobs or the inability to find jobs. In the 1870's the "Six Companies" which dominated the Chinese labour brokerage trade opened a direct commerce with British Columbia. The expansion of the coal mines, the rapid development of the Pacific fisheries, and urbanization created a demand for cheap labourers in the mines, canneries, and urban service industries. The Chinese also took an increasingly important role in truck farming and domestic service, and in the 1880's railway construction began to absorb large gangs of them. The objective of most of the early immigrant Chinese labourers was to make enough to settle their debts and return home, though those who moved into truck farming and the service industries often sought to put down roots. In general the sexual imbalance precluded much prospect of family formation or the growth of an indigenous Chinese community. This circumstance pleased both the politicians, by precluding the need for such distasteful developments as the granting of votes to the Chinese population, and the employers, for the lack of dependents helped keep wages at the level of one man's subsistence. The link between the living conditions of the Chinese labourers in British Columbia and the profits from their use was fully appreciated. The solicitor for the Six Companies testified before a Canadian Royal Commission: "I care nothing about the filth of Chinatown . . . These mud sills are at the bottom of our success." He pointed out the tremendous importance of cheap Chinese labour — that it "enabled the well to do white to hold a balance of power . . . against. . . the Trade Unions." As industry and an industrial labour force grew in British Columbia, so too did the hostility of both white labour and small business-

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men not in a position to take advantage of cheap Chinese labour and faced with the competition of industries where it was used. In 1873 an anti-Chinese society was formed to demand barriers to immigration and the end of federal subsidies to ships calling from China. In 1878 the provincial legislature passed a law prohibiting the employment of Chinese on provincial public works, requiring that all Chinese in the province take out residency licences every three months, demanding that employers produce a list of all Chinese in their employ, and banning anyone with hair longer than five and one half inches from employment on a railway within British Columbia. Such laws were disallowed by the federal government. John A. Macdonald declared that impeding the inflow of cheap Chinese labour would hinder the construction of the CPR, and he appointed a Royal Commission, carefully stacked in advance, to "enquire" into the problem. One of the commissioners reported approvingly that The Chinese in British Columbia . . . are living machines, differing from artificial and inanimate machines in this, that while working and conducing to the same end as the latter, they are consuming the production and manufactures of the country, contributing to its revenue and trade, and at the same time expanding and developing its resources.

Toward the end of the century the problem subsided a little. There were few newcomers, and a sort of modus vivendi was established with white workers whereby the Chinese performed certain simple, unskilled, low-wage tasks while the whites performed the skilled, higher-paid ones. Chinese worked the surface of the mines while whites worked underground at three times the rate of pay; Chinese unskilled workers in the sawmills got about half what white sawyers got; and in the canneries the spread between the Chinese wage rate and that of the Indians and whites was about the same as in the sawmills. Protagonists of big business trumpeted the blessings of the racial division of labour. William VanHome declared in 1899: I believe it to be a safe proposition that every two Chinamen in such a country as British Columbia create new and higher employment for one white man, for the cheap and abundant labour afforded by them makes possible many enterprises and industries which would otherwise be impossible.

After the turn of the century a new influx of Chinese in response to the rapid growth of mines and building of railways caused a new wave of labour unrest, and the Liberal government raised the existing head tax to $500, resulting in an immediate reduction in im-

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migration. The Liberal philosophy toward Chinese labour was summarized by William Lyon Mackenzie King, the Minister of Labour: It was a better thing for the province of British Columbia that it should develop slowly, under conditions which permitted the mass of white population becoming holder of small properties, rather than that, with the aid of Chinese labour, a more rapid progress should be made by a few enterprises such as mining and railroads with the result that individuals connected with these corporations might become wealthy, and the mass of men remain wage earners with no stake in the community; that as a matter of fact British Columbia was the only province in which Socialism had made any headway, and that one of the main reasons Socialism made such headway was because people did not hold property and this in part was explained by immigration from the Orient. In other words, the Liberals appreciated the nature of the "company province" where the absence of an extensive agricultural hinterland and orientation of its economic base toward lumbering and mining meant the polarization of economic classes into the propertied corporate elite and the wage workers. Chinese labour fostered both capital accumulation and concentration, thus aggravating class tensions. In 1908 Mackenzie King put his principles on the political line and contested public office for the first time. Part of his campaign was waged on the platform that all "yellow" labourers should be fired from their jobs, which would be then given to whites (his Tory opponent employed Chinese hands to clean his stables). But once in office the Liberal policy deviated from campaign rhetoric. In 1908 the head tax was abolished and a new inflow of Chinese immigrants was encouraged to build new Liberal-aligned railways and run the lumber mills expanding to meet prairie construction requirements. By this time the Asian labour question was complicated by the emergence of another group against whom the hostility was even more bitter. Shortly after the United States "opened" Japan as a stepping stone to the far east, the export of Japanese indentured workers to the Pacific plantations began. They reached Hawaii in 1868, and in 1885 their numbers grew rapidly after the American planters secured Japanese government permission for their free import. Just as the Chinese came to Canada first from California, so the Japanese came first from Hawaii and only much later directly, in part in response to the head tax on Chinese immigrants. In 1901 the supply

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fell off sharply as Japan recruited a large army in anticipation of war with Russia over spheres of influence in China. The subsequent end of the war caused industrial depression, and the heavy unemployment was made worse by the disbanding of soldiers. The Japanese began encouraging emigration. Inside British Columbia the Japanese began competing with the Chinese for the dirtiest and most poorly paid work. The result was to complicate the race rivalries as the Japanese took over the bottom rung of the socioeconomic ladder while the Chinese moved up a rung and competed more intensely with poor whites. The anti-Asian agitation therefore worsened, with the main target no longer Chinese but Japanese. An ti-Asian riots in 1907, followed by a general protest strike of Chinese and Japanese workers, forced Mackenzie King into action. It was a delicate problem, for Japan wanted free migration and Japan was a world power with a military alliance with Britain. In 1908 and 1909, instead of a federal ban or a heavy poll-tax, King negotiated with the Japanese government a set of "voluntary" restrictions on the influx ofJapanese to Canada. The last group of Asians were far easier to deal with. There was no long history of Indian immigration into Canada, and no problem of treaties of alliance. The sole major difficulty was that India was part of the same happy empire built on tolerance, mutual respect, and co-operative effort in which Canada prided itself on its participation. If "free trade" in goods was permissible to the point where it obliterated the Indian cotton industry, why not "free trade" in labour and a free flow of immigrants? King replied that the Canadian climate was unsuitable for Indians — a response that must have been a surprise to the Punjabis from the mild, temperate, mountainous north who were the principal group of prospective immigrants to mild, temperate, mountainous British Columbia. Mackenzie King's solution to the Indian immigration problem was to enforce a rule that only those who came to Canada directly on a single ticket from his or her place of origin would be permitted to enter the country. Since no steamship ran directly between India and British Columbia, Indians were neatly precluded without the need for explicit prohibition. By the time the Asian populations were being systematically blocked from entering, Canada bore little demographic resemblance to the country created by Confederation. The aboriginal populations and the Metis who held sway over the prairie west had been marginalized, and a great tract of potential grain-growing land opened in which railway and general construction proceeded at a feverish pace. Immigrants flowed across the Atlantic or northward to work the construction camps, farms and factories, and were joined

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in the west by eastern Canadians as the demographic balance shifted westward. The railway building frenzy and the immigration and colonization wave were alike pieces of a National Policy that saw Canada's future in terms of the ineluctable expansion of the British empire overseas.

29

Canada and the Cross of Gold

AT THE HEART OF THE NEW BRITISH EMPIRE was the City of London, the world financial metropolis. While the Age of High Imperialism witnessed intense rivalry for territory and export markets, and the steady erosion of Britain's former domination in both, in the financial sphere the British hold, while not unchallenged, remained firm. Countries wishing to avail themselves of the London capital market were required to accept the leading principles of the international gold standard — free international remittances of gold or goldbacked sterling bills of exchange in discharge of trade- and investment-related debts. From its position as world financial centre, Britain opened its vaults to all comers — on its terms — with that certain liberalism that comes only to those convinced of their place at the top. There were two main elements in the British capital exports of the period. Long-term investment funds moved abroad into railways and other forms of infrastructure, into public debt instruments, into utilities, plantations and the like; in short, into the bonds, debentures, and preferred shares of enterprises and governments that would serve to assure the export of primary products from the underdeveloped world to the developed one. Complementing the long-term investments were extensions of commercial credit to finance the actual movement of the commodities, once they had been produced by the enterprises that British long-term capital was helping to establish, and to finance the return movement of British manufactured goods back to the primary producers. Not only British imperial trade, but that of much of the non-British world was financed by sterling bills of exchange negotiated through London financial institutions. 417

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In Canada monetary and financial developments took two main directions, related to the principal categories of British capital exports. The first was to reassure British long-term lenders of Canada's creditworthiness, through a series of legislative and institutional devices designed to reduce the risk associated with investments in Canada, and to assure free repatriation of interest and dividend payments back to Britain. This process sometimes required action as drastic as the federal government subverting, through fiscal or political means, provincial governments whose financial credentials were open to doubt. The second development took the form of assuring that local banks took shape in conformity with gold standard principles. Canadian banks, whose deposits and notes were supposedly convertible into gold, would finance the staple-producing sector; the output would be sold on international markets; the resulting foreign exchange would be available to pay interest and dividends on Canada's foreign debt; and funds could be freely imported and exported in the form of gold and foreign exchange.

The Politics of Federal Finance In the first few decades following Confederation Canadian politicians and businessmen watched with anguish the flow of overseas lending, along with immigrants, move to more politically or financially attractive climes. During the 1870's one bone of contention between the leading financial spokesmen of both political parties was their respective abilities to lower the cost of funds Canadian governments borrowed in London. The fact that the two parties could spend their time energetically debating the same side of the question was a striking affirmation that Canada had matured into a true liberal democracy. And although committed in principle to different fiscal strategies, the overseas debt issue often modified party differences; for changes in tariff policy, whether those of 1857-58, 1866, 1874, or 1878-79, were always formulated with at least one eye on the effects the tariff could have on government revenues and therefore the government's creditworthiness abroad. More important than the tariff in the determination of Canada's capacity to borrow were the very terms of Confederation itself, and the federal government's ability to hold the provinces to them. Federal control over banking and currency, and the additional security resulting from the federal assumption of provincial debts, were both reinforced by the power of the federal government to directly disallow provincial legislation. The federal government therefore as-

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sumed the constitutional power to knock financial institutions into the shape dictated by gold standard orthodoxy, and to intervene in the legislative process of the provincial governments, either directly by throwing out offensive legislation, or indirectly by financing the overthrow of offensive parties, to assure no financial operations would be inimical to the money lords of Lombard Street. In 1889 a New Brunswick mining act was disallowed because it "invades the rights of property which are so important to preserve for the credit of the whole country," and in 1893 an Ontario statute was disallowed on similar grounds. Similarly, when Ontario tried after the turn of the century to force American nickel interests to conform to the terms of their agreement with the Ontario government and commence refining the ores produced in Sudbury within the province, the federal government responded to the disapproval of London, echoed in financial centres in Canada, to block Ontario's move. In addition to these instances came a long list of federal disallowances of provincial railway charters, particularly those of Manitoba, disallowances which were prompted in part by the need to secure the Canadian Pacific Railway monopoly as a defence of its power to borrow money in Britain on the security of its earnings. But nowhere else did the federal battle with a province to assure financial fidelity to the British connection assume the dimensions it did in Quebec. The London capital market had been closed to Quebec in the 1870's by the active campaign of the Grand Trunk forces against the competing North Shore railway projects, forcing the province to turn first to New York, then to France to raise the money it required when the federal government refused to loosen its grip on the fiscal purse strings. In the 1870's French colonization companies began to appear in Quebec, nominally to aid agricultural development and emigration of French colonists, but in reality to grab mineral and timber lands, much as British-sponsored companies would do in the prairie west during the 1880's. Accompanying these colonization companies was a revival of colonization railways and the entry into Quebec of a French mortgage-loan company, the Credit Foncier FrancoCanadien. The province's treasurer was sent to Paris to arrange with a prominent group of financiers the twin projects of a loan for the province to help finance railways and the establishment of a mortgage company that would bring French capital into the province and, in theory, help resuscitate its flagging agricultural sector. The trip was a success. But in reality the loan in fact was raised in London, transferred to Paris through French banks, and then to Quebec; and while the subterfuge added another layer of brokerage and commission charges to the public debt, it also permitted the

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government in Quebec City to pretend to be cultivating closer ties with France and asserting its independence of the Ottawa-London financial tie. Furthermore, in an effort to entrench the Credit Foncier the province undertook to refuse to charter any other Franco-Quebec joint venture in the field of mortgage lending in Quebec for the next few decades. In return, the Quebec government secured the right to fix the company's lending rate. The province's premier, Joseph-Adolphe Chapleau, then took to the hustings proclaiming that he had done wonders to revive Quebec agriculture by bringing in cheap French mortgage money, and once he was returned with a good majority, rewarded Credit Foncier FrancoCanadien by granting it permission to raise its lending rates. In spite of its "French" loan, the Chapleau government's fiscal difficulties persisted, and it was forced eventually to try to extract revenue from the provincial natural resource base. The effort to establish some measure of control over the rate of exploitation of timber lands led to the formation of a powerful timber lobby backed up by the banks who had made heavy loans to the timber companies on the security of their uninterrupted right to denude the provincial forests, and Chapleau was forced to back down. Another abortive project to link resource exploitation to provincial finance lay in the field of phosphate mining. With the decline in the availability of Peruvian guano, the possibilities of an export trade in phosphates to Europe seemed bright, but Chapleau's effort to cash in on it could hardly be so described. Instead of encouraging the development of a phosphate fertilizer manufacturing business in Quebec, which could help restore the soil and provide a valuable manufactured export, the province, wanting to generate quick foreign exchange earnings and government revenues, ceded a twenty-year monopoly of exploitation of Quebec phosphates to a French company. The rationale was that exports of raw phosphates together with livestock would produce sufficient traffic to make a direct line of cargo steamers between Quebec and France viable. Thus raw phosphates would facilitate the export of livestock, the production of which demanded a heavy utilization of land instead of labour, while the Quebec tillage sector would continue to decline and the population to drift off to the United States in search of employment in manufacturing or fertile farm land. The failure of the various colonization schemes, conflicts over colonization railways, and the anti-Ottawa hysteria that the execution of Louis Riel permitted Liberal leader Honore Mercier to whip up, precipitated the overthrow of the Chapleau government (Chapleau was rewarded with the presidency of the Credit Foncier FrancoCanadien). Mercier's administration was soon locked in battle with,

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and ultimately subverted by, a federal government intent on assuring loyalty to the principle of "sound money". Under the Mercier administration, Quebec's capital spending began to soar again as the Jesuit Order added its demands for compensation for its formerly seized estates to the voices of the railway and colonization company promoters pleading for public money. Mercier accordingly took the lead in asserting provincial rights to a larger share of public revenues, and for the power to spend without Ottawa's interference. As the floating debts of the province grew, Mercier began pilgrimages to various international financial centres, only to find Ottawa close behind him energetically, and successfully, trying to wreck the province's credit. In 1888 Mercier tried a new approach. Taking a cue from some of the shakier European governments of the period, he unilaterally decreed a reduction in the rate of interest on the provincial debt. As the howls of outrage from domestic and foreign financial interests filled the air, the Macdonald government stepped in and overruled its sacrilegious child. By 1890 Quebec's situation was desperate. The demands on the provincial purse by three sets of interests — railway promoters, the Jesuit fathers, and the contractors on the new Montreal prison being erected to accommodate those who disagreed with the social priorities represented by the first two — had drained the public purse to the point where the floating debt stood at close to $ 11 million. The Mercier government was forced into a number of fiscal expediencies, including much-resisted direct taxes on commercial companies. Taxes placed on mining companies resulted in the mining promoters threatening to leave the province — the copper mines actually staged a short-lived shutdown — and led to the creation of a special mining lobby to press for the abolition of the tax. Canadian promoters and British capitalists involved in Quebec railway ventures were alienated by Mercier's imposition of a tax on their earnings and his insistence on the right of the province to appoint two directors on every line receiving a provincial subsidy. Defeated, Mercier went to France again to try to raise a long-term loan. It was a bad time to be pleading with bankers for long-term investment funds. The Baring crisis made international financiers look with a little more care at the character and repayment capacities of the provincial and state governments to whom they lent money. Nor was the atmosphere improved by an array of scandals around the Panama Canal project that rocked French financial circles at the time. And to make trebly sure Mercier did not get the funds he needed to salvage his fiscal and political fortunes, Ottawa induced the French consul at Quebec to lobby the French govern-

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ment to block the loan. Mercier had to be satisfied with only a shortterm loan from the banks which had stood behind the Credit Foncier promotion, and when the time came for its renewal Mercier was under arrest. Mercier's problems began with the Baie des Chaleurs railway project, which had inched ahead over the late 1880's on the basis of sporadic votes of public aid and the proceeds of bond sales in London. In 1890 Mercier pledged rapid completion to the constituents concerned if a by-election were favourable. After the victory the contractor presented a bill for $298,000 for work that had never been done, of which $175,000 was approved for payment. The contractor kept $75,000 and retransfered $100,000 back to a group of cabinet minsters for sundry electoral and personal expenses. All of this was in keeping with the normal standards of Canadian political conduct, and by itself would have attracted no attention to speak of. But bigger things were also afoot, and the Baie des Chaleurs railway affair got caught up in them. In 1891, provincial fiscal crisis coincided with a federal election, and Mercier made a fiscal manoeuvre that eventually proved his undoing. That year in the federal election campaign Wilfrid Laurier, new leader of the federal Liberals, promised Mercier an additional $400,000 per year of federal money if the Liberals won, in return for Mercier's moral and financial support. It seemed like a good investment, but Mercier did not have the money he needed to fulfill his side of the bargain. To generate the needed money, a scheme was concocted whereby the official supplier of stationery to the Quebec government claimed to be short of the means to fulfill his contract for the provision of paper to public offices, and applied for an "advance". The immediate "advance" was $30,000, with another $30,000 promised (the total requirements of the stationery department were only $20,000 a year). A letter of credit for the sum advanced was cashed at one of the Quebec savings banks and the funds diverted into Liberal Party coffers (the Secretary of the Government Printing Bureau in Ottawa was likewise busy diverting federal public money into the Tory election fund). In addition, the Liberals received funds from money earmarked for the Quebec government's subsidy to the Baie des Chaleurs railway. When the federal Tories narrowly carried the 1891 election, they declared war on Mercier. At a time when the federal government was torn by scandal as an elaborate spoils system operated by Macdonald and his ministers came to the surface, it was doubly useful politically to dredge up as much information as possible to taint a provincial Liberal government. Over and above revelations about the Baie des Chaleurs railway came the Quebec Court House affair: it was alleged that during the last provincial electoral campaign the

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provincial Liberals, strapped for funds, had blackmailed a contractor on the Quebec Court House to inflate his charges from $200,000, the original tender, to $800,000, part of the difference being siphoned off into election funds. If the contractor had refused to inflate the expenses, the government threatened to strike out all the sums due him from the estimates. After these operations were unveiled in the Globe, the Mercier government charged seditious libel and took out warrants against all newspaper proprietors who published the charges. The choice of seditious libel was an astute move. A normal charge of libel would have involved a trial to determine the truth or falsehood of the allegations, but to make seditious libel stick, all that was required was that the publication of the charges tended to bring the government into disrepute, with no reference to the veracity of the claims. In any event, the federal Tories had enough on Mercier already to order the lieutenant-governor of the province to dismiss his administration on grounds of corruption. While Mercier himself faced charges, he was acquitted in court — which immediately prompted the interesting speculation that the jury had been bought, which would have put Mercier in the interesting position of having bribed a jury to find him not guilty of corruption. Since one of the acts of the "reformist" government that replaced Mercier was to repeal the taxes on corporations Mercier's fiscal problems forced him to impose, one cannot help wondering if the American business historian Gustavus Myers had Quebec in mind when he commented a few years later, The only difference was that under an openly corrupt machine, they [the propertied classes] had to pay in bribes for franchises, laws, and immunity from laws; while under the "reform" administrations that represented and toadied to them, they often obtained all these and more without the expenditure of a cent.

The Banking Structure at Confederation Bringing the provincial governments into line with respect to their debt-management policy was only one part of the federal campaign to reassure British investors of the security of their loans. Arguably it was not even the most important part. That honour went to efforts to mould the Canadian banking system along the lines of the gold standard orthodoxy, or, more precisely, continuing the campaign to so mould them as already begun by the Colonial Office well before Confederation. At the time of Confederation, much of the Canadian banking sys-

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tem verged on collapse. The end of the building boom in 1857 had severely depreciated the assets of many of the banks, and when the new crisis hit in 1866 it claimed as its victims the Bank of Upper Canada, the Commercial Bank, and the Gore Bank, as well as an array of lesser institutions. The Bank of Upper Canada failed outright; the Commercial was grabbed by Hugh Allan's Montrealbased Merchants Bank of Canada; and the Gore was absorbed into the new Toronto promotion, the Bank of Commerce. The Bank of Montreal was left in a position of almost complete dominance, in party by virtue of sheer size, in part because of the demise of its old Upper Canada rivals for power and influence, and in part because the federal finance minister, John Rose, operated more or less openly as its parliamentary agent. Shortly after Confederation Rose, at the behest of the Bank of Montreal, attempted a major reorganization of the banking structure which would have enhanced its power even further. At the time the Canadian banking system was divided into three distinct parts. In Ontario, Quebec, and in Halifax the chartered banks had evolved as a standard form of multi-branch institutions headquartered in the major urban centres. Their principal role in the economy was to make short-term commercial loans to business and to finance these loans by attracting non-interest-bearing deposits and by issuing bank notes. The shape of these institutions had been heavily influenced by British example — by the regulations laid down by the Colonial Office; by the migration to Canada of British financiers who assumed a leading role in the management and development of the banking institutions; by British direct investment in Canadian banks and the concomitant desire to make sure the banks conformed to British norms; and by the actual establishment in Canada of imperially chartered banks headquartered in London. The second type of bank, found in most of the Maritime areas and in some of the smaller urban centres of central Canada, followed an American model, often, in the case of Nova Scotia and New Brunswick, as a direct result of ties with Boston capital. They tended to be small, single-branch banks, and were frequently under the control of local businessmen who used them to finance fixed capital investments — in manufacturing plant, sawmills, shipyards and the like. Finally came the Bank of Montreal, primus inter pares. While in London the role of Canadian fiscal agent fell to the merchant banking firms, Barings and Glyn, Mills, within Canada that role was played by the Bank of Montreal. And that bank aspired to even greater things, hoping to exert the same degree of influence over Canadian financial conditions as did the Bank of England in its

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bailiwick. To assure that status it sought to eliminate the principal instrument of financial independence of the chartered banks, their ability to issue bank notes. The Bank of Montreal scheme was simple. If the federal government assumed the exclusive right to issue paper money, the administration of that paper money would fall to the federal government's fiscal agent, which would then be in a position to control the lending activities of all other banks by virtue of being the sole source of currency, and therefore of liquidity, when they found themselves in need. Since the federal government was desperately searching for a means of raising funds to finance the Pacific and Intercolonial railways, and since issuing paper money was politically more saleable than imposing taxes, the plan found a sympathetic ear in the new Minister of Finance. The fact that he was a shareholder in, and former director of, the Bank of Montreal also did no harm to the cause. The plan was bitterly fought by the other large chartered banks, which saw it as it was, a scheme by the Bank of Montreal to reduce them to financial dependence. But it would also have eased the public finances and eliminated part of the need for recurrent pilgrimages to Lombard Street. By issuing paper money the government would, in effect, be borrowing from the Canadian public rather than London financiers. Under the Bank of Montreal plan, copied from the mechanism introduced in the United States to finance the Civil War, not only would the government have the sole right to print paper money, but banks wishing to circulate the money that the government printed would have had to deposit a reserve of federal government bonds with the Minister of Finance as security for it. The result would be to automatically direct part of the flow of public savings, then moving into the hands of the banks, toward the federal government. As the storm clouds gathered, the bankers' representatives in the House of Commons and Senate rallied to the gold standard; and John A. Macdonald, true to form, put political expediency ahead of fiscal principle. The Bank of Montreal scheme was dropped and John Rose took an early retirement from the finance post. None other than Francis Hincks stepped into the breach and began putting his undisputed financial talents to work, moulding the Canadian fiscal and monetary apparatus and looking for ways of improving his personal fortunes.

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Hincks had a number of competing objectives to satisfy: the different banking factions had to be reconciled; a monetary union had to be created across Canada; and the requirements of federal finance, particularly with respect to the Pacific railway, had to be satisfied. What came out was a compromise which, like all compromises, failed to achieve any of the objectives apart from the political one of appeasing the larger and more powerful chartered banks, the Bank of Montreal excepted. Under the resulting Bank Act, the minimum capitalization of a chartered bank was set at $500,000, in effect assuring that banks would be large, multiple-branch institutions capable of mobilizing funds on a wide geographic basis. Such a banking structure would, on the surface, help move Canada into the direction of a monetary union. But that development was in large measure undermined by the solution adopted for the note issue controversy. Apart from lowdenomination notes, which few banks had outstanding in any great number, and the very high-denomination notes, whose value in fact prevented them from circulating from hand to hand, the capacity to emit paper money was left in the hands of the individual chartered banks. And there was no institutional provision, apart from the vagaries of bank practice, to assure convertibility of one type of bank note into another. Since certain banks dominated certain geographic regions, there tended to be a multiplicity of currency areas with no guarantee of free, costless conversion from one to another within Canada. In normal day-to-day practice banks would accept each other's paper, though sometimes at discounts; but in times of crisis the paper of the weak banks was usually refused by the strong, and the result would be to make the crisis worse as more and more depositors and noteholders of the suspect institutions scrambled to cash their notes and deposits for gold. A federal government-issued paper money would have created a genuine monetary union in Canada to complement the political one, and helped insulate different banks from their neighbours' financial vicissitudes. But the pressure of the big banks defeated the plan — it was the big banks that had the maximum scope for issuing paper money and that stood to gain the business lost by the small ones when financial crisis drove them to the wall. If the results of Canada's first Bank Act represented a victory for the bankers of central Canada, the course of economic events after 1873 threatened to rob them of any benefit. With the crash and ensuing deflation the banks found themselves in a squeeze. A great wave

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of bankruptcies spread over the commercial sector wiping out bank loans to the merchant houses, and at the same time their sources of loanable funds were badly eroded. The root of the problem lay in the fact that the banks in 1871 had committed themselves to continued reliance on their ability to issue paper money as a principal means of gathering funds to finance their lending activity. As prices collapsed and the demand for bank loans fell with them, the banks' capacity to put their paper into circulation fell. Over the course of the depression of the 1870's the squeeze between depreciating assets and an inability to put more paper into circulation claimed an array of banks across the country.

The Genesis of the Canadian Bankers' Association In the context of a renewal of the economic crisis of the 1870's and 1880's, deflation, and the squeeze between depreciating assets and the note issue contraction, the banks were prompted to take collective action as more and more of them closed their doors, the competition of other lending and borrowing institutions intensified, and the public clamoured for state action to clean up the banking system. Since the banks had made a determined decision to stick to commercial bank orthodoxy in terms of their theoretical, if not always practical behaviour, they found the competition of other institutions increasingly a nuisance. With the scope for note issue shrinking in the context of secular deflation, the banks cast covetous eyes on the burgeoning savings deposit business carried out by the government-owned savings banks and mortgage loan companies. They also noted with concern the cutthroat competition for deposits their own brethren were conducting among themselves as well as the mounting public outcry against a series of scandal-wracked bank collapses. To deal with all these problems the banks determined on organizing. Until the 1880's there was no formal association grouping the banks together for common action. While every ten years the banks assembled their representatives in Ottawa and sat down with finance department officials to dictate changes in the Bank Act, there was no mechanism for day-by-day consultation; and, apart from the representation some banks had on an individual basis in Parliament, there was also no scope for continuous, collective lobbying. The banks therefore began a two-stage counterattack. Starting first from the major Toronto and Montreal banks, and then spreading to embrace virtually all, an interest rate agreement was reached whereby the rate of interest paid to depositors was harmonized among banks and a collective effort was made to lower it. But in order for the bank savings rate

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to be effectively lowered, that of the principal competitors had to be as well, and that brought the banks to the second stage of their counterattack — to Ottawa to try to eliminate the government savings banks and clip the wings of the mortgage loan companies. In 1885, with the CPR complete and some of the pressure lifted from the government's immediate cash requirements, the government responded to the banks' pressure and began phasing out its savings banks and reducing the rates of interest offered in the remaining ones. In addition mortgage loan companies, whether federally or provincially chartered, often found that the bank lobby had been able to attach restrictions on their borrowing powers. An even greater danger to the banks had to be met in 1890 when they were forced to turn from attacking the borrowing powers of other financial institutions to defending their own. The financial crisis of 1887-88 left in its wake the ruins of five broken banks plus suspicions about several others, and the pressure on the federal government to increase the stability and safety of the remaining banks was becoming intense. At the same time protectionist forces, seeking to break the gold standard link that tied Canada into the structure of British imperial trade, together with farmers burdened under fixed interest debt at a time of falling commodity prices, took up the cry for more paper money, issued by the government under soft terms, and preferably inconvertible. The Minister of Finance, always eager to find an alternative to taxation to expand public revenues, and pushed on by the Bank of Montreal which seized upon the public clamour to renew its old ambitions, began moving in the direction of expanding the government note issue and imposing a fixed cash reserve requirement on the chartered banks. The alarm signals went out and the bankers descended on Ottawa. When the minister proved intransigent the banks appealed over his head to Macdonald, who once again proved himself ready and willing to put his political principles on the bottom line and cede to the financial elite. Once more a plan to reform the banking system was abandoned. This was not the bankers' lobby's only victory in the dying days of the Macdonald era. In addition to registering continued successes against government regulation and the competition of government savings banks, the pressure to squeeze out small local banks in favour of large multi-branch institutions was kept up. In the 1891 Senate debates, the second reading of the Body Snatching Bill was followed directly by a debate over whether or not to destroy the tiny Farmers' Bank of Rustico, which had served the Acadian farmers of one Prince Edward Island community for nearly four decades. It was decided to deny it further note-issuing power and to force it to merge with another institution.

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The Flow of Funds With the turnaround in economic conditions in 1896 the situation of the big chartered banks improved. As the long deflation gave way to a secular inflation, the banks' capacity to circulate their paper improved. At the same time their earlier successes at the expense of competitors for the role of depository of the community's savings paid off handsomely. The cartel kept the downward pressure on the savings rate while increasing steadily its control of the growing population's savings. And as the Canadian economy floated on top of the building boom sustained by the great inflow of British capital, the lending activities of the banks shot up. By 1914 Canada alone was absorbing 30% of the total annual export of long-term capital from Britain, while foreign investment of all sorts was financing fully 50% of Canadian domestic capital formation. British capital financed the long-term investment in infrastructure necessary for the opening of the prairie west and the expansion of British Columbia's mining and forest frontier, while Canadian banks made the short-term loans needed to move the products of domestic agriculture, mining, forestry and manufacturing to market. Prodded by the turnaround in the Canadian economy and the increasing integration of its various regions, the banks moved east and west to consolidate the monetary union. To the west the banks moved along with the railways, relying initially on business associated with the construction activity. In 1900 there were 108 branches and agencies of central and eastern Canadian banks west of Ontario: by 1913 there were 2,962. At the same time the banks moved west they also went east, displacing those Maritime banks that had survived the recurrent crises since 1873, forcing many into defensive mergers, and finally inducing the two survivors, the Royal Bank and the Bank of Nova Scotia, to shift the centre of their operations to Montreal and Toronto. Meanwhile an active merger movement, encouraged by federal government regulation, was underway among the central Canadian banks with the result that by 1914, despite the issue of 33 new charters, there were 15 fewer banks in Canada than there had been at the turn of the century. Canada was left with a small group of multibranch banks, headquartered mainly in Toronto and Montreal, dominating the flow of funds within Canada, and with lending and borrowing activities stretching from coast to coast — and even beyond into Newfoundland and the Caribbean. The flow of funds followed the shift in the centre of economic activity. The Maritime provinces became capital exporters to the rest of Canada through the corporate and financial network that evolved. The few government savings banks which continued to operate were

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concentrated in the Maritimes, and drained funds from the area to spend on government infrastructural projects elsewhere, predominantly in the prairie west. The ongoing process of takeover of Maritime industry by Montreal big business also meant an outflow of funds as mergers and profit pooling made Montreal the headquarters and the financial centre of the combined enterprise. And, above all, the banks saw the Maritimes as an area of "surplus savings" where deposits exceeded loans, the balance sent out of the area to sustain bank lending elsewhere. The declining farm communities of Ontario and Quebec also joined the ranks of "surplus savings" areas, and their deposit monies followed their population moving west or south. While Ontario towns, like those of the Maritimes, did little more than lament the loss of skilled people and investment funds, in Quebec a somewhat more energetic policy was put into practice. During the 1890's when the Dominion Parliament planned the destruction of the Farmers' Bank of Rustico and subsequently debated abolishing the usury laws, one witness to the proceedings was the clerk of the House of Commons, Alphonse Desjardins. As he saw it, the farmers and workers of Quebec were being thrown into the hands of the loan sharks by the chartered banks whose sole interest in the worker or farmer lay in securing control of his savings to be put to work elsewhere in Canada. With funds being drained off to commercial and industrial lending, small businesses wanting capital, artisans needing consumption loans, or even farmers needing cash for farm improvements had to turn to loan sharks. Desjardins envisaged the need for an institution that would "nous rendre maitre chez nous." That institution was the Caisse Populaire. It was to be a co-operative bank, owned and managed by its depositors, and making loans to them. And although successfully established in the face of opposition by the anglophone financial establishment, in the period before the war the threat these credit unions posed for the big banks and the long distance flow of funds was still more potential than real. Their main challenge to the existing financial hierarchy came much later. Funds that flowed out of small Quebec towns, as from Ontario and the Maritimes, moved to the west where the construction boom and then the need to finance crop movements dictated a surplus of loans over local deposits. The loans to western farmers confirmed the emergence in the prairie west of a single cash crop economy geared to export. The term of the loan was normally three months, while farming operations were a twelve-month affair. Hence the farmer in any given crop year would have to report to the bank to renew his note, giving the bank the opportunity to make the terms progressively more onerous. Loan rates were reported at up to 14% per annum, double the

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rate theoretically permitted by the usury laws. But there was no penalty to a bank for charging more than the legal limit; in theory it was up the the borrower to refuse to pay the extra charges. But given the close co-operation and open collusion of banks on terms and rates of loans, and given that small centres often had only one or a very few bank branches, refusal by a farmer to meet the extra interest costs likely meant no more loans. Given also that the notes had a threemonth term, while the farmer was committed to operating twelve months before receiving a flow of returns, refusals by farmers to meet the banks' demands were undoubtedly few. In the American west during the period of rapid expansion of the grain frontier after the Civil War farmers did react strongly to the harsh credit terms the banks imposed. Farmers provided the electoral backbone of the free silver movement, which was partly motivated by the desire to break into Asian silver-standard country markets and offset the exchange rate advantage Indian cotton and grain enjoyed, and partly motivated by the desire to inflate prices and reduce the real burden of fixed interest debt. At the time there was little parallel development in Canada, for its farm sector markets were not oriented toward Asia. Dairy products, not wheat or cotton, formed the backbone of Canadian agricultural exports during the 1870's, 1880's and 1890's, and Canada had no powerful silver miners' lobby to demand remonetization of that metal. And as the agrarian frontier in Canada shifted westward two or three decades after the American movement, it did so in a context of secular inflation rather than deflation. Thus while American farmers had struggled to reduce the real burden of fixed interest debt at a time of falling commodity prices, Canadian farmers faced only half of the problem. Commodity prices were rising and Canadian prairie grain farmers were still in the development stage, and therefore still in the process of contracting long-term debt. Not until the 1930's did Canadian grain farmers find themselves in a situation analogous to those of the American west in the 1870's, 1880's and 1890's, and then the "cheap money" cry took a different institutional form from that for "free silver". Furthermore, the American agribusiness class was antagonistic to the financial structures of British imperialism; "free silver" was on one level a declaration of monetary independence. Canadian farmers had no ideological antagonism to British capital. Their concern was with nominal rates of interest, and their antagonism to the financial system took the form of calling for more competition to the existing banks. Those banks, however, stood shoulder to shoulder with the federal government in the joint defence of gold-standard orthodoxy and financial centralization. Moulded by a succession of Bank Acts, the Canadian banking sys-

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tern Gtted well into the context of an expanding British empire. A small group of financial institutions headquartered in the metropolitan centres channeled the flow of national savings into a growing frontier producing primary products for export to imperial markets, while their adhesion to the principles of the international gold standard assured free convertibility of currencies and a hospitable reception to overseas investors. Encouraged by the banks, the production and export of staples and Canada's foreign debt grew quickly in the pre-war years, and both, in keeping with the precepts of the imperial trading system, took precedence over industrial development, a field left for others to pioneer.

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Industrial Development and Continental Integration

UNTIL THE FIRST WORLD WAR the United States remained a net importer of foreign capital. In 1873 its net overseas debt was $1.5 billion, most of it representing capital invested in American railways. By the turn of the century nearly $3.5 billion of foreign investments, 75% British, had been put into American enterprises, again mainly in railways. By 1914 U.S. debts payable abroad were nearly $7 billion. Nonetheless by that date the United States had managed itself to invest $2.5 billion in foreign enterprises, largely in the form of direct investments. Of these direct investments, most were in mining and extractive industries, followed by manufacturing, agriculture, railways and utilities. By country the chief recipients were Canada and Mexico, where U.S. investment could occur as a more or less "natural" spillover of domestic growth patterns. In Canada manufacturing investment took the lead, with mining coming second, whereas in Mexico investments in the extractive sector were well in the forefront. Within Canada the most favoured region was British Columbia, whose mines and forests attracted American enterprise in great numbers, while the bulk of the manufacturing branch plants and affiliates were erected in what emerged as the Canadian industrial heartland, from southern Ontario to Toronto, then along the St. Lawrence to Montreal. The forces causing the early migration of American industrial capital to Canada, well in advance of America's rise to the status of a world financial power and well before the process of American direct investment in Europe got underway, were rooted in the dynamics of evolution of the American industrial system. 433

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Genesis of the Multinational Corporation While the American Revolution itself was prompted partly by the efforts of Britain to stifle colonial manufacturing, in the short run little changed in the international division of labour, England remained the chief source of American manufactured products and its main market for staple exports, and there was little economic incentive to change this. American capital continued to find its most secure profits in the carrying trade; there was little reason to divert funds into manufacturing, a new field in which American businessmen were convinced of their inability to match the British. Since there was little domestic development of manufacturing, there was no foreign investment in it either. To the extent American entrepreneurs and capital ventured abroad, they did so by establishing agencies of American commercial houses in the major centres of American trade. The turnaround seems to have begun in the early years of the nineteenth century. The Embargo of 1807 was followed by the NonIntercourse Act of 1810 and the War of 1812-14, all of which threw the traditional structure of trade into chaos and led to the cessation of much of British exports of manufactured goods to the United States. The disturbances also severely damaged shipping investments and set shipping interests off in search of new investment opportunities. Finally, they guaranteed to the nascent American manufacturing interests a monopoly of the home market. Thus merchants in search of dependable alternative sources of supply, shipping and merchant banking interests in search of alternative investment opportunities, and manufacturers seeking control of the home market formerly usurped by British goods all found their economic interests briefly in harmony as a result of the particular conjuncture of historical events. In New England in particular, textile mills, distilleries, sugar refineries, and iron and steel foundries, encouraged by the Yankee merchant princes, exploited the vacuum left by the cessation of imports from Britain. After the war British competition was renewed, for much of the New England commercial elite preferred to return to the traditional trade patterns. The capacity of British houses to extend long credit terms to their customers across the Atlantic, trade credit which in turn secured the position of the New England import houses in the American market, obliterated a considerable part of the new American manufacturing capacity. But not all, and from 1820 on, the issue of free trade versus protection began to assume an important dimension in the face of the economic, financial and political power of the alliance between British manufacturer and New England importer. In the later 1820's an American industrial revival slowly took

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shape, stimulated by a number of factors. Immigration led to a rapid growth of the home market, as did commercialization of western agriculture. Transportation development produced conditions for the growth of the capital goods sector. The displacement of eastern agriculture by cheaper western produce led, in conjunction with immigration, to the emergence of a pool of cheap labour. Profits in ocean trade were falling. In the east, large-scale manufacturing enterprise re-emerged in textiles and other mass consumer goods industries. Symbolic of the rising importance of eastern manufacturers was the victory of the Jacksonians on the political front and the consequent shift of economic power from Philadelphia, the old commercial centre, to New York, the new financial and industrial centre. Much more significant was the pattern of industrialization taking shape in the smaller eastern and western centres. As the agrarian frontier expanded and population grew, small towns appeared, first as distributing centres, later as the site of small-scale manufactories. Eastern merchant capital tended to be absent from these establishments; the pattern of self-financing was dominant. These firms grew up in classical fashion: from artisanal roots with master-craftsmen evolving into small-scale capitalists, while growing barriers to upward socioeconomic mobility turned journeymen and apprentices increasingly into proletarians. At this stage of American industrial history the factory was highly mobile. The amount of fixed plant and equipment tended to be small. The technology was simple, and embodied in the heads and hands of the master-craftsmen. Demand was local, for an American national market was still far from a reality, until the completion of the railway network eliminated the "natural" protection and market segmentation resulting from poor intercommunal transportation and communication links. Thus the firm could move about in response to the existence of pockets of stationary demand. Entrepreneurs, dissatisfied with a given locality or driven out by competition, could with comparative ease shift their locus of production elsewhere. Journeymen, blocked from socioeconomic ascent in one area, could take their training and skills elsewhere and establish a manufactory. There were no guild restrictions in the United States that could seriously hamper such developments. This meant that industrial growth could spill over from one locality to another, from one region to another, and even from one country to another as American master-craftsmen and skilled workers moved into Upper Canada (Ontario), whose pattern of thriving agriculture and proliferating small towns closely resembled conditions in the American Great Lakes agricultural states. Pioneers in commercial distilleries, steam tanneries, agricultural implement manufacturing, and all manner of foundries moved into Ontario from across the border and set up their plants.

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By the time of the great railway building boom of the late 1840's and early 1850's, the local factory had begun to assume regional dimensions. As the scale of firm grew and the market horizon expanded, American firms began to encounter problems in defending their techniques and patterns. A product could be imported into another locality and copied; skilled workers or even partners could leave, carrying the relevant technical knowledge with them and establishing competing plants elsewhere. From the 1850's on licensing began to assume importance as a means of defending techniques and preventing competition. Licensed affiliates in several lines, notably agricultural implements, sewing machine manufacture, petroleum refining and others began emerging abroad in certain parts of Europe and especially in Canada. In the period before the Civil War international operations appear to have been hampered by the small scale of firms and the lack of adequate, cheap transportation facilities. But during and after the Civil War the railways began criss-crossing the United States and revolutionizing the scale and mode of operation of American business. Horizontally integrated national firms grew up in response to the creation of a national market, and these new national firms quickly turned to overseas expansion via sales agencies or agreements with foreign merchant houses to facilitate their export drive. This first great American industrial challenge was facilitated by the falling of freight rates consequent upon the proliferation of railways and steamship lines, and by the general deflation after 1873. At this stage there was no general tendency to establish manufacturing facilities abroad. The possibilities of communication between parent and foreign affiliate were poor. The United States had still not evolved its great lead in the technology-intensive industries that subsequently formed the shock troops of the wave of American multinational expansion. Few firms were big enough to undertake large and risky capital exports. To the extent branch plants were set up they were less in response to industrial growth in the United States than to the attraction of local conditions such as tariffs and subsidies from foreign governments or the cheap availability of some particular vital raw material. Most early branch plants therefore were located in Canada, in the Ontario towns close to the border where the disadvantages of international operations were kept to a minimum and where tariffs and other facets of government policy acted as an important stimulus to movement. A more positive attitude toward foreign investments by American firms grew as the firms themselves did, and the decisive period for the consolidation of big business enterprise in the United States began with the depression of the 1870's. As prices fell while costs remained

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sticky American industry responded to the resulting profit squeeze in two ways, both of which had international repercussions. It attempted to stabilize prices of final products and control competition by the formation of cartels, often on a trans-national scale; and it attempted to cut costs by seizing control of cheaper sources of raw materials either within the United States or, where necessary, outside it. The first efforts at formal cartelization took the form of the creation of "pools" in which each member placed its productive capacity under the control of a central organization in which all of the participating firms were represented. Some member of the pool might be paid not to produce at all; others to strictly limit their output. The combined output was sold at regulated prices by the central organization, and the profits divided among the members. In the short run the pools did often help prevent price wars and stabilize profits, but in the long run they were built on sand. In the context of secular deflation members often had an incentive to drop out and start cutting prices. The pools were illegal, and therefore the agreements could not be enforced in court. The only guarantee of good behaviour was to have members place a deposit with the association and to institute a system of fines and forfeitures for non-compliance with the rules. But in the context of secularly falling costs and prices in the 1870's and 1880's, members of the pools often still found it worthwhile to forfeit their deposits and cut prices on their competitors; and the problem of breakaways soon led to the collapse of most of the pools. The 1880's saw further major developments in the field of industrial organization — the "trust" and vertical integration. The idea of a trust was a central organization governed by a board of trustees to whom all of the shares of the constituent companies were assigned. In return the trustees issued "trust certificates" to the original shareholders in proportion to the capital represented by the firms. The trust was not a full fledged union of the constituent firms: it was still an association of legally distinct firms. Trusts were more stable internally than the pools, but were more vulnerable externally for, because they had documents, they could be more easily prosecuted for combination in restraint of trade, with the possible consequence of fines and court-ordered dissolution, or more likely, a hefty legal bill resulting from the need to buy off the judge and prosecuting attorney. It was during the age of the trusts that the most energetic penetration of foreign natural resource supplies by American verticallyintegrating firms took place. American business investment poured into Mexico, South America, the Caribbean and Canada. Timber lands in Ontario, Quebec, British Columbia and New Brunswick, silver in British Columbia and Ontario, nickel in Sudbury, copper, asbestos and phosphates all attracted the interest of the vertically in-

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tegrating firm intent on cutting raw material costs and stabilizing supplies. The American firm had thus advanced to the stage of the horizontally and vertically integrated national corporation with an increasing presence abroad via sales drives, investment in resource-bearing areas, and international cartels. The next stage of its development came in the wake of the Panic of 1893 and several years of ensuing depression. Depression meant surplus stocks of goods, which fed the export drive as firms sought to dump these surpluses abroad. It also meant the elimination of many smaller, weaker firms through outright bankruptcy or through takeover as a result of financial weakness, and led directly to the great merger movement of 1898-1903. It was in this period that the American multidivisional firm began to take shape and proceed to a more aggressive international investment stance. The merger movement of the turn of the century had as a fundamental prerequisite the maturation of the American capital market. Until the 1890's most American industry was self-financing and had little recourse to organized capital markets which tended to concentrate on government bonds, railway securities, and utility stocks and bonds. During the 1890's that began to change, and one of the most important figures in prompting the change was J.P. Morgan. Morgan was the living, walking embodiment of the American Dream, of the fundamental truth of the proposition that in America, land of the free, anyone, no matter how humble his origins, could through hard work, perseverance and loyalty to family, country, God and private property, make it to the top. Morgan was born into a millionaire family and got his own start during the Civil War by selling back to the Union Army some rifles they had already discarded as being too dangerously defective to use. And after the war Morgan collaborated with Jay Cooke to refund much of the American government's warinduced debt, collecting handsome commissions from the operation and joining his influence with that of the rest of the eastern establishment in insisting that the government meet its obligations in gold at full face value. Financiers who bought bonds with depreciated Greenbacks that they had acquired for 40 or 50% of their face value thus were repaid double their investment in gold while soldiers, including those lucky enough to be equipped with the Morgan rifles, had to accept their pay during the war in those same Greenbacks whose purchasing power had fallen to half. During the 1880's Morgan had turned his remarkable talents to organizing railway cartels and mergers, and when the Panic of 1893 made railway investments less attractive, he became increasingly interested in industrial organization and finance.

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The technique was simple: seize control of a large number of companies by offering the owners grossly inflated prices, payable partly in stock in the new enterprise, partly in bonds, and as little in cash as possible, and by threatening to wreck their securities on the exchange if they did not sell; then merge the companies, water the stock in the combined enterprise, and unload the shares on the investing public, though not before draining off as much of its capital as possible in unearned dividends and promoters' fees. With such manoeuvres the great investment bankers put together huge mergers in sugar, iron and steel, textiles, meat packing, tobacco, agricultural implements, petroleum, and other older lines of enterprise. Some of the great mergers spilled abroad, either by Canadian firms being picked up and merged along with the American, or by the merger being followed by the establishment of branch plants and affiliates in Canada. But for some of these lines of enterprise expansion into Canada was hampered by the prior existence of large Canadian firms already in control of the field. That impediment was seldom present in major new lines of industrial activity. At the same time the old businesses typical of nineteenth century industrialization were being grabbed up and reorganized by the Wall Street barons, a second industrial revolution was taking place — with shoestring financing, for the established money lords shied away from risking funds in novel types of industrial enterprise. It was these new sectors that transformed American industrial and social life and gave the United States the foundation of its industrial strength in the twentieth century — electrical products and power, along with the related copper refining and manufacturing business, new chemicals, automobiles and the numerous spin-offs from the automotive industry such as rubber, glass, aluminum, and specialized metal working. The period after 1893 thus saw the emergence of the American multidivisional enterprise. The formation of the new generation of corporate giants and their overseas expansion went hand in hand. While American international expansion had long been typified by the proliferation of sales agencies with no general movement toward the establishment of overseas manufacturing facilities, after 1893 that had to change. American overseas industrial expansion accelerated in various forms. Sales agencies continued to be established but increasingly showed a propensity to evolve into assembly operations. Branch plants, licensed ventures, and joint ventures with local capitalists appeared in numerous sectors, while the demand for foreign raw materials drew increasing amounts of American capital into forestry, mining and petroleum abroad. The new industries of the period, notably automobiles and electrical products, being denied easy access to

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outside capital within the United States, would tend to seek out joint venture arrangements or simply licensing arrangements abroad. The older industries, in the process of monopolization at home and with ample resources of financial capital, would try to reproduce that monopoly power abroad, spilling over to Canada in the form of branch plants and takeovers of existing businesses, and moving further afield in the form of international cartel agreements with the industrial giants of western Europe.

Spillover to Canada Reflecting their different patterns of agrarian history and therefore of urban development, Ontario and Quebec walked strikingly different paths of industrial growth. In Ontario most industrial firms emerged along classical lines. Thousands of handicraft shops existed at midcentury, some of which began to take on the character of small-scale capitalist enterprises geared to fulfilling the demands of the immediate locality. Typically, master craftsmen accumulated and reinvested profits in a firm that was passed on from generation to generation as a family enterprise, privately organized, and bearing the family name as a trademark and a guarantee of quality of craftsmanship. Thus Toronto, while coming to dominate southern Ontario commercially and financially, was never the great industrial metropolis of the region. Instead, the province was dotted with small industrial centres. Prior to Confederation, American industrial technology entered Canada, particularly Ontario, in the form of stolen patents, often copied from imports, and in the form of migrations of American skilled workers and entrepreneurs who brought with them their savings, their technical knowledge, and sometimes their machinery as well. American entrepreneurs assumed positions of industrial leadership throughout Ontario in the pre-Confederation period, and a long list of Canadian manufacturing enterprises owed their start to them. Particularly important for the essentially agrarian community was the agricultural implements industry. It was created almost exclusively by American emigre craftsmen and sustained by a steady process of pirating American industrial techniques; and it took root in Canada at a time when mechanization of agriculture was becoming important, in fact essential to the development of large-scale commercial grain farming. The government of Canada itself openly and deliberately facilitated the process by which American agricultural implements were copied and reproduced inside Canada to assure Ontario grain farmers knowledge of and access to the new reapers, binders and combines which were revolutionizing American agriculture.

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While the pirating of patents between countries was commonplace in the nineteenth century — finally prompting a series of international conferences after 1873 to try to curb it and work out reciprocal arrangements — for the American inventors the Canadian antics were particularly galling, because more than with any other place, they raised the possibility of American manufacturers being confronted in their home as well as their export markets with competition from copies of their own products. For a time a patent war raged back and forth across the border. American inventors were refused the legal power to defend their processes in Canada, so Canadians were refused patent privileges in the United States. In 1869, partly in an effort to use American inventors as hostages for a renewal of Reciprocity, a stringent patent law was passed denying all non-residents patent rights. When the Canadian offer of a reciprocal patent agreement during the Treaty of Washington negotiations also failed to provide enough additional bait for Reciprocity, the 1872 patent law renewed many of the old restrictions. It did, however, grant foreigners the right to secure protection for their patents in Canada but imposed a twoyear compulsory working-up clause, again in conformity with a widely deplored international practice: American inventors or their agents had to manufacture their patented product or process in Canada within two years of the grant of the patent, or the patent would be voided. Importation of the product also rendered the patent null and void. The result over time was to help bury the Canadian industrial system under a flood of imported techniques. In 1869, at the time of the first Canadian federal patent law, Canadian residents took out 588 patents in Canada; Americans none. Thirty years later, with population and per capita income much higher and the industrial base much broader and deeper, Canadians took out 601 patents in Canada; Americans 2,312. The ease of access to American industrial knowhow obviated the need to develop an adequate system of technical and engineering training in Canada. Not until the First World War was any significant industrial research done in Canada. And in the meantime its industrial structure was studded with branch plants, assembly plants, and licensed ventures set up in part at least to comply with the need to manufacture a patented process in Canada within two years or lose the patent. Particularly as American industry turned to international markets, it recognized the need to establish a presence in Canada, for the alternative was to see its patents copied and worked by a big competitor inside Canada and then face the competition of its own industrial processes abroad. Thus while even in the older type of mechanical industries the reliance on American technique was marked, in Canada it rose to a near-absolute in the new

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high technology industries of the second industrial revolution, where reliance on applied science rather than traditional artisanal knowhow was fundamental to success. In drugs and chemicals, in milling and mining machinery, in rubber manufacturing to name but three, joint ventures or wholly Canadian owned plants promoted by leading Canadian financiers relied heavily, sometimes exclusively, on American patents. And the two industries which were synonymous with the new industrial age, automobiles and electrical products, entered Canada overwhelmingly in the shape of licensed affiliates or licensed joint ventures of Canadian capital with the American parent corporation. Patterns of industrial development in Quebec, especially Montreal, were dramatically different from Ontario, and the demands of its business elite for public sector aid assumed a radically different set of priorities. Montreal was not only the financial and commercial heart, but also the single greatest manufacturing centre of Canada, based on the emergence of large-scale, oligopolistic enterprise in which capital from outside the traditional craft sector was the dominant feature. Such firms generally began life as incorporated enterprises with directorates interlocked with the major financial institutions of the city and with strong trans-Atlantic trade and credit links. Given their scale and location in the commercial metropolis of Canada, they were oriented from the start not toward some local community's needs, but to the provincial and even the national market. As an embodiment of the principles of liberal, competitive capitalism, Ontario's small-scale industry inclined to the low taxation-low profile government philosophy of the Liberal Party, whereas the big business enterprises of Montreal favoured a more energetic government involvement in the economy based on tariffs to mould the flow of commodities on a national axis in addition to heavy government spending. The Montreal firms therefore inclined toward the Tory camp — in fact they were the Tory camp to a Very large extent. Big business and big government were mutually complementary, and in the wake of the post-1873 depression Tory strategists favoured the high-profile path to industrial development. The National Policy tariff was the instrument with which Charles Tupper moulded the Macdonald Tories into a national big business party. The commercial elite of Montreal, anxious to close the door to American imports and to protect their trans-Atlantic trade links, rallied behind the tariff. But so too did part of Ontario's small-scale manufacturing community. With the crash of 1873 and the emergence of large-scale American firms eager to compensate for the shrinkage of domestic markets by cultivating foreign ones, Ontario industry found itself under seige, and some of the industrialists banded into the Ontario Manufacturers' Association to lobby for tariff increases.

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While Ontario small business tended to be ideologically sympathetic to the Reform-Liberal cause, and were often active supporters of the party on a provincial level, federally the tariff issue brought many into the Tory camp. In Halifax and other Maritime centres, the West India commercial houses and related businesses swung behind the protectionist banner in the hopes that a tariff would create a large sugar refining industry and restore their trade to the Caribbean. Tupper also rallied the coal and iron interests in Nova Scotia to Toryism. Along with the contractors and land speculators of British Columbia and Winnipeg and the Vancouver Island coal mine interests, the Conservative Party emerged as a powerful coalition of big business interests representing most regions of Canada. For the big business interests of Montreal and Nova Scotia in particular, the tariff strategy paid handsome and almost immediate dividends, not only in providing the revenue and borrowing base that financed the railway building that the iron and steel and coal industries required, but also by helping to revive, indeed to reinforce, their position in the British imperial trading network. In the wake of the new tariff, with its heavy impost on sugar, Canadian imports of refined sugar dropped precipitously. In their place came a great expansion of trade in raw sugar to the British and Spanish Caribbean and to Brazil. Sugar refineries blossomed in the Maritimes and Montreal, while the Maritime sailing fleets found their empty cargo capacity filled by a two-way flow of raw produce — fish and timber out, tropical staples back in. Along with the bonanza in sugar came an even greater one in textiles. In conformity with the Montreal strategy of sealing the border to American goods and restoring the Montreal-Britain commercial nexus, imports of American cotton fell from 36% of total cotton imports in 1878 to 20% in 1882, while imports from Britain actually rose. But the British goods were no longer finished products, but unfinished cloth which was then manufactured in Canadian mills and factories. In short, Indian and Egyptian raw cotton moved to England for processing into unfinished cotton cloth, which was then manufactured into finished cloth and cotton textiles in Canada, at the expense of American cotton planters and mill owners. American woolens were similarly blocked as Montreal put its capital into finishing imports of unfinished wool cloth from England, undermining the small artisanal woolen industry of Quebec and Ontario in the process. To top off Montreal's triumph over American — and competing Canadian — commercial and industrial interests, the National Policy tariff restored that city's command of the tea trade with Asia. In 1878, the United States accounted for 78% of the tea exported to Canada, direct trade to Japan and China 18%, and Britain the remainder. By

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1882, the American tea trade to Canada was cut by two thirds, and the British imperial trade rose proportionately. In short, it was the reverse of the Boston Tea Party, and neatly defined the commercial loyalties of the Montreal commercial elite. Well might Finance Minister Leonard Tilley trumpet in the House of Commons his praises of the National Policy: the facts go to show that while the object, design, and intention of the government was not to legislate directly against any particular country, but in favour of Canadian interests, the effect of the tariff has been to diminish less the importations from Great Britain than from the United States. Montreal was certainly not the sole beneficiary of the boom in 187983. In Nova Scotia and to a much lesser degree New Brunswick, the tariff and railway building set off its first modern industrial boom, centred on sugar refineries, cotton mills, the primary iron and steel industry, and of course coal. In 1885, the area boasted eight of Canada's twenty-three cotton mills, three of its five sugar refineries, both of its steel mills, and six of its twelve rolling mills — while it had but one fifth of the country's population. And in 1883, at the first sign of trouble, Tupper added a system of subsidies to iron and steel production. Yet just as patent law manipulation, prompted in the short run by the desire to give the Ontario agrarian frontier free access to American agricultural technology, had unforeseen long-term effects in provoking an American industrial invasion, so too did the tariff. Its effects in stimulating domestic industrial investment came to a noisy end in the crisis of 1883-84, while the longer-term effects of provoking American firms to jump the tariff wall to set up branch plants continued. Such a result was not entirely unforeseen, and in the short run even welcomed. But over time the tariff, together with the patent laws, prompted a profound restructuring of the flow of Canadian industrial activity into a continental nexus at the expense of an imperial one. While tariffs and patent laws were responsible for early incursions of American capital into Canadian manufacturing, by the 1880's the flow of American investment into Canadian natural resources was also very pronounced; and here the reasons lay partly in the bounty of nature, but mainly in the prodigal behaviour of the Canadian governments responsible for the natural resource sector. In the old provinces the state of public finance was one of the principal determinants of the terms and rate at which American capital was invited to slash down forests and gut ore beds. While the federal government controlled the tariff, the principal source of public revenues as well as a major instru-

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ment for inducing a capital inflow, the provincial governments controlled natural resources and had to rely on natural resource royalties for a large share of their current receipts.

American Capital and the Structure of Canadian Industry Prompted by the interaction of government policy and the resulting inflow of American direct investment, an industrial base was created in Canada that began to complement and to parallel that created earlier south of the border. Not only were American branches and affiliates the harbingers of the new industrial order in Canada, representing the most modern trends in technology, product line and product design, but each general trend in the over-all pattern of industrial organization in the United States set off a sympathetic if belated movement in Canada, often pioneered by affiliates of American firms operating within Canada. During the 1870's the pooling movement began in the United States. Initially there was little similar development north of the border, for industrial development was still in its infancy, interprovincial communication and commerce was still poor, and in Ontario, soon to bs the industrial centre of the Dominion, manufacturing was in the hands of hundreds, even thousands of tiny establishments. In the Maritimes, apart from coal and steel, the industrial base was also artisanal. Only in Montreal was there an array of firms which had reached the stage where a trans-Canadian market orientation was feasible, but until the Intercontinental and Canadian Pacific Railways were completed, feasibility and possibility were two different things. The National Policy tariff and a world context of prosperity and growth set off a rush of industrial investment which collapsed in 1883. Thereafter costs and prices began to fall steadily, and a struggle began among firms to stop price wars and keep up profit margins. Thus began the pooling movement in Canada — often in the form of spillovers of U.S.-based industrial associations — a decade later than it had occurred in the United States. After 1896 industrial conditions began changing dramatically in Canada as in the United States. The steady inflation that began, the population growth in the west, the capital inflow, and the integration of the Canadian economy all accelerated industrialization and encouraged concentration. Canadian firms with a national market horizon were rapidly developing, and incorporation of industrial enterprise became the norm. Despite many bankruptcies and efforts to cartelize, during the period of secular deflation from 1873 to 1896

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the number of firms active in most lines of industry continued to grow. After 1896 the number of firms fell off rapidly. The early cartels laid the groundwork for a newer wave of integration of small producers into large national firms. The creation of a national market encouraged the development of integrated enterprises headquartered in the major urban centres and marketing nationally along a rapid transportation and communications network. The country shopkeeper was still the dominant means of distributing commodities in the rural areas, but in the urban ones great retail chains were growing up, and they even began invading the countryside with mail order catalogues. The concentration in retailing encouraged concentration in manufacturing, as the head office of a retail chain preferred to place mass orders with the head office of a manufacturing complex, or even to develop its own line of subsidiary manufacturers in the cheap consumer goods lines. Concentration in the banking system also helped foster parallel concentration in manufacturing as command over the national savings was removed from the community where the savings were accumulated and put into the hands of the head office staff of a few large banks. Symptomatic of all these changes was the fact that the class of directors of manufacturing enterprises in Canada ceased to be the sons or grandsons of the small-scale industrialists who had set up the firms, and tended increasingly to come from the urban financial and commercial elite. Early mergers, as in cotton and agricultural implements, had been basically defensive reactions to adverse market conditions. But with the economic recovery after 1896 the nature of the consolidation process had changed. Many American mergers spilled over into Canada. J.P. Morgan's International Nickel, formed in part in response to the pre-war rearmament boom and its demand for nickel steel, took control of the Sudbury region. In the Shawinigan Falls area of Quebec the natural resource base also attracted a powerful representative of a major American consolidation. Aluminum was an industry whose importance grew tremendously with the development of the automobile industry, but whose production made enormous demands on electricity — thus the location of the principal smelter in the Shawinigan Falls area, where Quebec's cheap hydro power smelted Caribbean bauxite into aluminum ingots which were then shipped to the American plants for manufacturing. The Canadian subsidiary of the Aluminum Company of America also served as the parent company's representative on the international cartel. Other international cartels used Canada as a halfway house. The American gunpowder trust had long been in a controlling position in the Canadian explosives manufacturing industry, for its patents

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were central to Canadian production patterns, and the American trust soon became an important minority shareholder in some of the Canadian firms. In 1897 American competition with the British and German armament firms led to a division of the world market among them whereby the United States was ceded Asia and Latin America apart from British colonies, Europe was divided between Germany and Britain, other areas were made subject to joint control, and Canada became "free territory". But that "freedom" did not last long, for in 1910 the American Dupont interest and British Nobel jointly formed the Canadian Explosives Limited out of a merger of the five main plants in Canada in which American and British investors already had an interest. A similar Anglo-American agreement dominated the Canadian tobacco industry, though modified in this case by the admission of the largest Canadian firm, which had already absorbed many of the smaller ones, into the partnership. The Panic of 1907 was followed in the United States by an industrial depression. Stock prices fell and merger activity stopped. The stock market decline was also felt in Canada. At the same time call loan rates, the interest rates at which banks made short-term loans to stockbrokers, fell. Moreover, in 1907 the tariff was raised on many lines of goods, British capital was flowing freely into Canada, and the expectation that inflation would continue was well ingrained. The stage was set for Canadian promoters, led by Max Aitken (the future Lord Beaverbrook), to imitate the antics of Morgan and company to the south by putting together a string of industrial mergers in the companies under Canadian control. Beginning in 1909 a series of great consolidations were effected following tried and true principles. The constituent companies were bought up by paying the former owners a fat price in bonds and preferred shares in the new merger. To ensure sales the owners were offered securities of a par value well in excess of the value of the assets of the old companies. The promoters and underwriters would keep most of the common stock and use control of the company to drain off the proceeds from the sale of the remaining bonds and preferred shares into their own pockets as dividends or salaries or promoters' fees. Very little wound up invested in plant and equipment. In fact much of the existing plant would be closed as the promoters used the monopoly power they had acquired to restrict output and push up the prices. If the common stock then rose in price the promoters would dump it and run, letting the crash fall on the heads of the unfortunates duped into actually investing in the enterprise. The cost of paying the interest on the bonds in the meantime fell on consumers of the products of the corporate giants, for the interest

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could only be met by continuing to push up product prices and/or slashing the costs and the quality of the output. Thus the tariff was essential to success, for it guaranteed high prices in Canada, and the extra revenues it permitted were capitalized by the promoters of the mergers in determining how much water they could inject into the capital of the new firm. Just as in the United States a few years before, many of the waterlogged mergers quickly collapsed. Industrial recession set in late in 1912 and continued until the war.

The North Atlantic Triangle While the early movement of American business into Canada was slow, after 1896 it speeded up considerably, for the other influences pulling and pushing American firms into Canada were then joined by the rapid growth of the domestic and imperial markets. As one giant firm put its surplus capital to use in establishing a branch in what was increasingly regarded as prime potential growth territory, its competitors often followed. Not only was Canadian domestic purchasing power being buoyed up by the flood of capital imports from Britain which financed a spending spreet put Canada was regarded as an ideal location for American firms seeking to market in part or all of the empire. Although no general system of imperial preferential tariffs existed, a Canadian location gave the American company a certain psychological advantage in the context of a rising British imperial xenophobia, and even some real advantages in terms of access to finance and government-subsidized transportation links. Some American giants with affiliates in Canada turned the supervision of their imperially located plants and commercial houses over to the Canadian branch. Many exported at least part of their output through the empire via their Canadian production units. Until 1873 Canada had run a trade balance surplus with the United States and a deficit with Britain, from whence it acquired the bulk of its manufactured imports. But the large national American firms which had emerged in the wake of the Civil War responded to the 1873 crisis and ensuing depression with a concerted continental sales drive that turned Canada's trade balance with the United States into a deficit, a situation that was only partially reversed by the National Policy tariff of 1879. After 1890, however, a new triangle began to take shape, a reverse of the earlier one. As Canadian, especially Montreal big business increasingly displaced British goods from Canadian markets for textiles, iron and steel, sugar, tobacco and other basic industries, Canada increased its sales of staples to Britain. The foreign exchange it earned from the growing

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trade surplus with Britain thus became available to finance a growing deficit with the United States. The flow of foreign exchange earnings from Britain to Canada through trade was supplemented by that deriving from a rapidly expanding volume of British capital exports to Canada, investment funds which moved to Canada in such a way as to also bolster its capacity to buy American goods. In 1890 the Argentine crisis brought down the Barings, Canada's financial agent in London; and in 1892 the Bank of Montreal assumed its functions. Canadian borrowers of investment funds in Britain, along with British importers of Canadian staples, accordingly turned increasingly to the Bank of Montreal to handle their remittances to Canada. The funds were then moved in the form of sterling exchange to the Bank of Montreal's branches in New York where they were sold for American funds. The American exchange was then drawn upon by Canadian importers of American goods, including branch plants and affiliates of American firms operating in Canada. It was also drawn upon by Wall Street stockbrokers to finance their equity transactions. While several Canadian banks participated in the foreign exchange dealings in New York and in the business of making call loans to American stockbrokers, it was the Bank of Montreal which dominated the business. Thus, as Britain undertook to finance the expansion of the Canadian staple frontier and reap the returns in the form of a secured flow of essential primary products, it simultaneously financed the Americanization of the Canadian industrial base. It provided the foreign exchange needed to buy American component parts and final manufactures, and at the same time the movement of British funds through Canadian banks into New York facilitated the process by which American big business secured access to long-term finance on the New York stock exchange. The easier the access of American corporations to additional equity capital, the easier they could invest in the acquisition of plant and equipment in Canada. In such a way, an industrial triangle was taking shape. Canadian big business had supplanted British in many of the old lines of enterprise, particularly in the consumers goods-related fields, while Americans took charge of the modern sector. As Canada moved closer to Britain financially, it simultaneously moved closer to industrial integration with the United States. American goods for British imperial markets, either within Canada or without, became the heart and soul of the Canadian industrial development strategy, and its success depended on the ability of the politicians and business figures to carve out an autonomous place for Canada on the American continent within the embrace of an expanding British empire.

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Transcontinental Empire

MORE BY ACCIDENT THAN DESIGN, Canada's National Policy produced a coherent integrated national economy in the years just before the war. Confederation, complemented by the tariff, produced the basis of a national market by establishing a national customs union; railways and other transportation and communications infrastructure turned a theoretical commercial unity into a functional one; immigration helped provide the labour force necessary for construction, agriculture and industry, while the northwest was opened for the expansion of the commercial agricultural frontier; and good credit ratings abroad, achieved through a program of monetary and fiscal centralization, provided the influx of foreign, particularly British, capital needed to finance the infrastructural spending that underlay the prosperity of the later nineteenth and early twentieth centuries.

Winners, Losers The British connection was the sine qua non of the transcontinental economy, and of the business class that grew up managing its day-today operations. From Britain came the long-term capital to develop the land and build the railways that would carry the products of the land to market; to Britain went the staple exports to earn the foreign exchange necessary to pay off debts to British financiers or to buy 450

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manufactured goods from American industrialists. From Britain came the largest single national group of immigrants to work the factories, farms and construction camps; to Britain went the principal ideological loyalty of the elite of the Canadian business class that grew up to administer the arrangements. Since the time of the Conquest, the top rung of the business ladder in Canada had been occupied by a class of men dependent commercially and financially on British colonial trading firms, and who used the power of the colonial state apparatus to further their own and the British imperial economic interests. Since that time too they had concentrated their efforts in controlling the means of circulation of commodities and credit within the colony, and thus of controlling the outflow of staple products and inflow of imported manufactures on which the ebb and flow of economic activity in the colony, not to speak of their own personal fortunes, depended. These salient features of the colonial business elite — their control of long-distance and foreign trade at the wholesale level, of the mechanisms for allocating capital and credit, of the means of transportation and communication, and the consequent need for privileged access to the councils and fiscal resources of the state — had not altered in any fundamental way by the later nineteenth and early twentieth centuries. At the top were the railway magnates and the chiefs of the leading banks, and gathered about them were an array of executives and directors of the largest insurance and trust companies, the principal public utilities, the top men in the grain moving business, and the heads of the integrated iron and steel complexes that the railway boom and federal largesse had created. While some cross-fertilization did occur between them, the general rule was that Montreal big business, grouped about the CPR and the Bank of Montreal, was Tory in its sympathy, while Toronto big business, gathered in the shadow of the Canadian Northern Railway and the Bank of Commerce, was Liberal. The chief area of contention between the two parties was whether it would be Toronto or Montreal tycoons who would have the principal say in shaping the fortunes of the staple frontier in the west. The opening of the west created a transcontinental economy in Canada that was more than just an electoral reverie of the parliamentary representatives of the Cape Breton coal mining interests or the Grand Trunk Railway. Just as the western-based boom shifted the main flow of British overseas investments to Canada until it was absorbing more than 30% of the total, so too did Canada become increasingly important as a supply base for Britain. In 1890 the United Kingdom imported 2.4% of its overseas wheat supply from Canada: in 1915 it imported 23.35% from Canada. The prairies were flooded with investment funds. British long-term capital went into railways

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and land; American agricultural implement houses and commodity dealers set up branch houses in Winnipeg and Calgary; the Maritime provinces and the declining agricultural communities of central Canada exported their "surplus" savings through the banks to provide the basis of short-term loans to farmers and longer-term ones to commodity speculators in the west; mortgage money, apart from that coming directly from Britain, moved through eastern and central Canadian non-bank financial institutions to the west. The result was an accumulation of debt, particularly in Saskatchewan. Bank discount rates, determined by the open collusion of the banks' regional headquarters at Winnipeg, reached as high as 14%, compounded every three months. Mortgages ran for a term of five years and could bear interest charges of up to 15%. By 1913, 80% of Saskatchewan's farms bore mortgages; by comparison, only 45% of farms in the American grain-growing states were mortgaged. And the onerous terms, with the final-year payments always the heaviest, forced frequent renewal or foreclosure. Over the crop year 1912-13 some 1,723 sales and proceedings for mortgages occurred in Saskatchewan; in the Australian state of Victoria, whose government operated a farm finance plan, only 28 farms were sold for mortgage defaults in the entire period 1898 to 1913. The banks provided short-term credit for financing grain movement and seed purchase, while the mortgage, loan, insurance and trust companies financed land purchase and improvement. But the farmers also required capital equipment. Agricultural implement dealers therefore also acted as credit agencies, selling machinery to farmers on credit at interest rates of 10 to 11% a year. Not only were the rates onerous, but frauds by the dealers became sufficiently commonplace that in 1913 Alberta passed a law ordering them to clear up their advertising practices and to guarantee the quality of the equipment they were selling. There was little the provincial governments could do to affect the price, for the tariff, a federal responsibility, was responsible for the fact that Canadian implement manufacturers were selling their products cheaper in Australia and the Argentine than in Canada: in effect prairie grain farmers were subsidizing their Australian and Argentinian competitors. What little of the farmers' assets were not mortgaged to the banks, loan companies and implement dealers became the target of the lumber dealers, who formed a combine to fix prices, set credit terms (about 10 or 11 % a year), divide up spheres of influence, and arrange with the British Columbia timber and shingle mills which provided the vast bulk of the prairies' timber needs to sell only to members of the combine. Assuming the farmer did manage to develop land, build barns and

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a house, buy implements and seed, and plant a crop or raise a herd, the problems had just begun. Cattle dealing was concentrated in the hands of a cartel of a few big firms whose control was reinforced by the co-operation of the CPR. Grain buying was likewise. While from the 1880's the various prairie farm organizations had struggled against a monopoly in the purchase and handling of grain, little had changed apart from the particular institutional form that the monopoly took. Initially the CPR subsidized the building of grain elevators and then enforced their monopoly by refusing to allow farmers to load grain from any vehicle or flat warehouse. Not until 1903 was any effective action taken to allow farmers to bypass the elevators and load grain onto railway cars by themselves. The purchase of grain was centralized in other ways as well. The Winnipeg Grain Exchange functioned openly as a price-fixing cartel, setting the terms and conditions by which grain dealers could operate. When the farmers failed to secure a court judgment breaking up the exchange, the Manitoba government acted on their behalf and broke it up as an incorporated institution. But it simply reorganized on a "voluntary" basis and functioned as effectively as before. The further processing of the staple was virtually non-existent in the prairies, apart from some grain mills at Winnipeg which could never handle more than a small fraction of the total crop. Instead, a system of elevators owned by the big central Canadian flour mills pulled grain into Ontario and Montreal for milling. And even that constituted a minority of the output. By far the greater part of Canadian grain output was exported in the form of wheat, not of flour. The railways themselves encouraged the export of unprocessed raw material by a structure of freight rates that discriminated in favour of raw material traffic and at the expense of finished products moving from west to east. One consequence was that bread made from Canadian wheat sold for less in London than it did in Canada. The development of two new transcontinental railway systems did little to lighten the western farmers' load. Despite the early efforts of the Manitoba government to push down freight rates by subsidizing the Canadian Northern, the railways in general, much like the banks, avoided rate competition and instead vied with each other for traffic by extending branches and feeders. The result was a waste of resources that drove up the foreign debt. The railways, desperate for more traffic, then pushed hard for the quick extraction of natural resources and encouraged their fast depletion and early soil exhaustion. For the heavy interest charges on the railway debt, due in Britain, could only be met by the rapid generation of export traffic to Britain. Once again foreign debt and staple extraction for export went hand in hand.

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After they had sold their grain in competition with Australian, American and Argentinian farmers, and the railways and grain dealers had collected their share of the take, Canada's farmers began paying off interest and principal to the banks, loan companies, implement dealers and lumber merchants. Any income left could then be invested in more land and equipment to increase output to help pay off the old debts while accumulating new ones in the process. Or it could be spent on consumption goods purchased at tariff-inflated prices from central Canadian manufacturing cartels through Toronto or Montreal-controlled chain stores.

The Ties That Bind At the same time the transcontinental axis, based on the flow of staples to and capital from Britain via Montreal, Toronto and Winnipeg, was being strengthened, a second axis of development was also being consolidated. If the staple-oriented economy, based on the family farm and the London capital and commodity markets, meant at one level a reaffirmation of the structural relations with the international economy that had typified Canadian development since the British conquest, and indeed, in a modified form, all of its history since the earliest days of European settlement, the second axis portended something quite different. For it pointed in the direction of widespread industrialization, industrial capitalist-type relations of production, and continental integration. Throughout most of the nineteenth century manufacturers were a species apart from the commercial and financial tycoons and transportation magnates of the major urban centres. Manufacturers tended to be born into families of manufacturers, and could generally trace their origins to emigre master craftsmen from Britain or the United States, or, in the case of Quebec, to families that had sent a member off to learn a skill in the New England mills and factories. On the other hand financiers and commercial capitalists, who dominated the wholesale trade sector from the vantage point of the main urban distributing centres, were largely of British origin and born into commercial families whose political connections and social status were as far in advance of those of the manufacturers as was their economic power. The dichotomy manifested itself in, and was in turn reinforced by, the creation and evolution of the principal financial institutions. While the banks restricted themselves to orthodox commercial lending and eschewed any evolution in the direction of investment banks capable of creating, sustaining or reorganizing large-scale industrial

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enterprise, the trust companies and insurance companies poured their funds into real estate lending and into the bonds of governments, railways and public utilities in Canada — and indeed around the world. Even the Montreal and Toronto stock exchanges initially served to reinforce rather than mitigate the gap between the two sets of capitalists, between the traditional set of commercial business interests and the aspiring manufacturers. The stock exchanges were created as instruments for trading in staple commodities, and later branched out to deal in government debentures and the equity of financial and transportation companies and public utilities. Not only were these the only sectors where incorporation was common, and therefore capable of issuing common stock which could be traded publicly, but they were also the sectors in which the commercial-financial elite were interested in investing. Manufacturers in general preferred private company organizations, in part to defend the independence of the family firm, in part out of a conviction that incorporated, limited liability companies were immoral, and in part because there was simply no way for them to succeed in having the shares of their companies traded on the organized exchanges that Montreal and Toronto financiers controlled. Just as in Britain in the early stages of the Industrial Revolution, wealth accumulated in the traditional sectors was channeled into certain "respectable" forms of investment, and the social gap between the rising industrialist and the condescending financial and commercial capitalist translated itself into an absence of intersectoral movements of investment capital. However, the gap was not absolute. For enterprises in certain sectors the scale of operation required access to long-term outside investment funds, and the financiers, commercial capitalist and transportation magnates invested in public utilities and the larger mining enterprises. Over the course of the 1870's they began to take control of sugar, iron and steel, and cotton. Such a development went well beyond the old pattern of merchants' capital penetrating and controlling the skilled trades through the extension of trade credits, leaving the mode of production essentially intact. Instead, the sectors in which the outside investment was placed were being organized on factory lines, and generally assumed an incorporated form. Thus certain key industrial sectors of the economy, those most heavily caught up in the industrial investment boom that followed the high tariff of 1879, moved under the aegis of Montreal big business in the direction of modern capitalist enterprise — incorporated firms, characterized by large-scale operations in which the board of directors, representing the commercial and financial interest of the major urban centres, was clearly and inexorably differentiated, by status, by function, and class origin, from a proletariat which had no

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chance whatsoever of rising through the ranks as it had under the artisanal mode of production. The gradual appearance of the shares of the big cotton mills, sugar refineries, iron and steel plants and coal mines among the roster of securities formally traded on the organized stock exchanges symbolized the transition that had occurred. During the 1880's and 1890's economic conditions prompted changes in the prevailing structure of industrial organization as the size of firms grew in response to the opening of a trans-Canada market while overproduction simultaneously squeezed profit margins. In the 1880's the response had been the formation of pools; by the 1890's, incorporation spread among many firms that had previously avoided such a course of action, and facilitated the process of formal merger. The spread of the incorporated firm was partly a response to the need to seek out new sources of capital during a period when profits were being squeezed. But it was partly symptomatic of the fact that the gap between factions of the business class, between the financial-commercial sector on the one hand, and the manufacturers on the other, was starting to close. The results were to the signal disadvantage of the indigenous manufacturing class which often found itself reduced to the status of plant managers in enterprises controlled by the big business elite of the major urban centres. And the process by which the financiers of Montreal and Toronto took increasing control of much of the industrial base reached its apogee during the wave of mergers that accompanied the early twentieth century building boom. The results were also of signal disadvantage to Canadian industrial hopes. For just as in the United States, the movement of the financial elite into the realm of company organization and reorganization was concentrated in the older, tried and tested lines of industrial enterprises, which accordingly had ease of access to the necessary long-term financing. Financial capital which did make its way into the new, innovative lines of industrial enterprise tended to be under American control. Thus the industries that were transforming American industrial life in the late nineteenth and early twentieth centuries and inaugurating a new industrial revolution entered Canada not as the fruit of the enterprise of its indigenous entrepreneurial class, but in the form of branch plants, licensed affiliates, and joint ventures of the American innovators with the co-operation of the financial and commercial elite of the major Canadian urban centres. Thus, in the short run, the traditional business class in Canada tightened its hold. Behind the protective "British connection" the transcontinental staple economy was consolidated, while at the same time a process of continental industrial integration was en-

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couraged. Overseeing both processes was a business class committed primarily to controlling the means of circulation of commodities and capital, but not necessarily the means of production, convinced by nineteenth century conditions that it was possible to administer and control the evolving and developing economy without controlling the fastest growing and most dynamic sector. The development of organized labour reflected that of organized capital. Prior to the turn of the century union growth had been slow and spotty, with the exception of a burst of activity just after the middle of the nineteenth century. A few craft unions had taken shape on British models under the guidance of British emigre craftsmen, but they were uncommon and restricted to a few principal urban crafts. The slow growth reflected the agrarian nature of the economy, the small and scattered population, and limitations in the means of communication. During the 1850's and 1860's the pace of development speeded up. British and American skilled craftsmen, entering Canada in greater numbers in response to economic prosperity, provided leadership and union experience, while American unions sent organizers and money across the border. On top of the quickening of trade in general, and Canada-U.S. trade sparked by Reciprocity in particular, it was a period in which a major program of railway construction was underway, construction activity which combined British capital with British, Canadian and American contracting firms, and which facilitated communication and therefore the north-south movement of labour. All of these factors were conducive to the growth of craft unions, and out of the resulting union activity came the Nine-Hour Movement and the first Canadian federation of trade unions. The first development ran afoul of the stentorian ire of George Brown, whose sense of moral outrage at union activity in general was greatly strengthened by the central role played by the typographical workers in particular. The second development, the creation of the Canadian Labor Union — which celebrated its birth by advocating a vigorous campaign of union organization, restrictions on immigration, the abolition of convict labour, the nine-hour day, and other equally subversive notions — came to fruition in 1873 just in time for the crisis and ensuing depression to wreck it. Union activity abated during the depression. But the turnaround in economic conditions in 1879, prompted by world prosperity, CPR construction, and industrial investment behind the National Policy tariff, rekindled the union movement. The existing craft unions began groping toward the establishment of a new central organization —- which was finally consummated in 1886 as the Trades and Labor

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Congress. At the same time the Knights of Labor, an American industrial union central, began setting up branches in Canada beginning in 1881. By the time the TLC was established, circumstances for the labour movement had changed again for the worse. By 1884 world financial crisis had tipped the economy into a new recession. Many years of depression followed, years typified by bitter inter-union rivalry and a glut on labour markets, the factory-owning class taking full advantage of both. The depression also witnessed falling profits and industrial concentration. The response of industrial capitalists was an attack on wage rates and closed shops. The oracle of organized industrialists, the Canadian Manufacturer, editorializing on an effort by unions in the town of Gait to put an end to the practice of each worker striking his own bargain with the capitalist, called for a boycott of further industrial investment in the town until civic officials took a stronger line in suppressing the union. The counterattack by capital took many forms. During the late 1880's and early 1890's sweat shops proliferated in the industries that were amenable to such a mode of organization. Child labour came increasingly into favour. The apprenticeship system ceased to be a means of training and became primarily a means of exploiting. It was supplemented by the practice of taking on "learners" who were not paid during the period when they were "learning" their trade, and who were fired when the stipulated learning process was over, to be replaced by a new group of "learners". Flogging was widely reported, and certain shops gained reputations as incubators of diphtheria and scarlet fever. The imaginations of the factory-owning class proved fertile in the search for ways of paring down wages. The simplest methods for accomplishing this objective were the obvious ones — cutting the basic piece or time rate, or holding a daily rate of pay constant while expanding the length of the working day. But more subtle approaches were also tried. Wages could be withheld for long periods — the workers in effect making an interest-free loan to the company. Fines could be levied arbitrarily — thus cutting back total wage disbursements while leaving wage rates nominally intact. (This tactic had much to recommend it. By not attacking the rate of pay per se, it seemed to reduce the workers' capacity to complain, particularly since it assailed workers on an individual basis and thus inhibited a collective response. It had the additional advantage of being directly punitive, thus augmenting profit margins at the same time it instilled more "labour discipline".) And, of course, in small and isolated com-

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munities, there was always the device of the company store and company houses. These were typical of the coal mining industry, which had managed to maintain its earlier records as the most volatile sector of the economy in terms of the relations of labour and capital. In 1879, when the Springhill Mining Company slashed the piece rates of Nova Scotia miners, it inadvertently gave birth to the Provincial Workingman's Association and a strike. While on the surface the strike seemed to have been resolved in favour of the workers, the pay hike they received likely owed more to the National Policy tariff than it did to their efforts at the mine site, and indeed it was followed by a growing trend of the PWA to favour political lobbying over strikes as a means of securing improved pay and working conditions. While far from a "company union", the PWA did manage to second the motion whenever the mine owners solicited higher tariffs and other fiscal favours from Ottawa. At the other end of the spectrum, politically as well as geographically, was the Coalminers' Mutual Protection Society, called forth by Robert Dunsmuir's decision to slash wages in his Vancouver Island coal mines in 1877. Backed by the provincial and imperial authorities, Dunsmuir, in addition to throwing the workers out of the company shacks they inhabited and cutting off their credit at the company store, called in a British navy gunboat and a detachment of militia to deal with the unrest, the provincial government itself picking up the bill for the military operation. The pace of unionization, and the frequency of strikes, increased with the building boom of the late nineteenth and early twentieth centuries. Periods of labour shortage alternated with gluts in particular trades as immigration brought thousands of skilled and unskilled workers, including many who brought with them the traditions of organization they had practiced in Britain and the United States. While there were many hot spots on the Canadian industrial relations frontier during the two decades, certain industries and areas stood out. In manufacturing, Quebec was particularly shaken by violent strikes; for it was in Quebec, with its abundance of home-grown cheap labour cast off by an agrarian sector in the process of switching from tillage to pasturage, that the labourintensive industries such as textiles, clothing, and boots and shoes tended to concentrate. Strikes were also frequent in construction, an industry typified by notoriously brutal foremen and illiterate immigrant workers. In railway construction, violent interventions on behalf of the companies by the police and militia were commonplace.

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Curiously enough, when the CPR could not meet its interest and dividend payments, it was given government guarantees and cash handouts to placate investors; when it could not or would not meet its payroll, it was given free use of militia to beat its labour force back in line. But the most bitter labour relations by far were in coal mining. Coal mining employed less than 2% of the Canadian nonagricultural work force: yet it accounted for 24% of the total number of workers on strike and 42% of the total time lost during the strike between 1900 and 1914. There were good reasons for the record. At the turn of the century, data on industrial accidents in mines around the world became available, and the Labour Gazette reported: The death rate per 1000 persons employed in coal mining is 1.29 for the British Empire, 2.38 for foreign countries, and for British Columbia and Nova Scotia, 4.15 and 3.32 respectively. Furthermore, the industry tended to be vulnerable to cyclical downturns which, combined with its geographically isolated nature, tended to produce pockets of extreme destitution and desperation among a labour force immobilized by debt or ignorance of other trades. British Columbia led the field, not only in terms of the death rate in its mines and the duration of its strikes, but also in the growing political dimensions of the issues. In B.C. most economic activity was in the primary sector characterized by big business organization, unlike the predominantly rural prairies and Ontario. British Columbia was also the place where the Asian labour question was most sensitive, and where the record of employers using Chinese in the mines and Japanese in the canneries to break unions and hold down wages was most flagrant. It was also the part of Canada where the radical American industrial unions were most active in pushing their organizational and political line, and therefore the area of greatest concern when the federal government decided to intervene in the realm of labour relations. During the late nineteenth century most government activity in the field of labour legislation was provincial, for that was the level of government where the principal constitutional authority lay. And, at a time when the balance of power was clearly on the side of capital, the intervention took the form of arrangements for voluntary conciliation. Federal intervention became more frequent during the early twentieth century when Mackenzie King was deputy minister of labour. Such intervention was concentrated on railways and coal,

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industries declared to be of national rather than local interest. And given the emergence of some strong trade unions which threatened to tilt the balance of power in the direction of labour, federal interventionism not only blatantly favoured capital, but took on an increasing element of compulsion. It culminated in 1907, a year in which the CNR and CPR both complained of labour shortages (and, implicitly, of upward pressure on wage rates), in the Industrial Disputes Investigation Act, whose jurisdiction embraced the coal mines, railways, and a variety of other public utilities, and which imposed the requirement of a conciliation process before strike activity was permitted. So successful was it in conciliating capital and labour in these key sectors that the Nova Scotia coal fields were struck for nearly two years over the period 1909 to 1911, those of Vancouver Island for more than two years starting in 1912, and the mines of southeastern British Columbia and Alberta for eight months in 1911. In 1910 the Grand Trunk Railway was rocked by a particularly bitter dispute whose consequences were felt for years to come. The particular sensitivity of the coal mines and railways, and the willingness of the federal government to invoke the "national interest" to override the constitutional division of powers in order to deal with them, reflected not so much their status as harbingers of a new industrial order and the type of class tensions that went with it, but rather their central position in the old order, in making the economy of staples and the British commercial and financial connection operate. To the extent therefore that class tensions took on an explicit national political direction they were rooted not primarily in the conflict of capital and labour in the industrial sector, but rather in the clash between the independent commodity producers and the commercial-financial elite in the transcontinental staple economy. And the issues at play were rarely the ownership and control of the means of production, but rather the control of commerce and credit, tariffs and transportation.

Transcontinental Economy and Tariff Policies Many of the problems which the Canadian prairie farmers faced in the late nineteenth and early twentieth centuries were simply modern variants of problems faced by their predecessors in Ontario, and were virtually identical to those faced by American prairie farmers. For the Canadian west was very much part of a continental economy, and the Canadian wheat frontier essentially a northern exten-

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sion of the American one. More than a million Americans came to Canada during the great pre-war migration, and they dominated the rural population of many new prairie communities. They came because of falling yields in the American wheat lands; they came in response to economic hardship when rising land prices in the United States prevented farmers from getting a fresh start on new land there at a time when Canadian railways and great Anglo-Canadian land companies were offering land on easy credit terms; and they sometimes came in response to prosperity too, as the rising land prices in the United States allowed many farmers to sell land there, at sufficient capital gain to be able to buy new land in Canada and still have the capital left over to get the new farm operational. Furthermore, the Canadian wheat frontier was essentially an American one because of its dependence on American technology. It was innovations in the American milling industry that made the types of wheat that could be easily grown in Canada economically feasible to exploit; and it was innovations in the American agricultural implements industry that gave farmers in the Canadian west the machinery that permitted large-scale, single-operator grain farms. Since the physical, technological and economic conditions were similar on both sides of the border, so too were the problems. The railways were charged with freight rate discrimination; the grain dealers with collusion and cheating; the banks and mortgage companies with imposing usurious credit rates. The principal difference between the two grain frontiers was not the nature of the problems per se, but their relative importance. For the American grain farmer, facing the development phase in the 1870's, 1880's and 1890's in a context of falling prices, the chief bete noir was the banking and credit system. For the Canadian grain farmer developing his property at a time of secular inflation, the biggest problem was widely regarded to be the tariff. But in any event.the differences in the assessment of problems facing the grain farmers were matters of degree, not of kind. Points of similarity exceeded the differences; and hence with a common frontier and a common set of problems, the farmer turned to what was essentially a common set of proposed solutions put forward by a common group of insurgent farm movements. Such movements began in the American West shortly after the Civil War when deflation hit the prairie grain farmers hard, although tending to spare the mixed farmer of the eastern region. The first movement to demand collective action to cut costs and improve the terms of trade for farmers was the Grange, which spread rapidly across the American West. The Grange was poorly represented in the East with the exception of Vermont, from whence it crossed into the Eastern Townships of Quebec and began to march through Ca-

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nadian farming communities. During the deflation and recession of the 1870's the Grange expanded rapidly in Canada as farmers reacted to the squeeze on their incomes by calling for co-operative action to eliminate middlemen. The Dominion Grange set up a cooperative purchasing system to free the farmers of control of the merchants and their credit system, but a merchants' counterattack quickly routed them. A few efforts were made in the credit field too, but to little avail. Precluded by its constitution and disposition from entering politics, the Grange faded out after 1879. By the early 1890's farming conditions had reached a sufficiently low ebb again to call forth another attempt at organized resistance against the middlemen. The Patrons of Industry crossed the border and grew even faster than the Grange had. It ventured into many similar lines of economic activity, but was well in advance of its predecessor in two important respects — the Patrons tried to establish links with organized labour, albeit with little success, and they entered electoral politics immediately on their arrival. This last proved their downfall: in 1896 the combination of Liberal legerdemain on the tariff and the return of prosperity defeated them, and they too soon shrank intb insignificance. All of these early movements, while originating from the American West, were in their Canadian manifestations very much organizations of eastern farmers. The only early, indigenous western movement was the Manitoba and Northwest Farmers' Protective Movement, called into active politics by the crisis of 1883, and declining rapidly in the wake of the crushing of the Northwest Rebellion. Then, after the turn of the century, farm politics was reborn in the Canadian west. There were two principal preconditions to the renewal of farmer politics in Canada and one proximate cause, although the underlying forces were the ones which had always motivated the farm organizations. The first prerequisite to rapid organization was the number of farmers with backgrounds in the agrarian movements in the United States or central and eastern Canada, or with experience in the British co-operative movement. A second prerequisite was the rapid improvement in the transportation and communication infrastructure of the west — the building of roads and telegraph lines, the spread of telephones and automobiles — which permitted the farmers to transcend the constraints of their geographic isolation. The proximate cause of the renaissance was the rise of an organized grain trade. The year 1901 saw a bumper crop. When the speculators moved in to attack prices, farmers reacted by establishing grain growers' associations and subsequently their own grain dealing company. The organized grain trade fought back with the same kind of

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weapons that had been used in the United States against similar developments — price wars, boycotts, credit curtailment through banks willing to collude with them, and the organization of opposition among transportation and grain-buying interests. While the farmers had some success in fighting back, their interests were soon turned away from the immediate issue of the local organization of the grain trade, to the bigger issue of the tariff. The Liberal victory in 1904 was followed by heavy lobbying for tariff increases, and the farm movements took alarm. It had been the hope of part of the Liberal caucus to trade off the building of the Grand Trunk Pacific, with its promise of reducing freight rates, for a general increase in the rates of duty. Farmers' movements rallied against it, with some success; and in fact for the next few years farmers' organizations kept up the pressure on Ottawa, culminating in the Siege of Ottawa in 1910. It was more than just the tariff issue that caused the farm lobbies to turn their talents on the Liberal organization. They also demanded decentralization of the banking system, a genuine public system of freight rate control, government financing of land sales, the breakup of grain-dealing combines, and general effective anti-trust actions as well as freer trade. But it was on the last point that they focused most of their attention, and it was on that issue that the Laurier Liberals hoped to follow the Republican strategy in the United States of combining improved access of farmers and resource industries such as the coal fields of Nova Scotia and the pulp mills of Ontario, Quebec and British Columbia to foreign markets, while big business would continue to be protected by the maintenance of a tariff on manufactured goods. In 1911 the Liberals announced the success of their negotiations in the United States for the long-coveted renewal of Reciprocity. It was a serious miscalculation. The Canada of 1911 was drastically different from the country that had almost opted for commercial union in 1891. As British capital poured in and British markets opened wide for Canadian staples, imperialist sentiment strengthened, and Canadian staples moved from west to east along a set of transportation and commercial institutions whose revenues would be severely threatened by a reorientation of the direction of staple trade onto a north-south axis. For the railways, elevator companies, millers and grain dealers the treaty was a potential disaster, particularly with JJ. Hill's Great Northern waiting in the wings and encouraging the proReciprocity forces. While manufacturers might have looked forward to savings from a reduction in raw material tariffs these were minor, for most tariffs on essential inputs were already low, and further tariff reductions could only serve as the thin edge of the wedge, strengthen-

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ing the hands of the free traders for a future assault on the tariff on secondary manufacturing. For joint ventures, licensed ventures and branch plants, any tariff reductions might threaten their very raison d'etre. For the great mergers their capital structures had been created on the assumption of future tariff-inflated earnings. In Ontario in particular the reaction was especially adverse. Ontario's industrialization was premised on the spill-over of the industrial growth of the Great Lakes states while its financial and commercial interests were now vying openly with Montreal for control of the west-east flow of staple trade. The Laurier strategy had long been to drive a wedge through the ranks of big business in Canada, splitting manufacturers into two political camps by maintaining the high tariff, threats to which were the major issue capable of effectively uniting them, and then creating in Toronto a set of railway, financial, and iron and steel interests grouped about the Canadian Northern Railway and the Bank of Commerce that would offset the power of the Tory-aligned CPR-Bank of Montreal group in Montreal. With the Liberal decision to embrace Reciprocity, the strategy collapsed. Manufacturers united once more; the breach between Toronto and Montreal big business was healed as the Toronto Liberal big business establishment rebelled and aligned itself openly with the antiReciprocity forces. Reciprocity was not the sole issue of the campaign. In Ontario the collapse of the Farmers' Bank and the refusal of the Laurier government to grant relief to its rural shareholders, who were being called upon to pay up on their double liability to replace part of the wipedout deposits and notes, inflamed opinion; for the promoters of the bank had let it be known that they had paid money into a testimonial fund to Liberal finance minister W.S. Fielding as a condition for securing a license to operate. The Tories took up the issue, promising financial aid to these victims of Liberal corruption and mismanagement, a factor which helped offset the pro-Reciprocity sentiment of some of Ontario's rural ridings. In Ontario too the Liberal Party was identified strongly with a set of Toronto magnates who had previously monopolized much of the province's electric power production and distribution, and the Ontario Tory government used the issue of nationalization of the hydro facilities to help put wind in the sails of the federal Tory campaign. In Quebec the Laurier government's decision to capitulate to imperialist sentiment and contribute to the building up of the British navy raised the hackles of nationalists who joined forces with the Tories against Laurier, even though some of the nationalist candidates were publicly pro-Reciprocity. Another issue tending to discredit Laurier, this time nationally rather than just regionally, was the state of labour relations. In 1909

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the railway brotherhood began a campaign to make wage rates uniform across North America. The CPR agreed to their demands but the GTR, in the midst of a massive building program, refused, and by 1910 its wages were 38% lower than those on the CPR for equivalent work. A board of conciliation appointed by the federal labour department recommended, to no avail, that the GTR raise its rates. Typically, Mackenzie King, by then the minister of labour, tried to find a means of allowing the GTR to have its own way while not permitting the issue to become politically divisive. Since the GTR under no circumstances would countenance the loss of profits that a wage increase not offset elsewhere would produce, Mackenzie King tried to bribe it into accepting a wage hike that would be covered by a higher public mail subsidy. It was refused. The alternative of raising freight rates in the west was regarded as impossible unless all the railway companies would agree to it. Hence recourse was had to the sole remaining solution — breaking the union. The 1910 strike paralyzed the second largest employer in Canada and caused its securities to tumble on the London exchange. While the GTR did manage to find enough strikebreakers for partial operation, the situation for the company was serious. At that point Mackenzie King struck a deal with the company to end the strike whereby the government would find jobs for all the strikebreakers displaced when the company hired back its own workers. Mackenzie King then lied to the union, claiming that the company had agreed to full reinstatement. The strikers agreed to go back to work, but the company then refused to take many of them back and canceled the pension rights of all who had taken part in the strike. The blacklisted workers were scattered throughout many constituencies and formed nuclei of anti-Liberal opinion. The Tories once more pretended to be the salvation of the working class. Labour problems were acute elsewhere as well. In British Columbia the issue of Asian labour, which played a vital role in the building of the new transcontinental railways, again blew up. Across Canada violent conflict broke out on the coal fields of Nova Scotia, Alberta and B.C., and by the time of the 1911 election there were still militiamen on patrol in some mining towns. The Liberals fought the campaign with two main disadvantages. It began before the redistribution of seats due after the 1911 census, which would have shifted ten seats in protectionist-inclined areas in the east to the more free trade-inclined west. And they fought it in the face of a massive business-sponsored and -financed effort against them, a campaign in which most big business and some labour organizations took to the hustings against the government which would not even rely 100% on the farm communities.

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In British Columbia the provincial Tory government rallied the lumber, fruit farming, and lead smelting interests against Reciprocity out of their fear it would open the border to American natural produce and threaten the prairie market. Lumber was the province's biggest business, and 70% of its exports out of British Columbia went to the prairies. Reciprocity would open the area to American lumber — exactly what the farmers wanted. In B.C., too, the Tories denounced the Liberal sell-out to the GTR on the Asian labour question. Even the imperial defence issue had an economic component with the Tories calling for heavier spending at Esquimalt and on naval construction in B.C. shipyards. The Conservatives swept all seven B.C. seats, and added to them the one seat from the Yukon. In Alberta the Liberals took six of seven seats as grain farmers rallied to Reciprocity. The one Tory seat was in Calgary, which the CPR had built up as the distributing centre of the western prairies and where eastern Canadian and American branch houses and manufactories carried the riding for the anti-Reciprocity forces. The Liberals also swept Saskatchewan, winning nine of ten seats, but the Tories took seven of nine seats in Manitoba. As the oldest of the prairie farm provinces, Manitoba had the most diversified agricultural base, and the meatpacking, horse breeding, wool farming, market gardening and other agribusiness interests were fearful of an open border in natural products. Furthermore, Winnipeg was the commercial, financial and industrial centre of the prairies and had an enormous stake in the commercial status quo. The provincial Tories campaigned on popular issues such as expanding provincial control of natural resources and crown lands and for the government-owned elevators and telephone system. Laurier had opposed public ownership of infrastructure, while the federal Tories, taking their cue from the provincial ones, came out in favour. The balance west of Ontario was seventeen Liberal and seventeen Conservative. In Prince Edward Island and Nova Scotia the parties split the seats. Island farmers were promised huge new markets by one party and threatened with the loss of their existing markets in the Maritimes by the other, and the vote reflected the ambiguity. The coal mining centre Cape Breton went Liberal, for one of the factors swinging the Liberals toward Reciprocity had been the pressure from Nova Scotia coal mining interests for access to the New England market. Fishing and forest interests likewise opted for Reciprocity while manufacturers, including some but not all of the iron and steel magnates, were opposed. In New Brunswick the influence of the farm and forest sectors went chiefly in favour of Reciprocity which promised new markets and rising real estate values, and the Liberals

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carried eight of thirteen seats. With the Maritime vote in, the Liberal Party held a small lead. In Quebec the majority of voters remained loyal to Laurier in spite of the nationalist campaign. Coinciding with the resurrection of a big business alliance with the Conservative Party, the nationalist revolt hurt but did not destroy Laurier. The key to the Liberal defeat was the Tory landslide in Ontario where manufacturing, financial and railway interests of both parties rallied against Reciprocity, where the anticipated pro-Reciprocity farm vote failed to materialize, and where the numerous other antiLiberal issues took their toll. Ontario, formerly the heartland of Reciprocity territory, reversed its historical preference and opted, in coalition with Montreal big business, for a partially closed border, for the defence of the east-west exchange of manufactures for primary products while American parts and machinery moved north to build the branch plant industry necessary for Ontario to play its role. Ontario farmers, to a degree unanticipated by Liberal strategists, went along with the preferences of the manufacturers. For Ontario agriculture had also changed. Under pressure from cheap prairie grains, Ontario agriculture had swung increasingly toward serving the home market for products of mixed farms, rather than world markets for cereals. It therefore depended on the prosperity of the urban-industrial base which had so loudly pronounced itself threatened by the proposed trade treaty. In effect Ontario opted to give up one form of Americanization appropriate to an earlier historical age, one based on the dominion of trade, in favour of another, more modern form of Americanization based on corporate links and direct investment flows. And Canada as a whole had opted to try to continue to exercise, on behalf of Britain, a minority shareholder role in an American world at a time when that world was reaching well beyond the confines of continental North America.

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AFTER THE AMERICAN REVOLUTION ships, cargoes and entrepreneurs from the remaining North American colonies continued to follow the British flag around the world, although the great majority of British North America's overseas commercial interests, except for those with Britain itself, lay in the Caribbean. Goods and enterprise moved to the West Indies from British North America in response to the opportunity for safe and profitable trade behind the protective wall of British commercial legislation and the protective shield of British naval guns, and in response to periodic crises afflicting other, more conventional trade arteries. Thus, in 1815, a deflationary crisis called forth plans for expanding the amount of Canadian-Caribbean trade; and in 1865 the pending termination of Reciprocity did likewise. Indeed the Confederation scheme for British North America was sometimes regarded as the first step toward commercial and eventual political union of all of British America, including the West Indies. In the post-Confederation period Canadian yearnings for overseas trade remained focused on the Caribbean, though the Pacific area too was becoming attractive. In addition, another critical factor influencing the pattern and evolution of Canadian external trade came into play — Canada's capacity to follow both the British imperial lead and the newer American one in carving out a share of the trade of the areas these imperial powers were subjugating. 469

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American expansionist impulses were rooted in the nature of the nation itself, for it achieved independence in opposition to British efforts to constrain its commercial expansion in the Caribbean and to impede its territorial aggrandizement on the North American continent. Until the Civil War territorial expansion was endemic to the American process of economic growth and development. Political equilibrium between slave and free states often required territorial aggrandizement that both would accept. Thus President Polk offered Oregon to the North and Texas to the South, while some political leaders sought to avert the Civil War by attaching Cuba to the South as a slave state and Canada to the North as a free one. Over and above the designs on Canada and Cuba, American overseas expansionism before the Civil War focused on Central America and the prospects of bridging the Atlantic and Pacific by a road, railway or canal across Nicaragua or Panama. The first important American direct investments abroad in fact were in the Panama Railway. The cost in terms of money was large; in terms of human life even larger, as the contract labourers died in droves from malaria, sunstroke, yellow fever, malnutrition, and abuse by the foremen. In the 1850's too came the first efforts to build a canal across the isthmus in Nicaragua. The American steamship and railway buccaneer Cornelius Vanderbilt put together a syndicate to construct the canal, and set off an Anglo-American squabble over spheres of influence that culminated in the Clayton-Bulwer Treaty whereby Britain and the United States agreed to co-operate in the canal. No canal was ever built, in part because of the turmoil associated with the struggle for power of rival groups of American adventurers. The Panama Railway remained the most efficient route for interoceanic American commerce until the completion of the first American transcontinental railway in 1869. American interest then shifted away from Central America until near the turn of the century, when its Pacific ambitions dictated the need to pour energy and money into the isthmus canal once more. Until the United States launched its great drive for trans-Pacific empire, most of its external post Civil War expansionary impulses, apart from the early interest in the canal, were directed to Mexico and Canada. The attraction was not primarily territorial, but rather the potential for investments offered by the natural resource base of the two areas. Mexico had long been a happy hunting ground of foreign financial adventurers. British loans were prominent during the 1824-25 speculative mania in Latin American promotions, and in 1859, after a series

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of defaults, British gunboats appeared off Veracruz, principal port of entry on the Atlantic side, to demand payment. A so-called accord followed with the conventional kind of terms — Mexico mortgaged its customs receipts to the foreign financiers to guarantee repayment, much as Canada had done under the 1857-58 tariffs and the Grand Trunk Railway reorganization arrangements. In 1867, in retaliation for British support for the French-sponsored takeover bid, Mexico repudiated the accord and for the next ten years a diplomatic and financial cold war existed between Mexico and Britain. In fact the age of British financial hegemony over Mexico was soon destined to give way to that of the United States. The interest of foreign capital in Mexico revived when Porfirio Diaz seized power in 1876. The country became an investor's paradise as federal and state governments competed to hand over Mexico's resources and revenues to foreign interests. When the governments announced in 1878 plans for a railway from Veracruz on the Atlantic side to Acapulco on the Pacific, it was the signal for a frenzy of railway building that saw the country's mileage climb from 417 miles to 9,600 in 25 years while the various levels of government handed foreign railway promoters, mainly British, over $100 million in gifts. By the end of his reign, Diaz had given tens of millions acres of land to foreign planters for rubber, fruit and chichle production, while in 1911 less than 5% of the native population owned any land at all. A flood of American investments in copper, lead, gold and silver mines in the 1880's and 1890's accompanied the land grab. The contest between British interests — concentrated in railways and utilities — and American interests — especially in natural resources — for control of Mexico went in favour of the Americans. In 1903 Diaz announced the nationalization, with generous compensation, of the country's railways, a move welcomed by the American mining interests as a means of reducing British influence and freight rates, while Diaz could sell it to the public as a bold move against foreign domination. But the real struggle, which claimed Diaz himself as one of its principal political victims, was waged in oil. Until 1901 an American firm held a concession from Diaz giving it a monopoly of the right to import oil into Mexico. That year Mexico's own oil production began from British-controlled wells, and the American concessionaire asked that all tariffs on imported oil be lifted. When the request was refused, American oil money began backing Diaz's opposition. In 1910 Madero, a moderate reformer, came to power with the backing of American oil interests. English oil money retaliated by financing Victoriana Huerta, a nephew of Diaz and darling of the feudal landlords, who deposed and murdered Madero. At this point the British and Americans made peace with one another,

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Britain agreeing to give the United States a free hand in Mexico, in exchange for which the Americans agreed to eliminate tolls on the Panama Canal. American business interests now turned their attention to ousting the British creation Huerta, funneling their support to Huerta's rivals Venustiano Carranza and Pancho Villa. Carranza deposed Huerta shortly after United States military forces seized Veracruz and cut off most of the Huerta government's tax receipts. But once successful in deposing Huerta, the opposition groups quickly fell to internal squabbling which soon assumed the dimensions of a full-scale civil war. Zapata and his followers demanded radical land reform, and Pancho Villa too turned against Carranza. Revolution and war ravaged much of the country, destroying mines, railways and bridges and inflicting such severe damage on American investors that they began clamouring for American military intervention. The United States invaded Mexico in an effort to deal with Villa, only to face a country united by external threat against the intruding power. And in 1917 the imminence of American involvement in the war in Europe gave the United States a pretext for withdrawal. In the Pacific, American expansionist impulses focused first on Hawaii. American interests there dated from the mid-nineteenth century, when American planters began cultivating sugar and other tropical crops on the island with Japanese and Chinese quasi-slave labour, while American ships active in the China trade made Pearl Harbour a standard port of call. In 1875 the United States and Hawaii signed a reciprocity treaty which led to a sharp rise in sugar production; and in 1887, as its naval rebuilding program got up full steam, the United States gained exclusive rights to the use of Pearl Harbour. In 1890 Louisiana cane and California sugar beet growers succeeded in having the Hawaii preference eliminated, a body blow to the Hawaiian industry. Investments depreciated; property values collapsed; and in 1890 elections on the islands gave power to a party inclined toward autonomy from the rule of the white planters. In 1891 Queen Liliuokulani ascended to the throne, determined to break the political power of the American emigres. Two years later a proAmerican coup, supported by a detachment of Marines, was staged. However, annexation did not follow immediately. The coup, while sustained and abetted by the United States government, was directed principally toward internal objectives: the overthrow of the native party and the restoration of planter power. Most of the important planters opposed annexation for fear it would lead to the outlawing of their indentured labour system, illegal in the United States. Proannexationist forces tended to be small planters who could not afford great gangs of coolies, and whose competitive position would be im-

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proved by the creation of a wage labour system. Moreover, opinion in the United States itself was divided on the issue. While the Hawaiian sugar preference was restored in 1896, not until 1898 — and then by virtue of the need to assure control of the Pacific trade routes — was annexation consummated. The turnaround in American foreign policy in 1898 was prompted by a number of factors. Since the crisis of 1893, industrialists in the United States had added their voices to those of traditional agrarian expansionists in demanding new overseas markets. More and more of the economic elite came around to the neo-mercantilist view that the industrial system's productivity had reached the point when it necessarily generated products surplus to the domestic economy's power to absorb, and unless alternative markets could be found the result would be crisis and depression. Moreover, it was an age of multilateral imperialism, and Americans feared that once the scramble for Africa was over the European powers would turn their attention to Latin America and China, the silver standard countries that America had long viewed as its best potential overseas customers. The prospect was particularly alarming if economic nationalism in Europe led to the shutting out of American exports. They appeared to be justified in their suspicions. By 1898 the Boer War marked the virtual end of the carve-up of Africa, and the great powers seemed poised to grab China, divide it into spheres of economic influence, and destroy American markets. The threat to American trade in China was the real catalyst of the events of 1898. The southern textile interests saw China as a virtually limitless market for cotton. Northern petroleum interests, facing the competition of the Nobel-Rothschild interests in Europe, also turned to China. They were joined by agribusiness hoping to woo the Chinese away from rice and toward a wheat-based diet, and by railway promoters and financiers seeking the usual array of concessions. America had to assert itself in the Pacific to prevent the carve-up of China by European imperialists. That required naval and commercial bases, which in turn pointed to the need for an isthmian canal, which in turn required a powerful position in the Caribbean to defend it. And Britain, eager to deflect American interests away from its own possessions, encouraged the Americans in the view that the defense of trade rights in China required war with Spain to seize its last possessions in the Pacific and the Caribbean. In the Caribbean the bulk of the action was centred in Cuba, a prize long sought by American expansionists and at the time the world's largest sugar producer. In 1891 the United States signed a reciprocity treaty with the island, and the rapid increase in trade that followed rekindled interest in the area. Then reciprocity was annulled — with

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the knowledge that the economic dislocation likely to result would probably lead to an insurrection against Spanish rule. The revolution which duly broke out in 1895 imposed a great drain on Spanish resources in trying to deal with it. As the insurrection raged, mills and factories were destroyed, sugar crops ruined, American trade diminished, and the value of American investments threatened. In 1898 the United States declared war on Spain in order to defend American commercial and financial interests in Cuba, establish a naval and military base there to offset British power and defend the projected isthmian canal, and as part of the general campaign to oust Spain from the Pacific and Caribbean. The rebels, who had already all but defeated Spain, were refused recognition and the area passed de facto under American rule, along with Puerto Rico. While Puerto Rico was annexed formally, in Cuba the United States instead imposed an agreement on the "independent" government that the U.S. could intervene to "preserve Cuban independence" and, implicitly, to defend American economic interests. In the Pacific the Spanish-American war prompted the United States to consolidate its hold on Hawaii by outright annexation, and it then moved to expel Spain from the Philippines, which they coveted for a number of reasons. They were regarded as the vital entrepot for pushing American exports into China; Manila harbour was desired as a naval base to round out the American trans-Pacific chain; the natural resources of the islands promised wealth to American planters; and the fact that Germany was also eyeing them suggested the need for pre-emptive seizure. As in Cuba an insurrection against Spanish rule was already in progress, and the United States refused recognition to the rebels while profiting from their erosion of Spanish military power. With American power in the Caribbean and Pacific both confirmed, the next step was the isthmian canal. In 1879 Ferdinand de Lesseps, the engineer who designed the Suez Canal, turned his attention to Panama, while the United States reacted by resuscitating its plans for a Nicaraguan canal. When nature and economics combined to defeat de Lesseps, American interests took over the prosecution of the canal. In 1901 the United States sponsored a revolution in Panama, then a province of Colombia, and repudiated the ClaytonBulwer Treaty, thus asserting its right to sole control of the isthmian colony. The canal was built soon after. The shortest ocean passage and most efficient commercial route between the Atlantic and the Pacific now lay in American hands. The Caribbean was effectively an American lake, in which Canadian investors were sometimes allowed to fish.

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A Mart Usque Ad Marem If British imperialist urges in the late nineteenth and early twentieth centuries were premised on its intent to become the world's banker, and those of the United States on its desire to become the world's granary and workshop, Canada's expansionists dreamed of their country becoming the hemispheric pawnshop through which passed the colonial trinkets and baubles discarded by the great powers. Its business ventures outside the continent were rooted in the greater imperialist structures of which Canada was a subordinate part, and took place in a context moulded by the contest for hegemony between the great powers of one epoch or another. Indeed, Confederation itself was welcomed by some imperial strategists as the means by which a railway would span British soil on the American continent and provide a safe imperial trade route to and from the Orient. Canadian business interests in the Pacific were nearly as old as American, dating from the time when Alexander Mackenzie crossed the continent by land and dreamed of a great Pacific trading empire under his control. While Canadian land-based interests in the Pacific ended with the takeover of the North West Company by the Hudson's Bay Company, the maritime ports of British North America still sent their whaling fleets, guano ships and emigrant vessels to the South Seas. The Hudson's Bay Company expanded its Pacific contacts and its exports of fur, fish and lumber to Hawaii, Japan and China. When the aftermath of the gold rush united the west coast colony with Canada the groundwork was already laid for a revival of Canadian business interests reaching across the continent and into the Pacific. In the early seventeenth century Champlain had envisioned the trade of the Orient pouring down the St. Lawrence river en route to Europe, and it was this dream too that inspired the promoters of Canadian transcontinental schemes. Edward Watkin had stressed the British imperial trade in his plans for economic resuscitation of the Grand Trunk. The Earl of Granville, then Colonial Secretary, expressed the same sentiment in advocating Confederation in correspondence with Governor Anthony Musgrave of British Columbia: It is evident that the establishment of a British line of communication between the Atlantic and Pacific Oceans is far more possible by the operation of a single Government responsible for the progress of both sides of the Continent than by a bargain negotiated between separate — perhaps in some cases rival — Governments and Legislatures. The San Francisco of British North America [Victoria] would, under these circumstances hold a greater commercial and political position than would be attainable by the capital of the isolated Colony of British Columbia.

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In 1873 a Tory paper greeted the award of the contract for the Pacific railway to Hugh Allan with the words, We have the means in our possession of bringing the trade of India, China, and Japan to Montreal by the shortest route and at the cheapest rate possible.

In 1878 Tupper justified his choice of a route through the Pacific province by stressing that it made the distance from New York to Japan 650 miles shorter than any route the United States can afford. So far as European traffic is concerned, the citizens of London, the citizens of Great Britain, will find that they can reach China and Japan by the line of the Canadian Pacific, and over Canadian soil from Halifax, instead of the line now existing to San Francisco, and effect a saving of over 1200 miles.

And the Canadian Pacific Railway through the prairies followed a more southerly route than that originally planned, a route that avoided some established settlements and the more fertile regions in favour of rapid development of international trade along the shortest possible route. It was probably no accident that the year 1887, which saw the establishment of the CPR's Pacific fleet, also witnessed the first bottlenecks in the carriage of grain from Manitoba as the long distance trade took precedence over domestic in the allocation of the company's resources and energies. And 1887, the year its Pacific fleet became operational, was also the year the CPR showed a profit for the first time. In fact the Pacific connection did not have to await completion of the CPR's own fleet of Pacific steamers. Well before that it had begun chartering sailing ships to carry cargoes of tea and silk to Vancouver for shipment along its rail link to Montreal, which the National Policy tariff had restored to the position of a major distributing centre of Asian goods for British North America. In 1886 before the annual meeting of the Bank of Montreal, Donald Smith was ecstatic about the possibilities of the Oriental trade for the city, confident that it would even restore Montreal to the position of a major commercial metropolis not only for British North America but for the United States as well. And in 1890 before that same not disinterested body he spoke of the CPR as "fulfilling the dreams of those who, centuries ago, came here hoping to find a route to China through Canada." That same year a Canadian business directory echoed the sentiment and elaborated on it:

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The importance of the geographical position of Victoria cannot be one whit overestimated. With a safe and well nigh land locked harbour she bids to her doors the immense trade that is springing up between Canada and Britain's vast dominions in the Orient. A powerful line of fast steamships, increasing in number every year, throws a girdle over the wide Pacific that is but a water highway of the CPR. Across this girdle the wealth of India and China are but now beginning to pour into our Dominion and who can gauge the fast growing importance of the city through which such a volume of trade must necessarily flow.

In fact, the success of the CPR in breaking into the Pacific trade was so great that, pressured by the American railways, in 1897 the House of Representatives (briefly) imposed a surtax on Asian goods entering the United States from Canadian ports. Not least of the trans-Pacific businesses the CPR plunged into was the passenger trade, at both ends of the social scale. Chinese immigrants en route to slave labour in the United States or Canada were packed into the steerage facilities or unused cargo space, while the CPR also pioneered the first world steamship tour for Europe's idle rich. At London the passengers gaily boarded the CPR's Empress of India and sailed for Vancouver via Bombay and Hong Kong. After a rugged safari across Canada by first class coach, they boarded one of the CPR's Atlantic steamers for the final lap of their adventure. Over and above the imperial entrepot and Asian tea and silk trades, Canadian-produced goods were also to flow to market over the Pacific railway. As JJ. Hill's Great Northern plunged into the operation of running American cheap cotton textiles to China in competition with British and Indian output, Montreal also got into the business. Indeed, some cotton mills in Canada were built for the sole purpose of serving the Chinese market. The immediate target for Canadian commercial expansion into the Pacific was Hawaii, with which British Columbia had long exchanged its fish, coal and lumber for tropical fruits and sugar. In 1876 the U.S.-Hawaii reciprocity treaty cut off the Canadian trade. To the B.C. business interests who wanted renewal of the trade link was shortly added the pressure of the CPR, which needed to generate long-distance traffic to cover the heavy fixed costs run accumulated in building its main line. When the American domestic sugar producers secured annulment of the treaty a few years later, Canadian commercial interests moved in quickly to take advantage. Hawaii was regarded as an excellent port of call for Canadian-Australian trade, and a transit point for the British imperial Pacific cable then being laid between Asia and London across Canada. And in 1890 British Colum-

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bia had its first sugar refinery in operation, using Hawaiian raw sugar. In the next federal budget the dudes on raw sugar were cut sharply in part to accommodate the Hawaiian connection, and therefore the set of Conservative Party members who had promoted British Columbia's first sugar refinery. In fact the flurry of CPR and Canadian activity in Hawaii was one factor precipitating the pro-American coup, and by 1898 the formal annexation of Hawaii to the United States ended Canada's Pacific ambitions there. To the east, in Newfoundland, Canadian expansionist impulses were only a little more successful. In 1873 the Allan Line started a regular federally subsidized line of steamers between Liverpool, St. John's and Halifax and appointed as its St. John's agent Ambrose Shea, who had previously secured the post of agent of the Intercolonial Railway, then being built along the northern New Brunswick route. In other words, the only thing still missing to complete the Short Ocean Passage was the railway across Newfoundland, and then St. John's would become the entrepot for mail, passengers and express freight between Europe and North America, all of it passing through Shea's hands. In 1873 the anti-Confederationist C.F. Bennett was re-elected as head of Newfoundland's government, but by the time the assembly met in early 1874 he had lost his majority when some of his members were bribed to join the opposition. The cost of this last manoeuvre should properly have been added to the capital expenditures of the projected railway, for it was a prerequisite to the commencement of the Newfoundland line. Shortly thereafter Sandford Fleming began the necessary surveys. In 1879 the incumbent government, pro-railway and proConfederation, made plans for financing the railway. The colony's existing debt was to be funded in part by the proceeds of a new revenue tariff, which also served as security for new borrowing. The old merchant elite was outraged at the tariff, and in 1885 their party won the elections. As the railway issue ricocheted back and forth across the assembly and the railway bumped forward, the provincial debt grew. By the early 1890's pro-railway, pro-Confederation forces were back in power. Then in 1894 a financial debacle swept the island, for in that year the principal of the London house Prowse, Hall and Morris, the English agents of many of the St. John's fish export houses, died. Normally merchants who exported would draw bills on their representatives in London in anticipation of the sales for that year, or even beyond, and discount the bills with the local Commercial Bank. But the London firm refused to honour any more Newfoundland bills until an investigation of the company's affairs was completed. The bills outstanding were protested; the banks that held them demanded

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that the Commercial Bank cover then; the Commercial Bank asked its mercantile customers to pay up on their loans; and when the mercantile houses went into assignment, the Commercial Bank collapsed. As notes of the Commercial Bank fell to discounts of 90%, a run started on the Union Bank and the government savings bank, both of which suspended payments. With bank notes and cheques ceasing to circulate, the island quickly regressed to a state of barter; and the collapse of many of its fish export houses paralyzed trade and threatened fishing villages with massive destitution. This was Canada's chance to play the role of the fiscal Samaritan. Members of the Newfoundland government went to Canada to try to get Canadian banks to move onto the island to alleviate the crisis, and the Bank of Montreal (which became the Newfoundland government's financial agent), the Royal, and the Bank of Nova Scotia all responded. With Canadian bank notes becoming the dominant form of circulating money, and with the decision the next year to realign the value of specie in Newfoundland so that the coinage ratings conformed to Canadian norms, a de facto monetary union was formed between Canada and Newfoundland. Negotiations for Confederation followed, the essential proviso being that Canada assume Newfoundland's railway debt. But Newfoundland's debt per capita was double Canada's at a time when debt service charges claimed nearly 30% of Canadian government budgetary revenues and the Canadian government's own debts had cumulated to $275 million. When Britain refused to assume responsibility for the excess of Newfoundland's average debt over the Canadian level, the negotiations failed once more.

The Caribbean Connection Although Montreal and Quebec City had longstanding commercial ties to the Caribbean, it was the major Maritime ports that were traditionally most heavily committed to the West Indies trade. It had been explicit British government policy during the dying days of mercantilism to shift the supply base of the sugar colonies northward after the American Revolution. But loosening the old trade triangles in favour of direct two-way trade, along with Anglo-American commercial reconciliation, quickly marginalized the Maritime provinces' role. Their fortunes improved dramatically during the American Civil War, when the American merchant marine was deranged by losses from southern raiders and the diversion of shipping into the war effort. Nova Scotia quickly captured a good part of the sugar trade both for British North American consumption and even for re-export to the northern states. The end of the Civil War meant not only the return of

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American competition in the Caribbean but the pending end of Reciprocity. One of the acts of the Confederate Council of Trade, which met at Quebec in 1865 to co-ordinate commercial policy among the British Northern American provinces, was therefore to send a trade commission to the Caribbean in an effort to partly offset the loss of the United States market by stepping up sales in the West Indies. It was particularly interested in the Spanish islands, which absorbed five times as much British North American produce as the British islands did. A stream of recommendations for ^ariff harmonization, reciprocal tariff reductions, and improved transportation and communications links followed, none of which was put into immediate effect, but which over time came to assume a greater degree of acceptability as commercial priorities. The crash of 1873 helped spark renewed interest in the area. Several private schemes were afoot for steamship runs and banks on various islands. Manufacturers with surplus goods piling up as a result of the crash urged the development of trade channels with the Caribbean and South America to relieve excess production. But it was after the National Policy that the most active promotion of communication and transportation links occurred. The objectives were twofold. The first was to secure a source of tropical products, especially sugar for the new Canadian sugar refining industry in the Maritimes and Montreal. The essence of the National Policy strategy was effectively summed up by the fact that the first load of ordinary merchandise sent over the CPR to British Columbia was a cargo of Jamaica sugar that had been refined in Halifax. The second objective was to secure an outlet for the productive capacity built up behind the National Policy tariff but idled by recession. Canadian business reacted to the new crash in 1883 by pushing for Canadian autonomy from Britain in the making of commercial treaties, and by 1886 it was agreed that henceforth Canada would no longer be automatically bound by British commercial agreements with other states. And that same year Charles Tupper, then the Canadian High Commissioner in London, secured a commercial treaty with Spain that would give Canada a privileged position in Cuban and Puerto Rican trade. While the Spanish Caribbean took priority, there was also Canadian interest in expanding links to the British islands. Mercantile opinion on the British islands, which had been hit hard by the international sugar price wars and the dumping of beet sugar, leaned toward commercial association with the United States as the first choice, and reciprocity with Canada as a second-best alternative. In Canada too the reciprocity option found favour. In both the islands and Canada annexation was also considered, but rejected. Fiscal reasons played a role; but so did the fact that Canada wanted to avoid acquiring a

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black population. In any event the success of the Spanish treaty obviated any pressure for annexation of or reciprocity with the British islands for the time being. And while the negotiations were periodically revived, the trade with Spanish America remained Canada's principal commercial priority in the area — until 1898, when the United States seized Cuba, Puerto Rico and the Philippines, cutting off Canadian trade and becoming independent of the British West Indies for its own tropical staple supplies. The seizure of the Spanish islands by the United States opened up the British ones to Canada, for it spelled the end of their American markets. Immediately after the war, the United States began admitting Puerto Rican sugar free, and extended a preference to the products of the Philippines and Cuba. Canada replied by extending a preference to Jamaican sugar, the island having been hit hard by the American seizure of the Spanish islands. The idea of annexation gained ground. Elsewhere in the Caribbean Canadian ambitions also grew. In 1900 Trinidad and Canada tried without success to negotiate a reciprocity arrangement under which Trinidad would supply Canada with cocoa, asphalt and sugar. And Canadian financiers began a campaign for the annexation of the Bahamas which could provide Canada with a new market, a coaling base for ships using the Panama route for Canadian trade, and a naval station which would help Canada's increasingly important interests in the area. In 1912 a trade treaty between Canada and ten West Indian colonies was signed under which Canadian-manufactured exports got a 20% preference, while some natural products from the West Indies entered Canada free, others at a 20% preference. Further plans for the development of Canada-West Indian economic ties were made at a conference of trade officials in Ottawa in 1913. Canada's Minister of Trade and Commerce, George Foster, pointed out that the demand for Caribbean products would grow with the rapid growth of Canadian population and income. The Caribbean's role as a resource hinterland and field for investment was clearly spelled out when he declared, The United States now has within her own territory or affiliated to her by special treaties, a tropical area which goes far towards satisfying her wants....! have always been of the opinion that the West Indies is an underdeveloped country....Development can best be assured by a certain and interchangeable market of such size and such quality, that it will call upon you, for your present protection and your future benefit to meet the more extended needs ofCanada....There ought to be a larger investment of capital and a greater cooperation between Canada and the West

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Canadian interests in the West Indies went beyond the exchange of its staples for tropical products, for following the trail of the sugar, fish, timber and rum trade came the investors setting up bank branches, insurance company branches, utilities and railways. The banks came first, beginning their Caribbean careers as early as 1837 when the Halifax Banking Company linked up with the Colonial Bank, a London-headquartered operation that was long the dominant financial institution in the British Caribbean, to handle the financing of Nova Scotian trade. This first venture of British North American banks into the area set the norm for the future in several ways. Prior to 1914 it was exclusively Halifax banks that penetrated the Caribbean, both British and, after 1898, the American possessions, albeit that the Royal Bank (the former Merchants' Bank of Halifax) and the Bank of Nova Scotia had shifted their operational headquarters to Montreal and Toronto as the main locus of economic activity in Canada moved westward. They moved to the West Indies in response to the opportunity to finance trade and exchange dealings, expanding into the British Caribbean as Canadian trade grew, and into the new American possessions because until 1914 American national banks were forbidden to establish foreign branches. They moved actively into all facets of local banking, gathering up deposits from local savers, acting as bankers to the big Canadian and American corporations that were operating in the area, and subsequently circulating their bank notes in the British islands. There they put their money into financing tropical staple exports and sent the funds that were surplus to local needs back to Canada or New York to loan to Wall Street brokers. Given the expansion of trade and the institutional impediments to the establishment of American banks, the development of Canadian banking in the area was not an unexpected occurrence. What was more remarkable was the proliferation of Canadian utility and railway promotions undertaken by the same groups of Canadian Pacific and Canadian Northern magnates that were active in Canada. The flow of investment was slow until the Spanish-American war led to a redivision of the Caribbean. Thereafter Canadian capital flowed with increasing ease into both British and American possessions. Cuba was the first prize to be secured. While most of the funds in the production of staples such as sugar, tobacco and cotton were American, Canadian capital was heavily involved in utilities

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and railways as well as banking, and to a lesser degree directly in agriculture too. The lead in mustering Canadian investors to take advantage of the condition of the prostrate island came from Americans, in particular the CPR's William Van Home. "Patriotic sentiments have never in history of the world stood long against the pocket book," thundered this same William Van Home who had earlier denounced as "annexationists" those Manitobans who had objected to the CPR's monopoly clause. When Spain surrendered Cuba in July 1898 Van Home's agent was on the first passenger boat to leave New York for Havana. Canadian capital had been reluctant to move in, but Van Home regaled the Montreal commercial and financial community with tales of the Caribbean cornucopia. Another stumbling block was the reluctance of the American occupying authorities to let Canadians share in the island's fruits. The Monetary Times, the leading Canadian financial newspaper, rebuked them, saying that "one of the most disappointing results of American rule is that it had not done more to encourage the speedy in-coming to the island of capital." But Van Home rectified that by securing the personal assent of President McKinley (procured with the help of General Alger, a member of McKinley's cabinet who had earlier collaborated with Van Home in the Grand Mere, Quebec pulp and paper works) to set up shop. Following Van Home into Cuba was a stampede of Montreal, Toronto and Halifax tycoons hunting for concessions, monopolies and land. Van Home's role in fostering Canadian investment in Cuba cannot be isolated from the careers of two other American entrepreneurs, F. S. Pearson and Percival Farquhar. Pearson was a transit engineer well versed in the crude art of street railroad operations both in the United States and in Canada, where he had established connections with eminent Montreal and Halifax financiers. Farquhar managed to turn Brazil into virtually a personal fiefdom and, in so doing was so impressed by the CPR's success in doing likewise in western Canada that he modeled his Brazilian transportation and land development schemes upon it, even to the point of hiring a CPR immigration agent to oversee the settling of Europeans on his Brazilian lands. At the end of the Spanish-American war and at least ten years of preceding national liberation struggle, parts of Cuba lay in ruins; destitution and disorder provided fertile breeding ground for all manner of parasites, not least the North American carpetbaggers who descended upon the island and squabbled over control of utilities, railways and plantations. Farquhar and Pearson formed their Cuban Electric Company in 1898, one of several groups rivaling Van Home for a monopoly of Havana transit facilities.

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After the merger of the two rival groups, Van Home's associations with the duo continued. In 1900 Montreal's Journal of Commerce reported the modest ambitions of Van Home's reconnaissance mission in Cuba as follows: "their intention being to secure option on all horse and trolley lines in Cuba, also on all the sugar plantations on the island." Especially important was their Cuba Company, incorporated in New Jersey with Van Home as president, and apparently intended as a holding company from which railway and plantations enterprises could be prosecuted. Associated with Van Home and Farquhar was a potpourri of Philadelphia, New York, Montreal, Toronto and Halifax businessmen. Van Home was entrusted with the task of overseeing the building of a railway line, and here complications began to emerge. Under the terms of the Foraker Act, supposedly passed by the United States Congress to prevent some of the more unseemly facets of a gargantuan treasure hunt from manifesting themselves on the defenceless island (though more likely passed to assure that close friends and associates of the military would not grab all the choicest plums), the American military government of Cuba was banned from making land and other concessions of public domain and granting monopoly rights. Hence the railway line had to be built on private land, and private land cost money, usually. But the Spanish absentee landlords through whose land the railway was to be run, when they could not be prevailed upon to "donate" land for a right of way, appear to have had it unceremoniously confiscated. The business of securing the right of way was aided immeasurably not only by the presence of two American generals on the board of directors, but also by the simple device of the military authorities allowing Van Home and Farquhar to personally write the post-war Cuban railway law. It is thus scarcely a surprise that Van Home in a 1900 interview with the Journal of Commerce, listing the blessings of Cuba, noted, in addition to its rich soil, lush vegetation and great sugar potential, the boon of American rule. Nor is it surprising that the mere fact of rumours of American withdrawal and the restoration of Cuban self-rule in 1901 would spread panic throughout the enterprises of North Americans in Cuba, causing stocks to drop. The purpose of the railway was to open new sugar lands to exploitation, and Van Home followed up by putting money into sugar mills and refineries. But once again the volatile state of the international sugar business intervened; a resumption of the old game of dumping beet sugar led to a worldwide depression in the sugar cane refining industry. Van Home put his influence to work in Washington in the fight for a trade concession for Cuba, and in 1903 the United States granted Cuban sugar a 20% preference in its tariff schedule. A few

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years later the same Van Home who had played a role in securing the special commercial treaty between Cuba and the United States was stumping the campaign trail in Canada against a proposed Reciprocity treaty with the U.S. Compared to Cuba, Canadian interest in Puerto Rico was limited. The major investment was the Puerto Rico Railway Co., largely under the supervision of Max Aitken (the future Lord Beaverbrook), who had a substantial promotional career in the Caribbean before his main burst of Canadian activities. It was during his Caribbean sorties that he developed into an ardent imperial federationist, seeking to attach the British West Indian colonies to England just as Cuba and Puerto Rico were attached to the United States. Aitken's Puerto Rico concern acquired a utility monopoly in San Juan and several other towns, controlling their electric light and power plants, tramways and water. In addition, resource extensions to the steam railway were made to develop traffic in sugar and tobacco. Montreal, Toronto and Halifax interests were active in the British Caribbean colonies alongside Aitken and Van Home. Trinidad had Canadian capital in its telephone system and in its electric light and tramway company. Canadian investment was also present in Jamaican and Guyanese utilities. On the central American mainland, apart from some Montreal money in fruit growing, there was little Canadian activity; for Van Home's major effort in that area, the Guatemala railway, was financed by German money rather than Canadian, and a squabble between German plantation owners and the local dictator soon cut it off from outside financing.

Canadian Investment in Mexico While not benefiting directly from Van Home's talent for turning political advantage into private profit, the Mexico of Porfirio Diaz soon assumed an importance for Canadian investors that rivaled that of Cuba. By 1904 there were enough Canadian businessmen in the capital to form a Canadian commercial club, and by 1906 Canadian investors controlled 75% of the country's tramways. Once more the lead in inducing large-scale Canadian investment was taken by an American, this time F.S. Pearson. Mexico City Tramways, Mexico City Light and Power, and the entire electric utility system of the Federal District fell into the hands of Pearson and his Canadian confreres. Other Canadian investors moved into other utilities elsewhere in the country without Pearson's collaboration. Over and above securing monopoly rights to service the urban centres, the utilities were often

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promoted to provide power for the numerous American mining operations, particularly in the Chihuahua area. On top of the utilities came the railways, again entrepreneured by Americans with Canadian capital. In 1909 Pearson supervised the purchase of the Mexican Northwestern Railroad, a railway system which ran from Chihuahua to the American border and had a 3 million-acre grant of timber land associated with it, by a Canadian syndicate from its American owners. Canadian capital also went into the Kansas City, Mexico, and Orient Railroad which drained timber and minerals from northern Mexico to the United States. Thus Canadian utilities serviced the mines with power, and Canadian capital invested in railways to haul the timber and mineral resources to market, while in Mexico City half of the total foreign exchange dealings were controlled by the Bank of Montreal. But the actual ownership of productive assets and their operation, be they mines, lumber mills or plantations, was American. Canadian capital played essentially a service role to the dominant American interests. Canadian capital was not entirely absent from Mexican mines and plantations, but it was minor compared to that of the United States. Nonetheless the presence of so much Canadian business activity so far afield is on the surface surprising, even given its subsidiary role and the entrepreneurial leadership of the Americans. The secret behind the Canadian willingness to venture into Mexico could be summed up in one word: Diaz. In 1908 the general manager of the Bank of Montreal returned from a reconnaissance mission to Mexico and announced that he was "particularly struck with the stability of the present Mexican government and the powerful character of the ministry." He even declared Mexican investment to be safer than Canadian, for the socialist ideas which were then deemed rife in Canada — as industrial capitalists in the east and farmers in the west demanded public ownership of privately owned utilities — had not disturbed the investors' peace in Mexico. His sentiments were shared by A. E. Stillwell, President of the Kansas City, Mexico and Orient Railroad, who addressed the Canadian Club of Toronto in 1908 to whip up enthusiasm for Mexican investment. The Monetary Times reported, his description of Mexico's attractions for the capitalist would make it appear quite a corporate Mecca. As a result of Mexican fair dealing, Mr. Stillwell pointed out, there was invested in the Southern Republic $1,400,000,000 of foreign capital. The personal element of prosperity of, and faith of the foreign investor in Mexico is vested in President Diaz. He is gifted with a keen judgment and a fine business ability. Mr. Stillwell labelled him as the most marvelous man in the world today.

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But the Mexican people did not share Stillwell's assessment of their leader. The outbreak of insurrection led to serious decline in the value of the securities issued by the railway and utility firms which, because of their monopoly concessions, were all the more vulnerable to political unrest; and the result was the invasion of Mexico City late in 1910 by the Canadian directors of a number of these firms. Among them was Edmund Walker, head of the Bank of Commerce and of the Canadian Bankers' Association, who proceeded to give advice to the military authorities on how to deal with Zapata, whose activities were taking their toll of Canadian profits. Especially hard hit was the Chihuahua area, where the rebels were busy requesting "loans" from the banks and blowing up bridges over which F.S. Pearson's Mexico Northwest ran. In the year before Madero fell the railway line had to replace 575 trestles and bridges. As the insurrectionary violence spread, Canadian-owned utilities in other parts of the country also began to suffer, and Canadian investors began demanding political changes. As the manager of the Mexico City branch of the Bank of Commerce wrote to his boss in 1912, "Democracy has not provided an unqualified success anywhere, and here it is an absurdity." Canadian tycoons welcomed the overthrow of Madero, who was incidentally murdered in the process, and the advent of the Huerta regime which promised to restore the golden days of the Diaz era. Diaz himself stopped off in Montreal on his way to Europe in 1913 to reassure the Canadian companies that their Mexican interests would "be safeguarded to the utmost ability" of the new military dictatorship. Then the United States muddied the waters once more by choosing to back Carranza who, on his ascent to power, proceeded to make life thoroughly miserable for Canadian utilities and banks, threatening the loss of concessions and even that most horrible of corporate fates, the imposition of something resembling taxes. Ultimately Canadian investors seem to have decided that calling for British military aid, as they did in 1913, was not the answer to their problems in light of the fluid political situation. They chose instead to bow to the prevailing wind and, once American troops began their drive on Pancho Villa, asked for American aid to bolster the profitability of their investments in a part of the world which the imperialist division of the spoils had by then assigned to the exclusive custody of the U.S.

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The Approach of War

THE AMERICAN ASSERTION OF CONTROL over Mexico, Central AmericE and much of the Caribbean at the expense of older, European imperial powers took place against a background of deepening international hostility. One after another the major European powers were compelled by the search for markets, for raw materials, for frontiers of settlement, and for new investment opportunities to stake a claim to the distant reaches of the globe. The process had begun with the Discoveries and saw one continent after another seized and divided up, with war after war for the redivision of the results. In the years leading up to August 1914 the process reached its culmination.

The Scramble for Africa Much of the expansionary force of Europe during the late nineteenth century was focused on Africa. The continent was largely unpartitioned or, where prior partition had occurred, its subject territories were in the hands of Turkey, the weakest of the European powers of the period. The scramble for Africa illuminates the nature of the bourgeois alliance that impelled the grab for territory, an alliance of powerful business interests with the military and diplomatic elite, the Church, and the university, which provided expert advice in the appraisal of a region's wealth and in the social control of its aboriginal population. Missionaries played a particularly important pioneering role, often going forward first to teach the natives to wear European clothes and use European tools. With, or sometimes in advance of the missionary, came the explorer whose role it was to assess the opportunities for profit that a region held out, and to whip up popular enthusiasm for its annexation by lurid accounts of adventure among the local savages. Once the missionaries and explorers had done their work, the 488

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merchant followed. And once the missionary, explorer and merchant had managed to sufficiently offend the moral code of the indigenous people, the call went out for European military power to continue the process of penetration. Thus the missionary gave way to the merchant, the merchant to the warship, and another territory would see the light of European civilization. The Africa in which these events transpired in the late nineteenth century was really two separate continents in both the geographic and ethnological senses. In the north were the Arabic-speaking territories, traditionally dominions of the Ottoman Sultan and long tied into the world of Mediterranean commerce. In the south, below the Sahara, lay the "Dark Continent", almost entirely unknown to Europeans apart from the southern tip and the peripheral trading stations at river mouths on the coast. This was a continent explored only by Arab merchants and slave traders. In 1880 a million square miles of all of Africa, with a population of about 10 million, were under European (non-Turkish) rule, and that was dominated by French Algeria. By 1890 6 million square miles had fallen into European hands. By 1914 all but Abyssinia (kept "independent" by a Franco-Italian stalemate) and Liberia (which was really a colony of American rubber monopolies) was under European rule. Such was the speed and extent of the last great scramble for world empire. In the north the intrigues centred upon the old Turkish territories and on Morocco, which had long before shed the Ottoman yoke. Of these territories the most important was Egypt, where control of the vital overland trade route to India had long incited British and French rivalry. Under Warren Hastings, the East India Company had established a subsidiary to control the flow of trade along the Suez overland route. Napoleon I had made the invasion of Egypt the first step in his dream of an overland march on British India, a dream which went up in smoke, along with his fleet, at Abuqir Bay in 1798. However, it was clear to the British thereafter that their control of the Cape route was not enough to guard the approaches to India, a territory which was rapidly becoming the dominant source of British wealth; and this concern over the defence of the routes to India became a cardinal object of British foreign policy for the next century. British strategy came to be based on two mutually complementary tenets: controlling Egypt and offsetting French machinations there, and maintaining an alliance with Turkey to keep the Turkish empire intact and thus bottle Russia up in the Black Sea by assuring Turkish control of the Bosphorus. While the Crimean War and the bloody suppression of the Indian Mutiny sufficed for some time to keep Russian ambitions in check, the French schemes in Egypt continued to be a major nightmare for the

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British authorities. When the Albanian, Mohammed Ali, contrived to get the Sultan of Turkey to recognize his title as Pasha of Egypt, the French cultivation of commercial and cultural ties began in earnest. It culminated in a joint venture to build the Suez Canal. The French promoter Ferdinand de Lesseps and his syndicate put up the capital in exchange for 55% of the shares; Ali contributed the forced labour of his people in return for the other 45%; and the canal was duly built, opening up to all nations a direct and short steamer route to the far east, free of British control. It was a situation not destined to last long. Mohammed Ali was succeeded in 1863 by his grandson Ismail, who managed within a dozen years to bankrupt the country and oversee its foreclosure by European financial interests. In large part it was the energy with which he pursued the dream of modernizing Egypt's economy that produced the final debacle. Ali had begun the cultivation of cotton in Egypt on his own land (he owned 25% of Egypt's arable total himself). Ismail, with British encouragement, extended the investment in cotton, only to be faced at the end of the American Civil War with a world glut. Sugar cultivation proved equally disastrous. Meanwhile, large sums were spent on futile efforts to consolidate the Egyptian hold over the Sudan. All of these ventures were financed by funds borrowed abroad at extortionate rates of interest. By 1875 the state treasury was bankrupt, at which point the British Prime Minister, Benjamin Disraeli, borrowed from the Rothschilds enough money to obtain Ismail's 45% share of the canal. Egypt passed under joint French-English financial control, with Evelyn Baring (Lord Cramer) overseeing matters on behalf of the British bond holders. Joint financial control meant simply that all railway and telegraph net revenues, all customs receipts, and the port dues at Alexandria went automatically to pay off foreign debt charges, while the French and English commissioners retained the residual power to impound any other Egyptian revenues should the first group prove insufficient. Joint financial control, however, was doomed in the long run as French-English tensions grew elsewhere. France had already begun articulating schemes for a great African empire. The conquest of Algeria was completed, and intrigues had begun in Morocco. In Tunisia a clever scenario, which the French subsequently repeated elsewhere, was put into motion whereby the Bey was progressively indebted to French financial interests by a special clique of French colonial loan sharks; taxes were then imposed on the population to repay the debt; unrest and eventual rebellion followed; and French forces then marched in to protect French interests, adding Tunisia to the empire in 1881. In the meantime the tax collectors were also busy at work in Egypt.

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Famine and growing resentment against foreign financial control culminated in an army mutiny in 1882 and provided Britain with a pretext for sending in an expeditionary force under General Garnet Wolseley, the victor of the Winter Palace and Fort Garry campaigns, to take control and depose mutineers, Turkish authority, and French influence in a single blow. From the new power base in Egypt the British resolved to undertake the final pacification of the Sudan, then labouring and restive under the burden of taxation imposed by Ismail to help settle the Egyptian foreign debt. However, a nationalist uprising led by Mohammed Ahmed ibn Said Abdullah, better known as the Mahdi, intervened, wiping out the invading forces and culminating in the fall of Khartoum to the Mahdiist forces in 1885, thus at a stroke severing British authority in the Sudan and General Charles Gordon's head. In fact the rise of Madhiism and the threat it posed to British interests was exploited by imperialists in England to try to discredit the Liberal foreign policy of restricting its foreign interference to a necessary minimum. To the Tory imperialists it was time to wage war for imperial expansion rather than merely defence. While Gordon was trapped in Khartoum, a relief mission was mounted in an effort to save the Gladstone Liberal ministry from the Mahdiist warriors. Across the empire the call for aid went out, and even struck a responsive chord in Canada. While John A. Macdonald refused to run the political risk of ordering the militia overseas, particularly in light of a Fenian threat to invade Canada if it sent troops against the Mahdi, a volunteer contingent including Quebecois and Indian boatmen was despatched. When a Hamilton firm was awarded the contract to supply the Canadian Nile expedition with tobacco, the Hamilton Times enthusiastically declared, "What with Canadian men, Canadian officers, Canadian clothing, and the best Canadian tobacco, Gordon is safe." The fall of Khartoum and Gordon's death also ended the reign of Gladstone's Liberal Party and brought to power a Tory regime committed to unbridled imperialism, just in time for the great scramble to commence in earnest. Sub-Sahara Africa was thereafter subjected to penetration at once from all points of the compass. From their northern African possessions the French and British moved south; from the south the Boer-German alliance competed for territory with the British; from the east the Germans and British were again the chief protagonists; while from the west came French, German, and British pressure. In addition there were the residual claims of Portugal, a great power of another historical age. Yet the actual scramble was initiated by Belgium, a great power of no historical age at all, and followed the activities of one man in making the potential

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wealth of the interior of Africa known to a world thirsty for such knowledge. Henry Stanley was a poor Welshman who migrated to the United States in the early 1860's. He joined the Confederate army, was captured, and promptly joined the Union army. After the Civil War came a career in journalism, participation in the wars against the plains Indians, then a brief interlude in the British army before a return to journalism. It was in this last capacity that he was commissioned by the New York Herald to penetrate the interior of the "dark continent" in search of David Livingstone, who had vanished several years before while undertaking God's work of cultivating African tastes for European goods and preparing their minds and social institutions for wage labour. Upon his return from his successful expedition, Stanley tried to interest British business and government circles in his "discoveries". His own conception of empire was clear— a holy trinity of Christianity, Manchester cotton, and Birmingham steel would bring civilization and enlightenment to the dark places. In a speech to the Manchester Chamber of Commerce he crowed, They are forty million of people beyond the gateway of the Congo, and the cotton spinners of Manchester are waiting to clothe them, Birmingham foundries are glowing with the red metal that will presently be made into iron works for them and the trinkets that shall adorn these dusky bosoms, and the ministers of Christ are zealous to bring them, the poor benighted heathen, into the Christian fold.

He went on to stress that Christianity would teach them to wear decent clothes, at least on Sunday, and one Sunday dress or suit for each native would mean 320 million yards of Manchester cotton cloth — at which point the audience broke into cheers. The applause in official British circles for Stanley's schemes, however, was quite restrained. The British government still adhered to a policy of multilateral free trade as preferable to a renewal of exclusivist spheres of commercial influence. So Stanley took his project to Belgium, where King Leopold gave him the financial backing for a so-called scientific expedition into the Congo in 1879, equipped with the authority to strike a series of treaties with the native potentates. Subsequently all "vacant" lands were decreed to be Leopold's personal property, along with a monopoly of the rubber and ivory trade in a territory teeming with herds of elephants and wild rubber vines. Taxes payable in rubber or ivory were imposed on the native villages, forcing the neglect of subsistence agriculture. So efficient was the resultant system of exploitation that an area which in 1879 was estimated to contain 20 million people had by 1926 a total of just 8.5 million

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survivors of famine, war, disease, Christianity, alcohol and western justice. One of the favourite pretexts for western powers annexing African territories was their professed desire to stop the slave trade. As the experience in the Belgian Congo and the subsequent French and British territories made clear, this was patent hypocrisy. Instead of a few thousand blacks kidnapped by the Zanzibar traders and sold into household slavery in Arabia or Persia, millions were turned into a subject population of production slaves and worked to death or poisoned en masse by European trade alcohol in their home territory. The seizure of the Congo by Belgium was the precipitating factor in the scramble for sub-Sahara Africa. Stanley's expedition was immediately followed by a French one, while England responded by reactivating the old claims of its satellite, Portugal, to the rivers that drained much of the Congo basin. The French in particular set out to seize all of Africa north of the equator, a project which required the seizure of Abyssinia in the face of Italian ambitions, pre-empting German moves in Morocco, capturing the Sudan, and dislodging the British from Egypt. The British, needless to say, had other ideas. Tension with France peaked in the Sudan, into which the British were forced to return in an attempt to forestall French ambitions. After massacring the nationalist forces a British expeditionary force continued south and eventually confronted a French one moving northeast at Fashoda. The encounter in 1898 brought England and France to the brink of war. But the French chose to back down, and immediately a thaw set into French-English relations that ultimately culminated in their open alliance against Germany prior to the outbreak of war in 1914. The Sudan was now an Anglo-Egyptian condominium, graced with a railway that was financed by English capital, paid for by Egyptian peasantry in taxes and forced labour, and put to work draining the resources of the Sudan out to foster economic growth in Britain. At the same time Egypt, and therefore India, was now free of the French threat. Attention could therefore shift further south. While the north African script was being played out at Fashoda, events were far from stationary elsewhere in Africa. Britain was busy penetrating from the east, west and south, chiefly in competition with Germany. To facilitate the process of territorial expansion Britain in the late 1880's reactivated the old device of the colonization company with the creation of the Royal Niger Company (1886), the Imperial British East African Company (1888), and the British South Africa Company (1889), all of which were instruments for adding large tracts of land to the empire. Like the chartered companies of the mercantile period, the colonization companies were both commercial and

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political in nature, with the power to make treaties, establish political authority, and map out territories for annexation. The treaties were imposed by a mixture of duplicity and force, and used, when the native potentate rebelled against their terms, as a pretext for actual seizure of the territory in question. While phony treaties and their accoutrements were used in the west and east, the most energetic penetration came from the south. The British presence in southern Africa dated from the Napoleonic Wars, when the French invasion of the Netherlands provided the pretext for the seizure of the Dutch possessions near the Cape of Good Hope and thus the consolidation of the British hold on the African route to India. Seizure was shortly followed by the migration of many of the Boer settlers to the north to carve out, with Bible and gun, their own independent republics at the expense of the Bantu population. Since the British interest was still confined to the coastal area for several decades, British and Boer territories coexisted with little difficulty. Problems came to a head with diamond and gold strikes and an increased flow of British immigrants in search of arable land in the 1880's, though the problems really began in 1870. That year Cecil Rhodes, offspring of an impoverished English middle-class family, arrived in South Africa in search of fame and, more to the point, fortune. Rhodes summed up his philosophy of life as follows: "Pure philanthropy is all very well in its way, but philanthropy plus five percent is a good deal better." Before he left Africa he had acquired one of the great fortunes of the era, and pledged it to two tasks — extending the possessions of the British empire, and extending the possessions of Cecil Rhodes. The two turned out to be highly complementary activities. The source of his fabulous wealth lay initially in his collaboration with Nathaniel Rothschild to monopolize the diamond mines of South Africa. But even before this was accomplished, the Witwatersrand gold strike of 1886 diverted his and numerous other fortune seekers' attention to the gold fields of the Boer republics. Rhodes directed his British South Africa Company to Bechuanaland and used it as the instrument for annexing that piece of territory to the British Crown, thus driving a wedge between German possessions in East and West Africa. Beyond it lay the lands of the Matabeles and Mashones, temperate arable land well suited for export-oriented commercial farming. The British South Africa Company first went to work in Matabeleland whose king, under pressure at the same time from the Boers and Portuguese, made the fatal error of signing a treaty giving up all his mineral wealth for £100 a month, 1,000 rifles, and a small steamboat. When the king tried to repudiate the treaty, Rhodes marched his private army into Matabeleland and

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deposed him. The kingdom was renamed Rhodesia and became a huge plantation worked for the profit of the Rhodes enterprise, with the usual paraphernalia of taxes to force the population into wage labour on white-owned estates or in gold and lead mines. The next stop was Mashonaland. Every trooper in Rhodes's private army was promised nine square miles of land plus a share of the loot; then a quarrel was picked with the king as a pretext for invasion, followed by wholesale expropriation of lands and the subjugation of the population to forced labour. The next step lay in the direction of the Boer republics, whose gold fields had attracted a swarm of British adventurers. Grievances were easy to find — or invent. The Boers had refused to grant instant citizenship rights to the fortune seekers that the gold fields had attracted from afar, and had placed a heavy tariff on imported mining materials. Government-sanctioned coal and railway monopolies had been established with heavy German involvement. The bulk of the commercial concessions had gone to German companies, while the vital dynamite monopoly was held by a consortium of Charles Nobel with German interests. British mining interests claimed that the railway, dynamite and coal monopolies, plus the tariff were costing them £12 million per year. At the same time British colonists were agitating for land. And behind them all was the grand British imperial scheme of a Cape-to-Cairo railway, which would have to run through Boer territory. In 1899 Britain declared war. Xenophobia bloomed across the empire. Canada, avidly searching for capital to finance its infrastructural building program, agreed to send troops to help England in return for which Britain finally allowed English financial institutions to invest trust funds in Canadian government debentures. And on top of the regular Canadian contingent, Lord Strathcona, the CPR magnate and then Canadian High Commissioner in London, put part of his personal fortune to work equipping a body of cavalry. In Montreal, anglophone McGill University students took to the streets to demonstrate in favour of Canadian troops for the imperial army, and clashed with francophone students from Laval University protesting against this latest example of British imperial aggression. Against a Boer army of 40,000 irregulars was ranged an imperial force of 250,000; yet it took three years before the British policy of burning farms, destroying towns, and herding hostages into the world's first concentration camps, where they died en masse, broke the resistance.The long-term effect was to complete the alienation of Britain and Germany and spell the end of Rhodes's long-nurtured dream of an alliance of the AngloSaxon races — Britain, the United States and Germany — against those races lower on the scale of being. And apart from Abyssinia

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(kept independent by the Franco-Italian stand-off and by memories of a resounding defeat administered by the Abyssinians to Italian forces in 1895) and Liberia (under the rule of the American rubber magnates), only Morocco was left independent in Africa. And only Libya was left of the old Turkish provinces. These two territories would play a key role in ultimately precipitating the war; but the final outbreak of hostilities cannot be fully understood without reference to events in Asia as well.

The Scramble for Eastern Empire Despite the excitement which the scramble for Africa engendered, the centre of the British empire remained solidly in India, which the British government and business elite, as well as Britain's rivals, were well aware was the greatest source of British wealth. India was vital to the British economy in several ways. First, it was the granary of the empire at a time when Britain was rapidly regressing to acute dependence on overseas foodstuffs. In 1851 Britain imported 2% of its grain import requirements from the empire; by the 1880's more than 25% came from the Empire. While the United States still provided the bulk of Britain's needs, India was a strong second. Over the period 1875 to 1900 eighteen famines swept India, killing 26 million people, while grain exports to Britain rose 300%. Given the central importance of Indian grain in keeping Britain alive, a policy to assure the flow of grain had to be evolved. Apart from the control of the African and Suez route, a third option took shape — a railway across British North America. Thus an Imperial Federation League spokesman declared, "The Empire's answer to a blocked Suez has been given by Canada. The influence which the 'Canadian Pacific' can exercise in our naval and military position in the Far East is immense." India was also of major importance to the rentier class of Britain. Apart from the United States, India was traditionally the largest single recipient of British overseas investments, a position it did not lose to Canada until very late in the day. Thus Indian mines and plantations, railways and government debt yielded a high and rising stream of interest payments to British bondholders, interest payments financed not by tariffs to protect Indian factories and urban wage workers from Lancashire cotton, but rather by the expropriation of the produce of the Indian peasant through rental taxes, and its export to feed the British industrial proletariat. India too remained the single most important market for British manufactured goods. In 1885 Indian trade was four times as important in global terms as was Canadian trade for British business in-

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terests, despite the fact that in per capita terms Canadians absorbed ten times as much British produce. Indian trade too yielded a huge surplus to Britain and was vital to the entire structure of the British payments system. Britain was unique among the industrial powers in running — thanks largely to India — a balance of payments surplus with the primary producing countries as a whole, at the same time it was running a balance of payments deficit with the industrial countries. Thus British manufactured goods moved to the underdeveloped world in an amount surplus to the return flow of raw produce; the underdeveloped countries in turn ran a surplus with the other European states; and Britain ran a deficit with the manufacturing nations of Europe. India alone financed 40% of Britain's trade deficit with the major industrial powers, and relieved Britain of the need to invest in updating its industrial plant, since the traditional exports of cotton and simple iron and steel sufficed for the India trade. Thus it also freed large amounts of British capital from potential industrial investments for diversion into railways and plantations abroad. In addition to grain, Britain derived many important primary products from India. Bengali opium continued to flow to China to finance British tea imports. Tea too began to be cultivated in Assam and Ceylon. Indigo for the textile mills still came largely from India. Teak became an important product of Burma, which was added to the territory of British India at least in part so the teak could be obtained without the need to pay royalties to the King of Burma. Moreover, India was an ever-expanding empire in itself. After the rebirth of Tory imperialism in 1885 new territories were added to British rule or to British spheres of influence as a result of aggression launched from British India. Burma and Assam were annexed; Tibet became a de facto colony; Persia was partitioned with Russia; the threat to Afghanistan was renewed; territories were added in East Africa and the Arabian Gulf to better control the flow of commodities and defend the routes for the British imperial eastern trade. The cost could be simply added to the Indian national debt. While the British hold on India did not prevent periodic intrigues there by the other powers, it did divert the main centre of attention to China, upon which all the European powers descended after the Opium Wars. France seized territories in Indochina, and Russia carved off slices in the north. But for the most part the spheres-ofinfluence policy predominated over formal colonial annexation, and the carve-up temporarily ceased. Then, in 1894, China intervened militarily in an insurrection in Korea. Japan, heretofore uninvolved in the looting of China, charged that such intervention violated an earlier Japanese-Chinese accord, and seized upon this pretext for war to grab Formosa, the Pescadores, and a large cash indemnity, and

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attempted to add a piece of southern Manchuria to its empire as well. Backed by France and Germany, Russia forced Japan to renounce its acquisition in Manchuria, and took the opportunity to extend its own influence there. It was followed by Britain, Germany and France demanding their own concessions in China. By 1898 the great powers seemed poised for the final partition. At this point the United States entered the fray. America's course of empire building had concentrated for a long time on the North American continent — on the decimation of the plains Indians and the seizure of territory from Mexico and British America, coupled with purchases from France and Russia. In 1898 it launched itself into the process of building an overseas empire, first at the expense of Spain, from whom it acquired Puerto Rico, Cuba and the Philippines, then at the expense of China. Unlike the other powers, American interests in China were purely commercial, rather than financial as well. It arrived in China when the distribution of spoils was already largely completed, and therefore responded by insisting in 1899 on an Open Door policy, a policy of equal opportunity of all the major economic powers to exploit the commercial potential of the area. In 1899 the Boxer Rebellion swept China, aiming to overthrow foreign financial and commercial control. The great power response was a joint military expedition to smash the rebellion, massacre the population, loot the cities, and impose on China a new indemnity of £67 million to cover the cost of the war. In addition, new economic concessions were squeezed out, and the degree of extraterritorial control enhanced. The aftermath of the Boxer Rebellion meshed with events in Africa and Europe to hasten the coming of the inevitable clash.

The War of the Turkish Succession The inevitability of war had been appreciated long before it broke out: what was unclear until very near the event itself was the composition of the alliance systems that would ultimately face each other. Given the traditional English-French rivalry over Egypt (en route to India), a rivalry exacerbated by new French African-based imperial ambitions, until the Fashoda affair in 1898 it seemed likely that Britain and France would range themselves on opposite sides. French-German hostility was also a foregone conclusion. For some time therefore the conception of a union of the Anglo-Saxon races of the world — German, English and American — against Russia and France was a popular one in England. But fears of American power eventually gave rise to a rival vision that saw Britain, Germany and a conquer-

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ed France joined against Russia and the United States. But that conception became impossible after the Boer War completed the AngloGerman rift that trade rivalry had already opened. The eventual alliances that took shape looked nothing like either of these two theoretical abstractions. Central to all British strategic thinking was India, on which French and Russian designs were long feared. But these two traditional threats faded, and in their place came the new fear of German designs on the eastern trade. French-English hostility peaked at Fashoda in 1898, and thereafter rapidly subsided. France abandoned its ambitions in Egypt and thus ceased to be an immediate threat to the British Raj. The dissolution of the Russian menace was a more complex process and really began in China. Thirteen powers had marched into China to suppress the Boxer Rebellion: twelve marched out again. Russia insisted on holding captured territories, contrary to the accepted rules of the game, and its obstinacy, together with Japan's fears of Russian designs on Korea, prompted the Russo-Japanese War of 1905. In the wake of the Russian defeat, Britain formed a military alliance with Asia's rising star whereby, in return for Britain giving Japan a free hand in certain parts of central Asia, Japan pledged to help Britain defend India against Russian encroachment. Meanwhile the American threat in Manchuria pushed Russia and Japan into a reconciliation in joint defence of their interests, and incidentally helped Anglo-French rapprochement since France traditionally backed Russia and Britain sided with Japan. Then, two years later, a British-Russian accord to divide Persia between them eliminated the traditional source of Anglo-Russian tension and, incidentally, diverted Russian imperial ambitions to the European theatre; while the renewal of the AngloJapanese alliance in 1911 permitted Britain to reduce its naval strength in Asia and concentrate it in Europe. Apart from long-standing territorial disputes between Germany and Russia on the one hand and Germany and France on the other, the waning power of Turkey introduced further complications in European politics, particularly in the Balkans. Some Balkan states had won their independence: others, with the overt aid of some of the major powers, were in the process of doing so. In 1908 Austria-Hungary, with German encouragement, seized the Turkish provinces of Bosnia and Herzegovina. But the rift between the central European powers and Turkey that such an action caused was quickly healed by Russian machinations in the area. Russia had long-standing ambitions to seize Constantinople and control the Bosphorus; it also actively encouraged the expansionary ambitions of Serbia against the remaining Turkish Balkan possessions and against Austria-Hungary. Germany

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for its part favoured the consolidation of joint Austro-Hungarian and Turkish control over the Balkans to assure an uninterrupted trade route from Germany to Constantinople and beyond into the Turkish Asian dominions. While the Balkan question muddied European politics, events in Africa continued to take their course. French dreams for a vast north and central African empire continued to smoulder, bursting into flame at the prospect of seizing Morocco. Morocco promised fertile soil to French planters, minerals such as iron, copper, antimony, silver, gold, sulphur and phosphates, an additional source of colonial troops in the event of war with Germany, and control of one side of the Strait of Gibraltar. Squarely opposed to France's Moroccan ambitions was Germany, which had similar aspirations itself. Not only did Germany covet northern Africa's mineral and agricultural wealth, but French control meant that German Mediterranean trade could be strangled by the closing of the strait between Tangiers and Gibraltar by an Anglo-French military agreement. As the war drums began to beat, the United States stepped in once more. Under the American "compromise", France and Spain were to be mandated to administer Morocco on behalf of all of the powers, and guarantee equal opportunity to all to exploit the natural wealth of the country. However, these arrangements failed to satisfy French ambitions. France thereupon entered into a secret agreement with Britain, under the terms of which France renounced its ambitions in Egypt in return for a free hand in Morocco. There followed the classical scenario: France demanded financial compensation for the costs of its army occupying part of Morocco under the terms of the mandate; the Sultan borrowed the necessary funds in France at heavy cost; taxation to repay the loan fueled resentment of the foreign presence; rebellion followed; and the French army seized control in 1911. Morocco was formally partitioned between France and Spain, and Germany, effectively shut out, was outraged. Franco-German conflict was imminent. Other events followed logically from the Moroccan affair. France had entered into a secret agreement with Italy, long resentful of the French seizure of Tunisia, that if Italy did not oppose French ambitions in Morocco, France would lend moral support to Italian schemes to seize whatever was left of Turkey's African empire — specifically Libya. In 1911 Italy declared war and seized the territory. The evident Turkish weakness encouraged further encroachments in the Balkans. Backed by Russia, four Balkan states collaborated in 1912 to drive Turkey out of Macedonia, in so doing threatening Germany's trade route to the Turkish Empire. At the same time Britain feared that the growing German-Turkish alliance, cemented by the Russian threat to the Balkans and Constantinople and by the Ger-

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man-built Baghdad Railway, would give Germany an opening through which to threaten British India. The Baghdad Railway, in conjunction with a solid corridor of German and Austro-Hungarian allies from Constantinople to the German border, would threaten to displace the Suez Canal at least in part, and to make the Indian Ocean trade tributary to the German empire. Moreover the railway, with its profitability guaranteed by the Turkish government, meant large orders for German industry, interest and dividend payments for German financiers, and a threat that, in order to ensure the government revenues to pay for the interest and dividends, the Turkish government would have to raise tariffs and block British imports. One possible impediment to the new trade route was the territorial expansion of Russia's ally Serbia at the expense of Austria-Hungary. And when Austria-Hungary seized upon the assassination of their Archduke Ferdinand by a Serbian as a pretext for war against Serbia, Germany and Turkey came to its aid, facing an alliance on the other side of France, Britain, Russia and, belatedly, Italy. The war objectives of the central powers were fairly limited. Germany hoped to seize a few more pieces of French territory and secure commercial hegemony over Belgium in the west; and it hoped to annex parts of Poland and the Baltic states at the expense of Russian ambitions in the east. Austria-Hungary planned the seizure of Serbia and other newly independent territories in the Balkans. The German-Turkish military alliance was designed to facilitate a quick march on Egypt, the seizure of the Suez Canal, through which 90% of Britain's eastern trade passed, and therefore the crippling of the British economy. Thus the German ambitions vis-a-vis Russia and France were territorial; those against Britain predominantly commercial. The other side had much more grandiose schemes. France and Russia came to a secret agreement whereby France was to recover Alsace and Lorraine, annex the Saar Basin, and establish an "autonomous" zone under French control on the east bank of the Rhine. Russia in turn was to be left free to draw its own western border at the expense of Germany and Austria-Hungary. Italy was drawn into the war with the promise that it could seize Albania from Turkey, annex Dalmatia, and turn the Adriatic into an Italian lake. France and England together plotted nothing less than the wholesale seizure of the Turkish empire, Constantinople and the Bosphorus going to Russia and the remainder divided between them. To expedite this objective Britain first promised independence to the Arabs of the Hejaz, Iraq, Syria and Palestine, who mustered to its side; then double-crossed them by promising Palestine to the Zionist movement to wean it away from the tacit alliance it had formed earlier with Germany and Turkey in the hope of securing Palestine from them; and then double-

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crossed the double-cross by an agreement with France to divide the territories between themselves. But by 1917 all of these questions were academic — for the Allies had for all intents and purposes lost the war. The Russian Revolution had removed the largest single source of allied cannon fodder; the French army was in a state of open mutiny; Britain was financially exhausted and living off credit from the colonies. But the United States intervened, assuring the defeat of the Central Powers and propping up the British Empire, thus giving Britain the opportunity to continue to pretend to a political and economic status it no longer had the material resources to maintain by itself.

34

The Canadian Economy in the Great War

THE CATACLYSM THAT SWEPT EUROPE between 1914 and 1919 had catastrophic effects on many other parts of the globe as well, not least on Canada, which showed itself all too "ready, aye, ready" to plunge into the imperial maelstrom. War, to the Canadian business elite, traditionally meant good times — booming British military expenditure, high prices, soaring exports, and the eradication, one way or another, of the problem of unemployment. The years 1812 to 1814, 1853 to 1857, 1861 to 1865, and 1899 to 1902 were banner years in Canadian commercial history, and it is easy to comprehend the enthusiasm that greeted the outbreak of the Great War, the optimism that it would sop up Canada's chronic unemployment problem, send exports climbing, and usher in a new wave of prosperity. In the short run, the war did indeed produce a veneer of prosperity. In the long run, however, it was an economic and social catastrophe which served to confirm and reinforce Canada's reliance on staple exports, foreign capital, and second-hand industrialization, albeit at the same time shifting the principal axis of dependence away from Britain and toward the United States.

Pre-War Expansion and Collapse Sparked first by the Klondike gold rush, then by the shift of the North American wheat frontier to the north, the early years of the twentieth century witnessed a phenomenal rate of economic expansion in Canada—of population growth, land settlement, urban development, and the investment in social overhead that accompanied them. But the 503

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prosperity deriving from the opening of the new primary resource frontier was an artificial one, based on construction rather than production, and presupposing a breakneck rate of overseas borrowing. Over 1912-13 nearly 25% of Canada's labour and productive facilities were engaged in the production of capital goods, and about half of the capital invested in the pre-war boom came from foreign sources. By 1913 capital imports had risen to an annual rate of $500 million, a figure equal to about 25% of national income. The construction boom, floating atop a flood of overseas — especially British — investment funds that poured into Canadian government and corporate securities, produced a remarkable degree of interregional integration of the development process. Complemented by a wave of migration that produced the necessary construction workers, farmers and farm labourers, and industrial workers, British portfolio capital financed the building of two new transcontinental railway systems as well as the colonization projects that populated countless new farms and oversaw the preparation of millions of acres for future grain output. British and eastern Canadian mortgage monies also poured into house construction and land speculation throughout the prairies. The feverish pace of construction activity in the west as well as the rising population of farms, towns and construction camps stimulated the producer and consumer goods industries springing up elsewhere in Canada. In British Columbia the leading sector, forest-based industries, found its most valuable customer in the new agricultural frontier with its insatiable demand for lumber and shingles, railway ties, and wood by-products. Nova Scotia saw a rapidity of industrial growth that was second to none — deriving overwhelmingly from an iron and steel boom induced by the railway building frenzy elsewhere in Canada. As the new transcontinental railways joined their predecessor and spanned the country demand for coal also accelerated, to the delight of Nova Scotia, Alberta and British Columbia mine owners. Behind it all lay the promise of an ever-expanding British empire, of British capital for building infrastructure, and of British markets for staple output. Canada's commercial and financial elites were eager to pledge allegiance to that concept of imperial prosperity. As early as 1860 Charles Tupper used the phrase "an Empire on which the sun never sets," fifty years before it became the rallying cry of another staunch Nova Scotia imperialist, Lord Beaverbrook. By 1911 the Globe could seriously raise the question, "Will Imperial Government eventually be in the Dominion?", citing the opinion of the vice-president of the Royal Colonial Institute that Canada would soon become "the centre of the Empire". A member of the banking establishment fought Reciprocity in 1911 on the grounds that it threatened the unity

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of "we, the allied and confederate races of Britain, numbering in all some 61,700,000 whites." In 1912 the president of the Bank of Commerce, Edmund Walker, proudly proclaimed to the Canadian Club of Montreal that "We are determined to do our share and eventually to pay our share towards the perpetuation of the British empire forever." But in 1912 a sharp credit contraction in the United Kingdom sent interest rates up and precipitated a sudden drop in wholesale prices. Canadian exports received a sudden check, and the capital inflow showed signs of abating. Recovery was swift, but in 1913 the Balkan wars erupted, financial panic ensued, and by the end of the year the vital capital inflow had all but ceased. As the capital imports declined sharply over late 1913 and 1914 the commodity imports they had financed fell drastically, and with them the tariff receipts that were then by far the leading source of federal revenues. Government and corporate spending on the construction of infrastructure formerly financed directly through capital imports, or indirectly through the tariff revenues that themselves relied on a level of commodity imports sustained by overseas borrowing, were both sharply curtailed. The collapse of the Canadian economy in 1914 was exceptionally severe, particularly in the west. The prairie boom had been the centre of the transcontinental economy then under construction, and its collapse had repercussions across the country. The end of the construction boom sharply curtailed business activity in the British Columbia forests and lumber mills. In Nova Scotia the one great industrial hope, primary iron and steel, went into a slump as the demand for railway materials collapsed. The unemployment in the west caused a contraction in the demand for consumers' and producers' goods from Ontario and Quebec. The manufacturing centres of Ontario exhibited unemployment rates of up to 25% in 1914 even before the normal winter downturn began. Then, to complicate matters further, drought hit the grain-producing areas of the west right at a time of international glut — both price and quantity of prairie wheat exports plummeted, contracting export earnings at the same time the capital account surplus had drastically shrunk. During 1914 per capita national income in Canada fell 10%. And all of this before the outbreak of war.

The Financial System and the War Before the war Canada's financial system was, in its major elements, simplicity itself. The era of the Pax Britannica saw the generalization of the gold standard mechanism throughout the British-dominated global trading nexus as the instrument of British financial suzerainty.

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In theory each country's domestic money supply consisted largely of bank paper (notes and chequing accounts) redeemable in specie on demand; and each country's banking system was forced by law or by economic necessity to maintain a fairly stable reserve ratio of specie against its internal circulation, along with a supply of sterling reserves to finance international transactions. Internationally, currencies were exchanged according to their relative gold value. The result was a system of stable, fixed exchange rates between currencies, with gold or, more commonly, the pound sterling functioning as the international medium of exchange. The money supply and credit conditions in each participating country adapted themselves passively to the level of monetary gold reserves each country possessed, and the gold reserves in turn depended on the state of the balance of payments. Hence monetary policy as a tool of either economic stabilization or of public finance was largely precluded. The degree of passivity and dependence exhibited by the Canadian banking and financial system was typical of the era. Its system of chartered banks was virtually free of regulation save that self-imposed via the Canadian Bankers' Association, which functioned as a legally sanctioned cartel, fixing interest rates, delineating spheres of influence, and regulating entry into the business. Notes of the individual chartered banks dominated the circulation. Federal government paper currency was restricted to the smallest and largest denominations, the first for general circulation and the second for use by the banks as a convenient instrument for inter-bank clearings or cash reserves. In conformity with the principles of the pre-war gold standard, bank notes were redeemable on demand in gold or in Dominion notes, while Dominion notes were also redeemable in gold and sharply restricted in volume by agreement with the chartered banks. Also in conformity with the gold standard norm, adjustments were purely passive and dependent on the balance of payments. An influx of gold, or an expansion of hard currency (U.S. dollar or pound sterling) deposits in response to a capital inflow, expanded the banks' reserves and permitted, assuming the demand for additional credit facilities existed, a multiple expansion of trade credit. A loss of gold or foreign exchange did the opposite. It was a monetary system appropriate to an agricultural economy which depended on the free flow of international trade. The credit base was free to expand to move grain or lumber crops to market at the behest of the commercial banks, while observance of the gold standard rules assured both importers of Canadian staples and foreign investors of the convertibility of their trade credits or securities into hard currency. It was a system appropriate too to an economy where the government assumed no day-to-day responsibility for mon-

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etary management, where to the independent commodity-producing class the international price level of their staples, something that was impervious to domestic control, was more important than cyclical fluctuations in the level of employment. Hence Canada had no monetary mechanism, nor felt it needed one, susceptible to discretionary control for purposes of economic stabilization, while the use of the printing press as an instrument of public finance was restricted sharply by the chartered banks' domination of the circulation, as well as by the legal requirement of convertibility into specie on demand of such paper as the federal government did print. Nor did Canada have any but the most elementary instruments of fiscal policy. Some 80% of federal government revenues came from the tariff, ensuring that federal revenues would also respond passively to the balance of payments. In an economy where a large percentage of the income recipients were scattered throughout the agricultural hinterland, indirect taxation was both politically and administratively the obvious answer to federal fiscal needs. Thus capital inflows financing imports, especially of producers' goods such as iron and steel products, had during the pre-war boom also yielded high and rising tariff receipts. In the slump, imports and tariff receipts dropped off. Falling tariff revenues made it more difficult to borrow cheaply in Britain, because tariff revenues were regarded as a critical indicator of Canadian creditworthiness. Since Canada at the time had no domestic bond market as an alternative source of finance, the federal government responded to slumps by curtailing its expenditure, whenever possible, in an effort to trim back the incipient budget deficit. This simple fiscal and monetary system was inadequate for the twentieth century which burst upon Canada in August of 1914. The outbreak of war precipitated financial chaos around the world as stock exchanges closed one by one and international money markets were demoralized by a scramble to buy gold. In Canada too a gold rush led to runs on many banks, and sent the Canadian Bankers' Association scurrying to Ottawa to dictate the changes in the Bank Act to deal with the panic. Suspension of specie payments followed, along with an increase in the federal government's permitted paper money issue. The federal government assumed the power to fix interest rates on a discretionary basis, and assumed as well the function of lending Dominion notes to the chartered banks in need. Not only did the state assume the "lender of the last resort" function for the first time in Canada, but the suspension of convertibility of Dominion notes, along with the raising of the limit of the authorized issue, permitted the state to resort to the printing press to finance part of Canada's war effort. The volume of Dominion notes net of gold reserves rose from $14 million in 1911 to $167 million by 1918, part of

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which was spent directly by the federal government and part of which was lent to the chartered banks to increase their cash reserves. For the first time in Canadian history a strictly internal mechanism, susceptible to change at the discretion of the government, existed for altering the level of bank cash and therefore the credit base of the chartered banking system without reference to the level of reserves of monetary gold and therefore without direct reference to the state of the balance of payments. The cornerstone of federal finance remained the tariff, which produced more than 70% of total federal tax receipts during the war. The onset of war produced immediate fiscal difficulties as imports of producers' goods such as iron and steel products, formerly in great demand during the pre-war building boom, plummeted, and tariff revenues fell fully one third between 1913 and 1915. A general tariff hike would not be enough to cover the demands of the war; new revenue sources were urgently required. In 1916 fiscal necessity and political expediency combined to introduce to Canada federal direct taxation. Although evasion of the Business Profit Tax was easy and the tax yield slight, the incursion of federal policy into the field of direct business taxation produced a storm of discontent from the louder voices that controlled the governing Conservative Party, and pressure for the introduction of an income tax. In 1917 a tax on personal and corporate incomes, excepting property incomes, with a top bracket of 25%, and scheduled such that in the first year of operation personal taxes yielded five times as much as corporate, was introduced. For business it was a godsend, shifting the burden of war finance even further onto wages and salaries. Needless to say, the labour movement and organized farmers were somewhat less than impressed. The government in 1917 faced the need to step up the rate of supply of cannon fodder. Conscription of manpower was a socially explosive issue by 1917: public cynicism mounted as the real motives behind the war became clear and the flagrant profiteering escalated. To attempt to buy support from the more conservative wing of the Canadian labour movement, some measures of "conscription of wealth" were introduced in the form of the Excess Profits Tax to curb corporate profiteering. But the tax yields from business and from the personal incomes of the rich were reduced by the introduction of yet another tax dodge for the well-todo in the form of Victory Bonds. Tax receipts remained far too low to meet the demands of the war, most of which had to be discharged by borrowing. At the outbreak of the war virtually all of Canada's public debt was held in Britain, and initially an effort was made to continue borrowing there. But the wartime drain on British financial capacity soon closed the London capi-

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tal market, forcing a shift first to American money markets, then increasingly to domestic sources. After 1915 a series of major loans were floated inside Canada. Bond dealers were called together by the federal government and arrangements made for federal government priority in the sale of new securities in Canada. In 1913 Dominion government debentures accounted for 9% of all Canadian bonds sold: in 1917 and 1918 they accounted for 90%. In 1913 only 12% of all Canadian bond issues were placed in Canada; by 1918,94% of Canadian bond sales were effected inside Canada. Most of the proceeds went to finance the war effort; the rest was used either to complete the Canadian railway system or for loans to Allied powers to enable them to make purchases of war materials or food that the Canadian productive apparatus was gearing up to make available.

Canadian Industry and the War Canada was one of the western world's industrial midgets in the late nineteenth and early twentieth century. Agriculture accounted for nearly twice the amount of national income as industry until the First World War, and absorbed a larger percentage of the labour force until as late as the 1940's. While there were exceptions, in general the scale of enterprise in Canada remained small except in sectors in which foreign capital and/or technology, particularly American, took the lead. As a rule Canadian capital dominated the older industries typical of an earlier era of industrial growth — cotton mills, food and beverages, primary iron and steel — while American capital and technique played a leading role in the modern, high-technology, rapid-growth industries typical of the Second Industrial Revolution — automobiles, chemicals, electrical products, non-ferrous metal refining, and the like. One reason for the lagging industrial performance was the lack of active federal government participation in the process of industrial growth. Prior to the war the federal level of authority tended to focus its attention and its money on developing the social overhead capital and commercial infrastructure necessary to open up the new primary resource frontier in the west, and therefore to restrict its involvement in industrial development to simply creating a favourable investment climate for industrial capital accumulation by oligopolies. Tariffs encouraged industrial accumulation by the already-large; patent laws encouraged the importation of American techniques and obviated the need for autonomous technological change; and the absence of enforceable combines legislation further accelerated the pace of concentration. Direct intervention in the industrial sector was rare. Only in

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the primary iron and steel industry was there an active, long-term program of direct state aid through cash bounties. Iron and steel development was basic to the building boom of the pre-war era, and reflected the central role of the railway in pre-war development. Railways and the state had long been inseparable in the Canadian political economy. Government involvement in railway finance came at many levels in Canada. Some (unprofitable) railway lines were constructed and operated outright by governments; some were constructed and operated privately, then unloaded on the governments when bankrupt; some were privately owned and operated but built largely through federal or provincial government gifts of cash, land, tax exemptions, completed surveys and so forth; and some were owned and operated privately but built through the sale of bonds guaranteed by governments. Indeed it was even possible to find a small railway line built without the aid of one level of government or another, though this was rare: it usually reflected the promoters' membership in the wrong political party, and could be expected to be quickly righted when the government changed hands. With the backing of government, railways had priority of access, along with the government, to overseas capital markets. It was the railway that accounted for the greatest share of Canadian capital imports of the period; that penetrated new lands, opening them for colonization and exploitation; that provided the market for so much of the producers' goods industries springing up in the east; that made possible the boom in housing and general construction in the west; and, not least, that provided the wherewithal for the great national political parties to buy allegiance and reward loyalty from the promoters, pushers, confidence men and contractors who crowded the lobbies of the legislatures. In short, the railway was the fundamental instrument of commercial and political integration of the era. And it was above all else the collapse of railway building that precipitated the 1913 downturn with its resultant high and rising level of unemployment and industrial excess capacity. The problem of excess capacity was especially marked in the producers' goods industries that had sustained the greatest expansion in the pre-war boom. Faced with the chronic unemployment and excess capacity in these sectors, Canada's business leadership articulated several strategies. One was to try to capture a share of German export markets. From this point of view the war engendered great enthusiasm among Canadian businessmen and their spokesmen. The president of the Vancouver Board of Trade was quite representative when he declared, "Our duty at present is to keep every industry possible going and further than that to lay plans for the country's development so as to be prepared to capture for this country some of the trade

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that was in the hands of the enemy." Complementing the general export drive (which in fact could yield little dividend in the wartime world context of proliferating exchange control, shipping restrictions, tariff increases, and quantitative controls on non-essential imports) came an import-substitution program both in manufactured goods and in industrial materials. To assist the process of import replacement, German-held patents were opened up to all users. But even the import substitution drive was minor in its impact compared to the second strategy adopted. With a new booming imperial market for such products, Canada found itself a new staple: artillery shells. Of the producers' goods industries suffering from the pre-war crisis, the iron and steel industry was particularly hard hit. Out of the slump came an agitation among manufacturers for munitions work, an agitation that found a ready audience abroad. Even before the war Britain had faced a German steel-making capacity that was double its own, and the German over-running of the principal iron and steelproducing areas of France and Belgium early in the war tipped the balance even more against the Allies. During its last major European involvement a century before, Britain, when cut off by Napoleonic France from Baltic sources of the timber essential to its war effort, had turned to British North America for a substitute source. Now it did the same for military iron and steel products, particularly artillery shells. Soon a Shell Committee, comprising a group of manufacturers headed by Dundas, Ont. industrialist Alexander Bertram, was formed with the encouragement of Minister of Militia Sam Hughes to drum up war orders for Canadian firms. The ensuing stampede of manufacturing capacity into the war business was fed by profit rates on shrapnel shell production of 25 to 40%. Essential to the securing of war orders by firms was a nod from the Shell Committee itself, and one way to secure that nod was to solicit the intervention of a ranking politician, preferably a Tory. The scandals became so rampant that even Tory papers were demanding an investigation: but the government pointed to the private character of the Shell Committee and disclaimed all responsibility. By the summer of 1915 the Allies realized that not only would it be an unexpectedly long war, but its orientation toward trench warfare would mean long sieges and a huge and growing appetite for high explosives and shrapnel shells that the Shell Committee in its existing form was not equipped to satisfy. The need for its technical reorganization at the same time it faced a wave of opposition attacks gave the government a pretext for replacing it with the ostensibly non-partisan Imperial Munitions Board chaired by a former Liberal magnate, Joseph Flavelle.

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The 1MB, like the Shell Committee before it, was to function in Canada as an agent of the Imperial Ministry of Munitions. It was, however, to have greatly expanded functions; and, rather than being a purely business organization, was to be directed by a combination of British and Canadian military, business, and political personnel. Under its auspices, even more so than under its predecessor, Canadian exports of the instruments of mass destruction grew quickly. In 1913, 6 to 7% percent of Canadian manufactured products were exported: thanks to the munitions boom between 1916 and 1918,40% of Canadian manufactures found export markets. By 1917 Canada had over 200,000 people directly employed in munitions work. Over the three years 1916,1917 and 1918, despite a surge of grain sales abroad, munitions averaged 25% of total Canadian exports; and Canada produced between one quarter and one third of the total ammunition used by the British army's artillery. In 1914 Canada sent 5,000 shells overseas; in 1917 it exported 23,782,000. The character of the war itself determined the state of prosperity of Canadian industry. The devastation and slaughter in France and Belgium were stark and eloquent testimony to Canada's industrial efficiency. At its peak in 1917, a third of Canadian industrial capacity — 675 factories in 150 towns — was employed filling war orders for export. The year 1917 was one of crisis for the munitions industry, as it was for the entire Allied war effort. Tremendous losses drained Allied manpower; Germany opened an unrestricted submarine campaign to try to starve Britain into surrender; the French army neared collapse in the face of spreading mutinies; the Russian revolution eliminated the eastern front, and an eagerly cultivated potential market for Canadian artillery shells. In short, the Allies had very nearly succeeded in losing the war. Britain's financial exhaustion in 1917 spelled potential disaster for the Canadian munitions industry as Britain, despite an infusion of Canadian loans, announced it could not maintain its level of purchases in Canada. Plant closures, unemployment, and a desperate search for alternative markets followed. Fortunately for the Allied powers defeat was averted by the entry of the United States into the war, and the Canadian reaction was to dispatch a mission to Washington to chase up some American orders for Canadian munitions. The munitions industry was saved by the American agreement to permit part of its war loans to Britain to be spent on munitions in Canada. Heavy unemployment was thus averted by the subsequent restoration of war orders — and by the introduction of conscription.

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Agricultural Development During the War The industrial boom that Canada experienced during the war years was unevenly distributed by region. The central provinces were especially favoured, and next to them Nova Scotia. Nova Scotia historically had been the area of British North America best situated to cash in on the fortunes of war, and the First World War was no exception. A combination of factors brought prosperity to the province: its prime location for Atlantic trade; the heavy naval expenditures in its ports; heavy war demand bringing marginal agricultural and other resources into production; a shipbuilding boom; the surge in iron, steel and coal production wrought by the demands of war; and even a revival of the British West Indies sugar economy, as German beet root sugar vanished from world markets, made possible a rise in exports of Nova Scotian fish to the Caribbean. But while Nova Scotia and central Canada gained industrially during the war, other areas lost — in particular the prairies. The bonanza of munitions orders failed to descend on the west. If anything, the prairie region lost industry over the course of the war. The Dominion pursued a deliberate policy of turning the region exclusively into a wheat-producing area, and hence its dependence on a single cash crop for export grew. The west had suffered heavy urban unemployment during the pre-war and early war-time crisis; the lack of munitions orders robbed the west of the central and eastern provinces' means to escape from the crisis. Instead the surplus population either drifted out of the prairies — to the east, to the United States or to Britain — depopulating small towns and even some large ones; moved into agricultural labour; or joined the army. Fully 20% of the army was recruited from the prairies. In spite of these outlets for surplus population, the lack of western industrial growth and the seasonal character of agricultural employment meant that heavy unemployment continued in the west until 1917. For the farm sector on the other hand, the war era was one of great short-run prosperity, on the surface at least. It was a period when the agricultural capacity developed during the pre-war boom began to produce in the face of rising prices and soaring export demand. After two years of pre-war depression, it seemed like the old "bountiful harvest-bloody war" phenomenon once more; the more so since farmers and farmers' sons were exempt from conscription until the spring of 1918. The impact of the war was immediate. In 1914 some 10.3 million acres of land were growing wheat; by 1915 the figure was 15.1 million. Expanding output and war demand drove Canada's share of world wheat trade from 20.9% in 1914 to 59.3% in 1918

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(plummeting to 19.0% in 1919). Prior to 1915,25% of Canadian agricultural produce had been exported; by 1918 50% was finding overseas markets. The benefits high prices and expanded output brought to the west during the war were short-lived. The war meant confirmation of the monoculture of wheat, and a staggering rise in farm debt as farmers financed the purchase of additional acreage, bought at war-inflated prices, on the basis of temporarily high wheat prices. Meanwhile, the Dominion Department of Agriculture, with astonishing indifference to the long-term effects, encouraged sloppy farming techniques to maximize current output. By as early as 1917 failure to practice decent soil conservation techniques had already cut yields per acre by as much as 50% in some areas. What farmers gained in the short run they lost many times over in the long, and the post-war deterioration of farm incomes was one of the most marked longer-term effects of the war on the distribution of income in Canada.

The Distribution of Income During the War Three main factors determined the course of class relations in Canada over the war period. First, the mode of financing the war had profound effects on the distribution of income — the increased note issue and the expanded credit base accommodated an inflation that drastically cut real incomes of the unorganized; increases in indirect taxes shifted the burden of taxation to low-income recipients; and bond drives provided a tax haven for the rich in which they could cache their share of the spoils of war. Second, the flagrant profiteering and patronage that underlay the process of accumulation of wealth by the already-wealthy was in stark contrast to the public exhortations to selfless sacrifice, and helped harden class lines during the war. Third, and as a consequence of the other two, there was a radicalization of the labour movement, a rapidity of union organization, and the reaction of the state which imposed increasing constraints on collective bargaining procedures, ultimately banning strikes completely at the same time that inflation was most rapidly cutting real incomes. During the first two years of the war, prices of food, rent and consumer goods were relatively stable despite the inflated demand. The chronic pre-war unemployment carried over into the early war period as well and checked the latent inflation. Bumper crops in many farm areas did likewise. Furthermore, the war generally stimulated output to meet the expanded demand as the resources tied up in construction during the pre-war building boom shifted into industrial and agricultural production. But after 1915 the cost of living rose quickly, until by

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1919 it was 64% above its 1913 level. The consequent fall in real incomes of the wage-earning class as a whole from 1913 to 1917 was 5%. For many workers, of course, the collapse of real purchasing power was much worse. Particularly important in dictating the course of future events, wages among the construction trades of Winnipeg were among the hardest hit. Fixed-income recipients too lost heavily, as they always do during the initial phases of inflation, while some white collar workers such as civil servants and teachers experienced real income losses of 10 to 25%. As inflation eroded workers' real incomes, property incomes shot up, and with them a market for government bonds came into being. About 80% of the tax-exempt war loans were subscribed by big business organization or rich individuals. Victory loans turned profiteers into patriots, and shifted the burden of maintaining them onto the backs of future generations. The shift of the income stream in favour of propertied incomes, and the evident formation of a rentier class in the face of the falling real incomes and deprivation suffered by much of the rest of the population, combined with persistent unemployment in some areas to sharpen class tensions over the long run. Initially, however, the main effect of the heavy unemployment at the time war broke out was to provide a boon to the recruiting officers. The initial requirement of 25,000 men was quickly met. It was by itself inadequate to absorb the pool of unemployed, necessitating an expansion of public works expenditures to deal with the problem. By the end of 1915 many thousands more were absorbed into the armed forces and the bulk of the unemployment problem was solved, except for the heavy seasonal unemployment still chronic in the west. In fact, a shortage of labour began to manifest itself in the east by the end of 1915 in the face of the absorption of men into the forces and the rapid growth of the munitions industries. The working day lengthened as equipment ran 24 hours a day. At the end of 1915 Canada's pledge of troops had risen to 500,000 — a figure which could not possibly be met by voluntary recruitment, given the souring attitudes toward the war and a mounting cynicism based on growing awareness of its real objectives. By 1917 the recruitment situation was critical. The year 1917 was a crisis year in many respects. With Russia knocked out of the war the pressure grew on the western front, and with it demands for more cannon fodder. The German submarine campaign against Britain led to massive movements of food from Canada, which forced rationing in Canada at a time living standards for many were already declining. Rationing was followed by a freeze on grain prices paid to farmers, and thus curtailment of their expected income gains. With rumours of profiteering and speculative

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hoardings by merchants rampant, with the government's laissez-faire policy toward trusts standing in stark contrast to a growing repressive apparatus directed against labour organizations, dissent spread quickly, and with it strike activity. By 1916 federal power to apply compulsory arbitration had been extended to all war industries. A 1917 Order-in-Council declared its intent to outlaw strikes and lockouts completely. That same year, both labour shortages in war industries and troop shortages on the Western Front compelled the government to announce plans for compulsory registration of the entire work force, and for conscription. Opposition was intense, and a government counter-offensive quickly got underway. "Subversive" literature was banned, and union activists were jailed and deported. Samuel Gompers, the leader of the American movement for business (i.e. non-political) unionism, was brought to Canada to preach the principles of class reconciliation. And the federal government decided to take the issue of conscription to the people. The ensuing election was marked by intimidation, censorship, and open gerrymandering. Its results were scarcely in doubt.

The State and Economic Activity During the War The war set off a wholesale transformation of the role of the state in economic life in Canada. Before the war the state's economic functions were simple. Confederation had created a government structure appropriate to a pioneer community whose most pressing needs were the provision of infrastructure and consequently the stabilization of its international creditworthiness. A society in which commercial agriculture was the leading sector meant, in the context of nineteenth century North America, a society in which the demands of the independent commodity-producing class, or those of the mercantilefinancial elite who oversaw the flow of primary production from the independent commodity-producing sector, were more important in shaping government policy than the type of issues thrown up by the conflict of labour and capital in an industrial society. The second set of considerations were certainly present, but it was the first group that most concerned the federal government. The development of infrastructure for the primary resource industries (particularly farming, and secondarily timbering) required concern with the state of Canadian borrowing capacity abroad, since in a farm-based, small community savings largely went directly into reinvestment in farm land and urban dwellings; there were few pools of liquid savings that could be tapped for long-term domestic borrowing.

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For the federal state in an expanding staple-extracting economy, the first of its functions was to lay in place infrastructure essential to opening new lands for exploration and moving the primary products to market. It was therefore more than simply a Victorian state whose functions were those of the classical Hobbesian sovereign, preventing the struggle of the parts from rending asunder the whole. Before the state could undertake its role of umpire of competition, it had to build the arena. And in late nineteenth century Canada the arena first and foremost took the form of railways. While certain minor pieces of railway lines and other types of commercial infrastructure (generally the unprofitable parts) were owned and operated by the state, the state's main role was to function as a financial intermediary channeling funds from the population at large via indirect taxation, or from foreign capital markets, and making them available to the railway companies. Railways were the repositories not only of economic but of political power as well. Railways functioned as election machines — generating patronage for the party boosters, returning election subscriptions and votes in exchange for state subsidies of cash or guaranteed loans. The alliance of a national political party and its favourite railway company in nineteenth century Canada was akin to the alliance of territorial prince and merchant trading company in the seventeenth century Europe — with, however, the important distinction that while the merchant trading company reciprocated state patronage with aid to the public finances, between the railway company and the national political party in Canada the flow of reciprocal aid worked in reverse: cash flowed from the public purse to the private one in return for election aid from the corporation to the party in power. A second major function of the federal state in nineteenth century Canada was to create a stable environment for capital accumulation and to provide a forum for the scramble for the division of spoils by the competing factions of businessmen that were euphemistically referred to as political parties. As John A. Macdonald put it, "Tell us what you want and we will give you what you need. The politician is the little boy who climbs the tree to shake down acorns to the hogs below." State intervention took the form of tariff and patent laws, loose and incomplete bankruptcy legislation, a federal police force to keep the "natives" in order, rubber-stamping the bank acts presented to the government periodically by the Canadian Bankers' Association, and the passage of a few empty exhortations to businessmen to be good and compete with one another. Over and above the broad environmental regulations there were a few specific instances of intervention. Occasionally an industry would receive direct federal cash aid in response to unique and temporary circumstances: iron and steel, with

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its links to railway building, was an obvious candidate. Another was the beet-sugar refining business, which promised to provide seasonal employment and an additional cash crop to central Canadian farmers hit hard by the collapse of grain prices in the late nineteenth century, and thus help stem the tide of emigration. But even in this case, federal aid was weak and haphazard. A third function had to do with creating favourable conditions for the two-way flow on which Canadian economic "development" was predicated — the flow of staple exports out of, and long-term investment capital into, the country. The federal state therefore moved decisively to assure Canada's international borrowing power, moulding financial legislation, shaping a banking system according to the bankers' orders to conform to gold-standard orthodoxy, disallowing provincial legislation that would be offensive to foreign investors, and generally assuring the priority of foreign claims on Canadian assets. At the same time it moved — gingerly — into the field of product examination and standardization through the establishment of a system of inspectors and through aiding the creation of the necessary infrastructure, over and above railways, to move Canadian staples to international markets. These state functions were all within the legal framework established at Confederation, and required no serious alteration of the terms. Railway development was specified in the British North America Act as a fundamental public obligation; and even where a piece of infrastructure lay entirely within one province, the federal government could usurp control by declaring it to be for the general good. The power of indirect taxation to mould the flow of trade went to the federal government as a matter of course, given also its authority to legislate in matters affecting interprovincial and international commerce. And fiscal and financial centralization — responsibility for debt, for credit and currency — were also placed from the start within federal jurisdiction. All of the major federal state functions required little direct participation on a day-to-day basis by a state apparatus. Loans or guarantees to the private sector to help build infrastructure obviated the need for state ownership. The legislative framework within which business operated, when it chose to do so, required little more than overseeing the federally-appointed judiciary. Even the choice of modes of taxation — the reliance on indirect taxes, especially customs duties — reflected in good measure simplicity of administration along with the political unpopularity of direct taxation. Once the infrastructure was in place, the expectation of Canadian politicians was that the Canadian state would regress quickly to a simple Victorian model — it made the rules, once in a while enforced

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them against political opponents, but avoided direct participation as much as possible. With the war, however, that changed dramatically as the state delved deeply into the financing of economic activity, the production of goods and services, and the distribution of commodities. In terms of the financial system, the suspension of convertibility and the expansion of the issue of Dominion notes meant the introduction of a monetary tool amenable to discretionary control. In place of the pre-1914 system where credit conditions depended in good measure on the balance of payments, it was now possible for the first time to have monetary policy directed toward internal policy objectives. However, these internal policy objectives were strictly financial; they did not involve a commitment to iron out fluctuations in prices and output. Inflationary finance became a tool of government fiscal policy, and, whether consciously or not, fundamental to the success of war finance. Nonetheless, it represented a major step in the direction of central banking in Canada. Not only did government note issues play a determining role in the supply of credit, but the government formally assumed the role of lender of last resort, replacing the old pattern of periodically bailing out tottering banks whose political credentials were satisfactory by the temporary deposit of government funds. The fiscal system too was overhauled during the war. While the bulk of federal tax revenues still came from the tariff and thus depended upon the level of imports, direct taxation of business and personal incomes on the federal level made its first appearance. This reflected not only the exigencies of war finance, but also the increased feasibility of direct taxation of incomes, business and personal, due to the rising percentage of the population dependent on wages and salaries, the spread of the corporate form in business which facilitated taxation by regularizing accounting procedures, and the expanded state apparatus itself. Perhaps the most revolutionary of the financial changes of the war lay in the federal government's conscious efforts to create a domestic bond market by directly intervening in the marketing of securities and enforcing priority for Dominion bond sales. Canada's public debt shifted increasingly from Britain to Canada. Creation of a domestic bond market also marked a major step in Canada's march to financial — and therefore political — independence from Britain. Furthermore, it freed federal spending from the constraints formerly imposed by the need to satisfy British investment bankers that the loan could be readily repaid. In the interim, however, it left Canada loaded down with a domestic debt burden that in the early post-war years absorbed nearly 30% of federal current expenditures.

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In comparison to its previous level of activity, the war-time state was omnipresent in the production of goods and services. The inability of the private sector to deliver the goods rapidly enough, and its unwillingness to shoulder the risks of creating new industries whose time horizon seemed limited to the war period, led to the introduction of Crown-controlled industrial plant for manufacturing fuses, explosives, airplanes and warships. The Crown corporations spawned by the 1MB were, properly speaking, creatures of the British rather than the Canadian government; but financing of the initial capital outlay as well as loans to purchase their output came from the Canadian state. The guiding principles behind the operation of the IMB's "National Factories" were made clear — they were not to compete with private enterprise but, rather, to complement it. They were, furthermore, to be run on strictly commercial lines, with any operating surpluses to be used to amortize the loan on which the capital was based. The intervention of the state in production, with the 1MB as its chief instrument, went well beyond the mere ownership of a few factories. The great bulk of the war industries remained in private hands, and for them the primary role of the state was twofold. First, it was able to mobilize purchasing power and divert it to the munitions business. Second, through the 1MB, it introduced an important element of planning into the operations of the many firms privately engaged in war manufacturing. It placed orders, acquired and made available essential raw materials, facilitated access to specialized labour, and supervised the movement of semi-processed products from firm to firm. It also oversaw the acquisition of specialized technical information by firms that needed it. The most profound departure from pre-war rules came not in finance or production, but in the distribution of goods and services. Here the intervention took many forms, of which the most dramatic — if unexpected, and undesired — was nationalization of railways. The closing of European capital markets and the end of the construction wave spelled imminent bankruptcy for the two new transcontinentals with their huge debt charges to meet. The bonds with which they had financed their expansion often bore state guarantees. First to fall was the Canadian Northern system, and its pending collapse spelled trouble for its bankers. Fortunately the Minister of Finance was a former director of the bank in question, and was also closely tied to the Canadian Northern group. Much of the proceeds of the new government paper money issue voted in 1914 went to the ailing railway company, and therefore indirectly to the Bank of Commerce. But the crisis continued until 1917 when the state assumed liability for all the railway's debts, in an effort to save the private in-

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vestors' money and Canada's credit rating abroad. The line was integrated with the existing state-owned pieces into the Canadian National Railway Company. Then in the midst of the post-war crisis the Grand Trunk system was also nationalized. While the market mechanism was nowhere actually eliminated, it was often forced to operate with a new set of institutional restraints, especially after 1917. The grain trade was subjected to strict federal control; Food and Fuel Controllers were appointed to assure that war demands were met; combines and trusts were outlawed (in theory), and legislation directed against them was strengthened — although big business combines continued to operate so overtly that even the government-appointed Paper Controller colluded openly with the paper cartel, and when a government investigation inadvertently unearthed, to everybody's embarrassment, a sugar cartel, the recommendation was simply to legalize it. The federal government also interfered in numerous ways with the free operation of labour markets — here with considerably greater enthusiasm and competence than it showed in its trust-busting pursuits. Government activities ranged from an immigration policy tailored to meet industry's labour needs, to the national registration of the entire labour force, to laws permitting the federal government to order everyone to specific work (though in its extreme form such power was never wielded). All of these measures meant selective controls to discriminate against, or at least modify the outcome of, free market activity for particular goods and services. Such controls were often continued for a few years after the war, and then, unlike many of the expanded state functions, abandoned until the next emergency.

35

The Aftermath of War

BY THE END OF 1917 the Allies had all but lost the war. The Italian army was smashed; the eastern front was eliminated by the Russian Revolution; and German-Austrian-Hungarian troops on the western front, bolstered by the divisions released from the east and intrinsically superior to the demoralized Anglo-French forces, began an offensive that carried them to within fifty miles of Paris. American intervention stopped the offensive and reversed it — the exhausted central powers, while having proven themselves more than a match for Britain and France, could not sustain the war effort in the face of a massive American mobilization that inauguarated a new era in international affairs. After 1917 Europe was no longer the decision-making centre of world political and economic affairs, but increasingly relegated to the role of satellite to, and battlefield for, the two emerging superpowers. "Peace" At the onset of war, most states were unwilling or unable to tax sufficiently to muster the resources for prosecuting the conflict, and most expected it to be short. Hence they resorted to borrowing. The trend toward increasing public debts began even before the war, for the rearmament boom after 1898 was built upon borrowed money. During the early part of the war period, security markets were deranged, and international capital transfers disturbed. Hence governments abandoned the gold standard and resorted to the printing press to finance their military expenditures. On top of this were enormous bond drives within countries. The result was a great pile-up of paper claims to wealth — government bonds, bank notes, treasury notes and bills, bank deposits, etc. — while the real wealth of some of the protagonists actually declined in the face of physical destruction and the diversion 522

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of resources into unproductive channels. As the limits of internal borrowing were reached governments began borrowing from other governments, particularly after 1917 from the United States, which funded much of the later war effort. The U.S. loaned out $9.5 billion, half of it to Britain and most of the rest to France and Italy. Britain lent $8.7 billion, in other words, double what it borrowed from the U.S., and France lent nearly $3 billion to Russia — a loan which was repudiated by the Bolsheviks. After the war, the U.S. lent various countries another $1.5 billion for reconstruction aid. These international war debts made the financial situation for the victors even more complicated. The question of how to pay for the war was a worrisome one. The internal funded debt was largely held by rich individuals and corporations, and would require for its discharge increased taxation of a regressive sort — an income transfer all the more difficult in the context of hardening class lines, strengthened socialist parties, and the example of the Russian Revolution. The external debt situation also meant on the surface a transfer from the poor to the rich, from the European allies to the United States. Hence the solution adopted: if France, Italy and Britain had to pay the U.S., then Germany would pay them. Not only were the reparations to cover the actual damages and costs associated with the war, but they were to be of a magnitude and type as to assure the economic and industrial enfeeblement of France's and England's leading competitor. Under the terms of the Treaty of Versailles: (1) Germany was to cede all of its vessels of tonnage greater than 1,600, half of those between 1,000 and 1,600, one quarter of all trawlers and fishing boats and all ships owned by Germans but flying other flags; and it was to build for the allies up to 200,000 tons of shipping per year for five years. The effect was to strip Germany of its carrying trade and the freight earnings on its own exports, and, in effect, cede the bulk of them to Britain. (2) Germany was to cede all of its overseas possessions, including not just colonies but also all German-owned property — railways, mines, plantations, etc. — around the world. Alsace and Lorraine were to go to France. Germany renounced all claims to the iron mines and railways of Luxembourg, opening them to French takeover. And the southern bank of the Rhine was occupied by the Allies and severed economically from Germany. (3) Germany was to lose much of its coal and iron resources, an effort to undermine its industrial capacity. The iron mines of Lorraine (dejure) and Luxembourg (de facto) were to go to France. So too did the Saar coal fields. The Silesian fields of the east were ceded to Poland. Thus between France and Poland, Germany lost one third of its coal

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resources. Of the remaining two thirds, a large chunk of the output was to be exported free to France and other countries in compensation for mines of theirs destroyed or damaged in the war. The results were to cut German production from 190 million tons per year to 130 million, of which 45 million were earmarked for reparations, leaving Germany with under half its pre-war output — while the loss of Lorraine stripped it of 75% of its iron. (4) German railway rolling stock was seized; the Allies took control of the customs; and even the river systems were to be handed over to an international commission for control. In short, to the loss of control of external commerce was added the loss of control of internal trade as well. (5) On top of these measures came the reparations bill. Under the terms of the Armistice, Germany agreed to pay for damaged civilian areas and other costs arising directly from the war. To France that meant a minimum of $13 billion; Belgium demanded a sum greater than its pre-war national income; while British demands were nearly equal to France's. The final bill was set at about $40 billion, compounded at 5% per year with a schedule of repayment that was impossible to meet. And a Reparations Commission was established to supervise German bond issues, regulate its taxation and public expenditures, and dictate the structure of production to assure that once certain basic needs were met German resources would go to meet the reparations bill. The year of the Treaty of Versailles was also the year the Nazi Party, dedicated to its reversal, was founded. Colonies and overseas possessions were the leading prize of the war, and Germany and Turkey were stripped of their empires. The question of who was to get them plagued relations between the Allies in the post-war political world. In 1916 France and England had agreed to divide Germany's African colonies between them. In 1917 they did likewise with those of Turkey. Some areas were set aside for Italy, Belgium and South Africa, while Japan was to get Germany's far eastern colonies, and parts of the Turkish empire were to go to imperial Russia. When Russia was knocked out of the war in 1917 the Bolsheviks published all the secret division of spoils agreements, and the United States, when it entered, articulated the doctrine of self-determination and pressed the policy of the "open door" — both of which events upset the Anglo-French intrigues. Britain and France, supported by the British Dominions with territorial ambitions, pushed for an immediate division of the loot at the end of the war, but the U.S. opposed them. Instead a compromise was reached in the form of the "mandate" system whereby the former colonial territories were to be divided into three groups. One group was slated for early independence,

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and temporary authority over each colony was ceded to one or other of the Allied powers. A second group was to be administered by the mandated authority, but with guarantees of equal opportunities to all the Allied countries to exploit it economically. Colonies in a third group were to be integrated into existing empires. The League of Nations was established to oversee the operation of the mandate system, and given the power to sternly rebuke any imperial power for mismanaging its mandated territories. For Britain the gains were enormous. The German East African colonies were seized, while Iraq, Arabia, Palestine, Egypt and Persia were confirmed as spheres of British influence. The Indian Ocean became a British lake and the petroleum resources of the Middle East opened to predominantly British concessionaires. The Allied intervention in Russia, while largely a failure, did provide Britain with an opportunity to further limit Russian influence near the Indian border. Often colonial powers in the post-war world with colonial territories totaling 28.7 million square miles, Britain controlled half. Of a total colonial population of 630 million, Britain held sway over 417 million. Britain appeared to have emerged diplomatically and commercially triumphant from a war it militarily almost lost. Other Allies were not so satisfied. Italy had been aligned to the central powers before the war but had been wooed away by a secret treaty whereby, in exchange for entering the Allied camp, it could grab pieces of Austria-Hungary; and if the results of the war were such as to expand the French and British empires, Italy would get compensation elsewhere. The compensation offered was two strips of land in Jubaland and Libya. Ethiopia, long coveted, was still denied Italy, and in 1923 Mussolini took power committed to securing for Italy its "just" rewards in the post-war division of the loot. Elsewhere the post-war carve-up also generated serious tensions. With Germany and Russia knocked out of the contest for the Pacific by the war, Britain, the United States and Japan were left facing off. In 1915 Britain had ceded to Japan control of the German spheres of influence in China, much to American anger. And when in 1919 President Wilson agreed to accept the cession and embody it in the Treaty of Versailles, the outrage that followed in the U.S. was one reason for the subsequent refusal of the American Senate to ratify the treaty. Moreover, since the war had led effectively to Japan achieving a position of dominance in China, thus presenting the spectre of a Japanese threat to the entire Pacific, the United States and Britain began to draw together to stop further erosion of their positions there. The Anglo-Japanese alliance was terminated, and in its place came a tacit entente between Britain and the United States that put them on a long-term collision course with Japan in the Pacific.

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The Post-War Transition in Canada The transition from war to peace was a stormy one in Canada, and the long-term effects of the war were severely felt in the financial system, in industry, in agriculture, in class relations, and in the institutions of state power. The changes the war effected in the monetary and financial system symbolized the period of international and internal turmoil Canada had involuntarily entered. The era of the Pax Britannica, one of whose principal pillars had been an international gold-sterling standard which assured that the world of international trade and finance would revolve around the City of London, had decisively ended. While most of the protagonists, Canada included, hoped to return to something approximating the pre-war monetary mechanism, the facts of post-war socioeconomic life precluded that possibility. The gold standard mechanism was a fairly delicate one and was premised on the assumption that financial flows would be associated with continuous multilateral commodity transactions. It simply could not handle the unilateral, episodic, and massive capital movements that typified the post-war period as a result of the accumulated burden of war debt and the development of pools of "hot" refugee money. Furthermore, many countries had financed the war partly through the printing press, and the pile-up of governmentissued paper money in most countries' circulatory systems forestalled an early return to multilateral free convertibility — there was simply too much paper and not enough gold to redeem it. The situation in fact prevented forever the restoration of a gold-specie standard. Government paper money as the dominant, and shortly the virtually exclusive money form for internal circulation was a permanent post-war fixture of the advanced industrial countries. The use of gold in international transactions was thereafter subject to frequent government and central bank interference. This pointed to a monetary mechanism that worked exactly in reverse of that of the old automatic gold standard. It also pointed to the pending end of a laissez-faire attitude in the distribution of income, for automaticity of the payments mechanism was a sine qua non of genuinely "free market"-oriented economic system. With the end of automaticity in international payment flows, governments were free to mould economic policy toward internal, domestic objectives and conditions. Canada, like many other countries, delayed its return to even partial redeemability. In the meantime, the Finance Act of 1914, which had established the mechanism by which the federal government assumed the "lender of last resort" function, was made a permanent part of the Canadian financial apparatus. It was not so much that the

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federal government had made an intellectual commitment to the principles of managed money, but rather that the entire banking system tottered on the brink of collapse in the post-war period. Only a continued infusion of federal legal tender notes could keep it solvent, as the post-war collapse of farm and war industry earnings played havoc with the banks' earnings from depreciating assets. Despite massive federal aid, in the final analysis nearly a third of all of Canada's chartered banks either failed outright or were unloaded on other institutions in an effort to avert public collapse. The war had several long-run effects on the productive apparatus in Canada. It served to confirm, and indeed to a large degree to create, a wheat monoculture in the west such that for the next two decades prosperity in Canada turned on the vagaries of world demand for a single cash crop. In the late 1920's nearly 60% of Canadian commodity exports were farm products, of which wheat was the leading component. The staple export orientation of the economy was further strengthened by the external debt burden the war had indirectly produced. In the United States a massive wave of bankruptcies had wiped out $874 million worth of railway debt and cut down to an inferior position another $1,141 million of claims, thus permitting the private railways to renew operations free of much of their burden of fixed interest charges. By contrast, in Canada the federal government — ostensibly to defend the country's external borrowing power — assumed the liabilities of two faltering transcontinental systems, the acquisition of the Grand Trunk Railway involving the liquidation of the largest single British-controlled business in Canada. The external debt charges resulting from their acquisition and completion meant that the federal government had to adopt policies that would assure a flow of staple output to generate the necessary foreign exchange to meet external debt service charges. The full consequences of the postwar renewal of the structural link between foreign debt and staple exports came in the Great Depression, when foreign debt charges combined with the lowest world grain prices in many decades to absorb fully 25% of Canadian export earnings. The burden of the external debt was compounded by that of the internal debt. By 1920 the federal debt reached $3 billion, and debt service charges topped 25% of federal expenditures. In addition came the cost of demobilizing 350,000 soldiers, and of supporting the 149,732 wounded and the families of the 56,634 dead. Debt charges and pension payments together claimed over 50% of federal expenditures during the 1920's. The internal transfers further complicated one of the major hidden costs of the war — the problem of capital consumption in peace-time

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industries coupled with over-expansion of war-time ones. While the war did stimulate industrialization, its effects were confined to a narrow front. Only part of the capacity built up during the war could be used in the peace that followed. The huge munitions and military aircraft industries all but vanished after the war. Many plants were dismantled: others remained idle for years. Canada had doubled its iron and steel capacity during the war, and not until the Second World War was it used to full potential again. Canada had put in place new refining capacity for nickel, zinc, copper, and magnesium, metals that were formerly exported to the United States for refining. In the peace that followed, markets were scarce. The industrial expansion that set in in the 1920's was based on pulp and paper, nonmetallic mineral products, chemicals, and automobiles — industries which during the war made huge investments in industrial plant for iron and steel and related products — products which were largely irrelevant to the post-war development process. In 1920, the Minister of Finance had resumed inviting American capital into Canada. With the foundations —joint-ventures, licensing and cartel agreements, and a legacy of war-time industrial cooperation — already in place, American capital responded quickly and favourably to America's new position as dominant world capital exporter by flowing freely into Canada. Mineral development, pulp and paper, automobile, electrical product, and chemical plants were the most favoured sectors. At the same time that the flow of American direct investment into Canada was being actively encouraged, the war and post-war upheavals effectively shifted Canada's source of foreign portfolio capital from London to New York. While Britain remained until the 1930's the most important single market for Canadian staples, the war effected a shift in Canada's financial metropole to the United States, from which it has never departed. The effects of the war on class relations and therefore on institutionalized politics were the most complex of all. Canada had entered the war with an institutional framework appropriate to a by-gone age, to a frontier society in which the independent commodity producer dominated the production process, and the most obvious form of class struggle was the battle of the farmers and petty industrialists against the urban alliance of financiers, wholesale merchants and railwaymen that controlled the flow of commodities and credit. The bulk of the manufacturing output of Canada in the late nineteenth century was still produced under such social conditions as to keep the amount of class tension within manageable proportions. Most industrial capitalists saw their interests as more closely aligned to their workers than to the railwaymen and bankers, whom they joined the farmers in despising and fearing. Manufacturers were often men risen from the

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ranks of skilled craftsmen, and therefore, without overt hypocrisy, could call for unity of the "productive" classes — industrialists, workers and farmers — against the "unproductive" banker, railway magnate or wholesale distributor who wielded a disproportionate share of both economic and political power. The reality of the Canadian socioeconomic structure had changed radically by the time the war broke out — a class-conscious proletariat spreading from traditionally tense sectors like coal mining into many fields of industrial activity, while the integration of financier and industrialist, symbolized by the spread of the corporate form in business, helped to heal the traditional antagonism within the ranks of the propertied class as a whole. However, most of the institutional framework and much of the political rhetoric still reflected an earlier reality. It was only the wholesale deterioration of class relations during the war that brought to the economic and political elite, or at least to some of them, an awareness that something fundamental had changed. The political consciousness and class awareness of the grain farmers was sharpened by the war and post-war crisis. For the farmer, the central economic variable was the world price of wheat in relation to costs. There was little that could be done about wheat prices, although some ultimately unsuccessful efforts took the form of community pools. More important and more sustained was farm agitation to control other cost elements — interest charges, railway rates, and implement prices. Since banking and finance, railways, and the tariff were uniquely federal responsibilities, farm politics through the 1920's and 1930's were oriented toward reactivating the expanded federal authority that had been phased out after the war, toward the creation of a central bank for the control of prices and credit conditions, nationalization of railways, freeing of trade, and trustbusting. A politically motivated mass labour movement, as distinct from the occasional politically aware union, also emerged from the souring climate of labour relations and spread of mass-production industries during the war. The short-run response of the state and big business was to outlaw strikes during the war, and to smash political unionism during the Winnipeg General Strike just after it. The complex state of class relations in the post-war period — the existence of the often contradictory claims of workers, farmers, rentiers and foreign and domestic industrial capitalists on the state structure — meant that not only did the primary functions of the state have to change, but so too did the distribution of these functions among various levels of government. The pre-war construction boom based on the opening of the

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western resource frontier entailed the primacy of the federal state for many reasons. The prairies were developed as an economic colony of the east, with the local governments having no power to determine the pattern or pace of exploitation of their resource base. The federal state took the initiative in development work — immigration and colonization, building infrastructure, abetting the growth of the primary iron and steel industry, and in general putting in place the financial and commercial apparatus necessary for the wheat economy. Thus the primary axis of development was an east-west flow of commodities and capital in which the federal state, largely influenced from Montreal, took precedence over the provinces. Montreal was the commercial and financial hub of the system that tied the Canadian economy into the British-dominated international trading system. From Britain came the capital that Montreal capitalists and Ottawa politicians put to work in the west to create a return flow of staple output for British markets. As long as the primary role of the state was the development of the wheat frontier and superintending the attendant international commodity and capital flows, federal authority over the limited number of functions that the state had to fulfill was logical and necessary. In many ways the outbreak of war simply reinforced this primary axis of development and therefore the role of the federal state. Iron and steel products and food flowed to Britain, while the Canadian state undertook a greatly expanded role in financing and planning of economic activity. The basis of the expansion of federal powers was the War Measures Act of August 1914, which permitted the Governor-in-Council to regulate all phases of production and distribution; appropriate, control and dispose of property at will; subject the entire transportation system, land and water, to federal authority; and to arrest and detain without warrant, and summarily deport individuals deemed dangerous to the state or the war effort. It could also censor and suppress all manner of communications. Under the authority of the War Measures Act many types of activities were conducted, ranging from the banning of the books of the American business historian Gustavus Myers during the war to the seizure of control of the Grand Trunk Railway after it. But the War Measures Act was suspended in 1921, and the legal basis of the federal government's assumption of emergency powers came to an end. The federal government's role changed drastically at the end of the war. With the infrastructure necessary for the development of the wheat economy in place, the principal development role of the federal state had ended. Its chief functions were now administrative, superintending the actual operation of the Montreal based wheat staple economy, and servicing the war- and development-induced

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debt. In 1929 the end of the development phase of the transcontinental economy was symbolized by the federal government ceding to the prairie provinces the control over their resource base it had earlier arrogated. As the development role of the federal state waned, that of the provinces grew. The whole time that the London-MontrealWinnipeg axis of development had been in the making, so too was a subsidiary one. The axis of manufacturing growth had followed the main contours of American industrialization, concentrating on the Great Lakes area, and predicated on a spill-over of American manufacturing capacity into the Windsor-Montreal belt. Southern Ontario and the Toronto region quickly became the main locus of Canada's secondary industries. And for the industrialist apart from the iron and steel interests, the provincial governments were the main centre of activity. Once tariff protection became sacrosanct, once it had become a principle neither federal political party would tamper with, then the questions that most concerned manufacturers — direct taxation, labour relations, natural resources — were uniquely provincial responsibilities. The flow of American investment into automobiles, chemicals, electrical products, non-metallic minerals and pulp and paper in the 1920's reinforced the pattern of growth of provincial regulatory responsibilities. Development obligations appropriate to the period — highways and electrification — fell within the legal and economic realm of provincial concerns. The new staples — minerals, wood pulp, hydroelectric power and so forth — that assumed an ever increasing importance in Canadian production and export patterns were, unlike wheat before them, destined for American rather than British markets, and were subject to provincial, not federal government jurisdiction. They were part and parcel of an American Age that was rapidly coming into being.

Notes and References*

THE MANUSCRIPT FOR CANADA IN THE EUROPEAN AGE was originally written in 1978 and revised in 1980. Beyond some condensation, little or nothing has been altered in the current draft from the 1980 version. It was, and remains, written with the literature prior to 1980 in mind. The delay in reaching the reader is due to a series of circumstances too complex to be recounted here.f Instead of conventional footnoting, an alternative method of citing sources has been adopted. This was done because the novelty of the book lies in its synthetic nature, not, for the most part, in documentary research. Given this synthetic approach from secondary materials, detailed cross-referencing tt out of place. Furthermore, the book has three roots. It began as a series of lectures to undergraduate economic history students at McGill University and evolved into its current form along directions suggested jointly by the students' demand for information and my perception of major gaps in their knowledge of general social and economic history. Second, it began in response to a general increase in interest in "international systems" as evident, for example, in the recent work of Immanuel Wallerstein, following the tradition of Braudel. Such an "international systems" perspective did underlie the work of Harold Innis, but in a largely implicit way. Hence the effort seemed worthwhile to apply an "international systems" perspective explicitly to Canada. Third, the book emerged from background research undertaken with a view to producing a monetary and financial history of Canada. Given the unorthodox pattern of evolution of the subject matter, and the largely secondary sources from which it was drawn, and given also that these sources are often repetitive, the most logical procedure seemed to be to provide for each of the general subject areas of each chapter a brief explanatory note about the major sources for each. At the same time an effort was made to alert the reader to certain controversial facets of the treatment of the subject matter in either the sources or the chapters themselves, indicating in particular the major theoretical influences that underpin the treatment of the various subjects presented. And in many chapter notes a section has been added bringing to the attention of the reader some of the major items pertinent to the chapter that have appeared subsequent to the manuscript's completion. Several useful guides on various aspects of Canadian history are now *My thanks to Steve Lee of McGill University's History Department for his help in the drafting of these notes. fFor an explanation see the introduction to Naylor, Dominion of Debt, Montreal, 1985.

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available. In general, consult the two-volume series A Reader's Guide to Canadian History. Native peoples are covered by R.S. Allen's Native Studies in Canada: A Research Guide (Ottawa, 1985). For an update on some of the new literature on Canadian political economy, consult Daniel Drache and Wallace Clement, The New Practical Guide to the Canadian Political Economy (Toronto, 1985). For urban history see Alan Artibise and G. Stelter, eds., Canada's Urban Past: A Bibliography to 1980 and Guide to Canadian Urban Studies (Vancouver, 1981). Carl Berger has recently updated his book The Writing of Canadian History to include a discussion of Canadian historical writing since 1965. In these notes only the author is generally cited (except where several works by the same author have been used) and the full reference deferred to the bibliography that follows.

Preface The treatment of the process of imperial expansion in the European Age adopted in this book, namely its interpretation as being synonymous with the spread of the market system (rather than of industrial capitalist relations of production), is a notion that is central to the early Marx and anathema to most modern Marxists. See especially the famed Dobb-Sweezy debate and much of the nonsense that followed. For an interesting and useful perspective, treating early modern imperialism as a fundamentally commercial development, see the works of Oliver Cox. Karl Polanyi's seminal work on the triumph of market system over societal control of economic life, though it may overstate the case, is nonetheless vital to the theoretical thrust adopted throughout the current study. See also Harold Innis's "The Penetrative Powers of the Price System" in his collected essays. It was Joseph Schumpeter who, in his neglected study of imperialism and class structure, pointed out as a central feature and cause of European imperial expansion the presence of rigidities in the class structure of the metropoles that hampered upward social mobility there, and diverted the energies of aspiring entrepreneurs abroad.

/. The Discoveries There is a vast amount and variety of material available on the times and places surveyed in these pages. On the breakdown of the old Mediterraneanbased commercial unity of western Europe see especially Mark Bloch's treatise on feudal society and Pirenne's pathbreaking survey of medieval European economic history. Pirenne's conclusions have been hotly contested. See also Braudel, Bautier, and Chaunu for medieval economy and commerce, Van Bath on agricultural history, and Duby on changing land tenure and class relations. On the rise of Islam and the Arab conquests, see Mansfield's basic history, which is among the more readable and comprehensive of the shorter English-

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language treatments. Maxine Rodinson in Islam and Capitalism raises a number of important questions on this topic of evident importance. The impact of the Arabs on western culture and world commerce is indicated in Parry's The Establishment of European Hegemony. But in general it is a topic on which an ominous silence has descended on the insular world of North American academia, some reasons for which are elaborated upon in Edward Said's Orientalism. On the commercial revolution in Europe see Lopez and Miskimin. The second volume of the Cambridge Economic History of Europe has surveys of northern and southern Europe trade by Postan and Lopez respectively, as well as a contribution by Parry on transportation and trade routes. See Bovill on gold, Deerr on sugar, and Clive Day along with Runciman on the Crusades. The role of the Italian merchants can be seen through the activities of the most powerful banking house of the late medieval era in de Roover's study of the Medici, and in Sapori's study. With the "discoveries" themselves, there is a problem of volume of material given the range of times and places covered and the fascination the topics of Iberian expansion and early Amerindian civilizations have held for researchers. A detailed background study is that of Parry, The Age of Reconnaissance, while a much lightened version of some of the material is available in his The Establishment of European Hegemony. Similarly, see Ralph Davis's work on the Atlantic economies. On Columbus and the early conquests in the Caribbean see Newton, Sauer, and Williams's From Columbus to Castro. A number of works are available dealing with the first victims of European "discovery", of which Olsen's on the Arawak is adequate. Apart from Davis, Newton and Sauer, on the post-Columbian conquests Descola's sketches of the Conquistadors is a good overview, Alex del Mar's books on gold and money are classics, while Pierre Vilar's unfortunately is not. See also E.E. Rich in the Cambridge Economic History of Europe Vol. 4 on the early slave trade. For the American mainland civilization in the pre-Columbian era and the impact of conquest, the problem is both bulk and controversy. Andean and meso-American archeology is a vast and ever-growing fund of knowledge in which little can be said to be settled definitively. The most recent surveys appear to be those of Van Hagen, and his treatment has been followed in the text to avoid controversy and getting bogged down in disputation to whatever degree is possible. Two warnings are in order. First, Van Hagen clearly does have his own axes to grind (see, for example, the work of Vaillant, which differs on some points). Second, the Van Hagen books are surveys. But such provisos aside, the interesting thing about Van Hagen's modern surveys is the extent to which they tend to confirm the old "romantic" view of preColumbian America. The original authority expounding the "romantic" view was Prescott, who in turn drew heavily on Bernal Diaz's own fascinating account of the Mexican campaign. On the general problem of studying non-capitalist and "primitive" societies, see George Dalton's edited version of Karl Polanyi's papers, Primitive, Archaic and Modem Economies, and the Polanyi, Arensberg and Pearson collection that laid so much of the foundation of the substantivist school of

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thinking in economic anthropology. Polanyi's work was updated in a posthumous collection of his various unpublished and published pieces edited by Harry Pearson, The Livelihood of Man. See too Thurnwald's study of primitive economics which was an important precursor of the substantivist approach, while Firth's later work tends to the formalist approach. The Polanyi, Arensberg and Pearson collection contains an excellent analysis of middle American pre-Columbia trade. It also contains an essay by Harry Pearson, "The Economy Has No Surplus", which questions much of the theoretical basis of primitive Marxist approaches to political economy.

2. The Foundations of English Bullionism The economic background to English overseas expansion is traced in the late medieval period in Postan, and in the early modern period in Hill and Lipson. Cunningham is also useful in this regard. The general history of English expansion is outlined well in Williamson Vol. 1, which is a more up-to-date view than the traditional one given by Beer, while a much more superficial profile is given in G.S. Graham's sketch of the development of the British empire. There are a number of particular topics of note taken up in the chapter. On the Dutch commercial expansion see Davis; Barrington Moore's chapter on England deals with the class basis of English politics in the period before the revolution; the particular importance of Bristol is examined in C.M. Maclnnes; Carus-Wilson's study of the merchant-venturers is basic on the wool trade. An anecdotal and readable (although much criticized) sketch of the English northern voyages of discovery is that of Morison, which updates Fiske. Newton explores the history of English involvement in the Caribbean, including the nature of the Cromwellian venture. There are numerous biographies of Francis Drake, of which those by Benson and Mason shed a little light. The key theoretical concept underlying this chapter is the nature of bullionism in general and its English manifestation in particular. Many writers on this hotly disputed topic take an excessively narrow view of the meaning of the concept, following the example of Jacob Viner, who read a nineteenth century "sound money" view four or five centuries backward into history with the inevitable results. Schumpeter is much more reliable but rather technocratic in his interpretation of a problem that must be defined in terms of the political economy of class alliances. John Munro's study is better in this respect. In general, the problem with much literature dealing with early "monetary" policy is the tendency to attempt to isolate commercial, monetary and public finance aspects of the general policy. The three are part and parcel of an integrated process. The chapter goes on to the early history of the English fisheries. In it, and subsequent discussions, there are two central objectives. One is to fit Newfoundland's history into the context of the development of English bullionism and the vagaries of English business politics; the second is to apply the staple theory in a somewhat modified form to the economic development

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of the island, including the effects of the rise of the cod staple on the aboriginal population. The standard work on the topic is of course Innis's brilliantly indecipherable The Cod Fisheries, but fortunately it can be supplemented by Lounsbury, Judah and Cell, as well as Innis's own earlier study of the Spanish fishery, in his Essays. Between them the main contours of Newfoundland's generally chaotic but always fascinating history emerge, as well as a firm view of the central importance of the North Atlantic fisheries to English bullionist, and, later, mercantilist strategy. The works on Newfoundland cited above can be usefully supplemented by Williamson on the general contours of English expansionism and Mclnnis on Bristol as well as Morison's work on the northern voyages. On the Beothuk Indians see Howley, Chamberlain, and Douville and Casanova. The theoretical thrust of the sections dealing with fish in Newfoundland (and fur in New France) is an application of the "staple theory". While in most respects it follows Watkins's original specification of what was only implicit in Innis, in some ways the approach used is slightly different. In particular, it seems desirable to add a fourth to the traditional three linkages, specifically one dealing with the inducement to invest in infrastructure, for that takes the staple model out of the realm of simple growth theory and puts it back into the realm of political economy. It is worth noting that the original notion of a "staple" conjured up much more than a commodity per se: it also involved a structure of regulated trade associated with the commodity. Taking this broader view also helps restore the political economy aspects of the staple approach.

3. The Foundations of French Btdlionism The works by Priestley and Hardy perform a role in outlining French imperial expansion similar to that of Williamson for English. They can be supplemented by parts of Morison's study of the northern voyages, and H.P. Biggar. On French bullionism in general see Cole, while for Richelieu in particular, Palm's old study is still good. The chapter also treats the beginning of the fur trade. There are two monumental works that cover the French fur trade in great detail, namely the histories of Innis and Paul C. Phillips. Between them they give a very thorough picture of the European fur market, the mechanics of trade organization, and the principal determinants of cost. Further details on company organization and company politics vis-a-vis both New France and Old are in Biggar, Salone, Renaud, Eccles's work on the Canadian frontier, and Trudel's examination of the early years of New France. Francis Parkman's old but venerable study, whatever its faults, is an interesting examination of certain features of fur trade society. Economic histories dealing with North America until very recently have been silent on the aboriginal societies of the areas they attempt to analyze and describe, treating them essentially as part of the flora and fauna and

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failing to link their fate explicitly to the greater economic forces at work in the era under consideration. A major step toward a general revision and correction was taken by Bruce Trigger for Canada and Francis Jennings more generally for North America. Much of their work is simply parroted in this chapter in the hope that imitation will indeed be construed as a sincere form of flattery. On the Indian background to Canadian history in general see Jenness, Patterson, and Douville and Casanova. On early contact and its culturaltechnological effects in the east, A.G. Bailey is good. For the history of the Laurentian Iroquois see Trigger's "Trade and Tribal Warfare". On the Six Nations, the original classic is by Morgan; Stites did an interesting job on the economics of Iroquois life, even if most modern anthropologists would take exception to much of her work; and Hunt's book on the Iroquoian economic imperialism, whatever its faults, was a pioneering work. For more recent work on the Canadian and European image of the Indian see Jaenen, Monkman, Trigger (1985 and 1986), and Dickason. Francis Jennings dissects Iroquois history in The Ambiguous Iroquois Empire.

4, The Aftermath of the Discoveries Spanish imperial theory and the role of silver is examined in Parry, Trade and Dominion, as well as in the classics of Braudel, while the impact of the influx of New World silver into Europe has been discussed and debated in many books and articles. EJ. Hamilton's work was pioneering in this respect, but see especially the critique by Vilar. See also the brief observations in Keynes's Treatise on Money Vol. 2, which caused far more controversy than they merited. The causes of Iberian decline are also complex and highly controversial. The survey article by Elliott is a good resume. On the general economic impact of the choking off of imperial expansions and the crisis that followed, see especially EJ. Hobsbawm's pathbreaking essay. See also Cipolla on this period. Dobb's Studies in the Development of Capitalism is a widely cited, but narrow and dogmatic, examination of the transition from feudalism to capitalism. It was soundly criticized by Paul Sweezy in Science and Society, a critique that led, as noted above, to a general marshalling of Marxist heavyweights in defense of Dobb. Sweezy's position, which has many elements in common with Cox, Pirenne, Polanyi and Innis in its mode of analysis, seems to be logically the strongest and certainly the least dogmatic of the different positions assumed in this debate. The view of mercantilism offered in this chapter is a synthesis of many elements that attempts to root the formation of economic policy in the general crisis circumstances of the early seventeenth century and the class alliances dominant in the era. As with "bullionism", the debate, a very wide and longstanding one, has been marred by an excessively technocratic orientation that suppresses the political dimension. See the discussions of Schmoller, Knorr, Heckscher and Schumpeter in particular. For how not to analyse mercantilism effectively see Viner, as noted above.

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CANADA IN THE EUROPEAN AGE 5. The Origins of the English Plantation System

The most basic question is whether the English empire in the mercantilist period can really be thought of as a "system". Certainly mercantilist theory was far from a uniform set of doctrines, as Knorr makes clear, and the older view of Beer has been criticized insofar as it seems to assume too much coherence in colonial practice. However, there are two distinct issues involved: the degree of systematism in the planning and execution of imperial policy, and the degree of systematism of the results. Historians, faced with the former, sometimes erroneously impute the cause to the latter, as for example with Canada's "national policy". There seems little doubt that coherent and consistent imperial planning was rare, but, as a result of a series of policies that were ad hoc in origin, an integrated imperial trading system did take shape. On the general background to the rise of English mercantilism, see Cunningham and Hill, while Williamson, Davis, and Lipton are good on overseas manifestations. And see the excellent article ofJ.R. Rees in the Cambridge History of the British Empire. For Ireland three useful books are the old treatment by Prendergast, O'Brien's excellent study, and the more up-to-date study by Bottingheimer. On early American plantations see Parry, Morison and Coornaert. Bruchey and Hacker treat briefly of mainland colonial conditions in the period, while Jennings demonstrates the vital importance of the aboriginal populations. On the West Indies, apart from Newton, see Dunn's treatment of daily life (and death) in early planter society. Eric Williams's Capitalism and Slavery is excellent, as indeed was all of his historical research until he began to perceive History creeping up on his own political career and proceeded to get the two thoroughly confused. Further on the slave trade see Mannix, Polanyi, and the work of Walter Rodney. The difficulties faced by the metropolitan powers in colonizing Maine, Acadia and New Scotland are examined by Reid. Cell's book is interesting for its primary documents relating to the early attempts at colonizing Newfoundland. The extermination of the Beothuk is also analyzed by Upton (1977) and Rose. For the Micmac population see V.P. Miller and Ralston. Upton's work (1979) explores the impact of white man's disease, technological change, Christianity, and settlement on the Micmac. For the impact of European epidemics on the Indians' spiritual life consult S. Krech III, Indians, Animals and the Fur Trade.

6. The Origins of the French Plantation System The organization of the fur trade is discussed in many sources, most generally in Innis and Phillips. Innis is especially valuable on the conduct of the trade in the interior, supplemented by Rotstein's dissertation, while Phillips is excellent on the world geopolitics of the fur trade. See the various books by Trudel and Eccles, particularly Eccles's study of

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Frontenac. Chapais's biography of Jean Talon is also useful. On the rise of the Hudson's Bay Company, Rich is the basic study. See Wraxall and Parkman on the illegal trade to Albany. The entire subject of the organization of the fur trade and its links to Quebec (particularly Montreal) society have been re-examined in depth by Louise Dechene, and my debt to her is obvious. On Huronia and its economy see especially Heidenreich's fascinating study in addition to the early book of Trigger, The Huron: Farmers of the North. (Much of Trigger's early work was revised in his Children ofAataentsic.) See also Herman on property and its distribution and redistribution within Huronia. On the final collapse of Huronia Trigger's "The French Presence" and "The Destruction of Huronia" are, once more, excellent. The comments on the aboriginal peoples' clever solution to their laundry problem are due to Elizabeth Lunn. One crucial, controversial issue underlying the chapter is the question of the response of aboriginal society to western commercial influence. Rotstein's study follows a Polanyi-type analysis, and this approach has been challenged by Ray. Trigger in Children ofAataentsic also has a number of important observations on just how susceptible the Indians were to economic stimuli of a western nature. The issues are complex, and the jury is still out. These points are discussed in more detail below. The literature on New France per se is voluminous. On the staple theory in general see Innis's conclusions to The Fur Trade and the well-known papers of Mackintosh and Watkins. Danny Drache's work, demonstrating the two separate directions in which staple theorizing can lead, is also of interest. The view in this text leans to the Innisian, or pessimistic, rather than the Mackintosh-optimistic view, at least with respect to the time, the place, and the staple specifically under review. For a discussion the the relationship between imperialism and the fur trade in the eighteenth century, see Eccles (1983); for recent theoretical articles on Canadian political economy, Innis, and on the fur trade see Curtis and Edgington; Drache (1982); H.M. Grant; Lemelin; McNally; and Watkins (1982). A recent synthesis analyzing trade and commerce in British Nofth America in the seventeenth and eighteenth centuries is The Economy of British North America, 1607-1789, by McCusker and Menard. The seigneural regime in Quebec is examined by Baribeau, Fournier, Parizeau, and Trudel (1980) and Verreault-Roy. The debate on the transition is explored by PilonLe and Sanfilippo, while Jaumain and Sanfilippo discuss the relevant historiography. In general, the last several years have seen a dramatic amount of new research in the history of New France and Quebec.

7. Competition for Empire, 1663-1713 On the development of French mercantilism see also the references noted above for Chapter 4, especially Palm's study of Richelieu and the various works by Cole. Heckscher is also useful, if unanalytical, on the day-to-day practice of industrial regulation.

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On the importance of aboriginal trade to mercantilist expansion in North America see especially Jennings, from whom the population estimate is taken. It may seem an exaggeration, but the evidence of recent anthropological research in Central and South America has tended to confirm the "romantic" view of very large pre-contact populations, and ipso facto discredit the view of the twentieth century number-shavers. A key difference between French and English mercantilism seems to be that French involved a much better integration of theory and practice. This in turn seems to reflect the stronger role of the central public authority. The chief architects of French mercantilist theory were actively involved in actual policy planning and the resolution of fiscal, monetary and economic problems. See especially Mims's study of Colbert's West Indies policy. For more detail on the economic background to French overseas expansion in the seventeenth century see Hauser, Moore, Labrousse, et al., Goubert, Dent (on finance) and Volume 5 of the New Cambridge Modem History. French-English imperial conflicts are treated in Davis and Parry among others. Integrated treatments of the economic development of the colony include those of Hamelin and Renaud, plus an old study by Fauteux of industrialization. In addition the unpublished thesis of Lunn is invaluable. On immigration and land settlement see Hamelin, Trudel, Lunn, Henecker, Cole Harris, and Munro, in addition to Dechene. Trudel's treatment of the seigneural system, in particular his contention that it is non-feudal in nature, seems persuasive. On slavery see Pentland's thesis, subsequently published. Pentland takes the view that labour relations in New France were feudal in nature, using a very sweeping definition of the term. What we know of currency and finance in this era of Canadian history, as in others, we owe mainly to Adam Shortt, though his researches were highly coloured by his nineteenth century "sound money" perspective. The work of Breckenbridge and Heaton adds little to Shortt. The best summary of the New France currency experience is by Lester, though the essay promises to be more unorthodox that it ultimately is. There is also information in Lunn and good work on public finance by Fregault. And further research into the question of New France's monetary and financial system cannot be divorced from a thorough grounding in the institutional arrangements of French imperial finance, as Bosher has demonstrated. New France's currency experience shows many elements common to those of the British mainland colonies as well, as a reading of Brock, Ernst and especially Nettels will show. On the financial aspects of the War of the Spanish Succession see Dickson. Cowles's little book on the South Sea Bubble is entertaining and revealing about the politics of the day and the characters involved, while Carswell provides a basic analytical treatment.

8. France in America, 1713-1763 On Louisbourg a standard reference is McLellan's excellent study. But useful additional information is available in Wood's more popular tome on the

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fort, Graham's study of North Atlantic rivalries, and in Fregault's excellent biography of Francois Bigot. The story of the opening of Louisiana, tied up as it is with John Law's fantastic and iconoclastic schemes, is one of the most intriguing in the history of France overseas during the ancien regime. There is a section in J.K. Galbraith's book on money which treats Law's schemes in a rather superficial way. Cowles provides an often hilarious examination of the folly in France, which can be supplemented more technically by the appropriate section of Labrousse. For Louisiana itself see Lauvriere, Giraud, and Clark. For Acadia the best starting point is A.H. Clark. And it can be supplemented by material from Shortt's documents on Nova Scotian finance, by Fregault's book on the war of the conquest, by Waller, and by Rawlyk. On the fur trade in the last few decades of New France see Innis and Phillips, Rich on the Hudson's Bay Company, Ray on aboriginal trade, and Champagne on la Verendrye. Delage contrasts the development of New York and New France. On industrial development see, apart from Fauteux, Mathieu on shipbuilding, Pentland, and the Innis-Lower and Shortt documents, which contain much of value. For the evolution of colonial finances see Lunn, Heaton, Lester and Breckenbridge. Recent writings on Louisbourg include Moore's detailed examination of daily life in the town. Griffiths looks at Acadian life in the 35 years following the Treaty of Utrecht. For the role of the Port of Granville in the eighteenth century see Briere (1985), who also describes politics and the fishing industry in Newfoundland in the eighteenth century. Thorpe's article discusses the development of French public works at Newfoundland and 1'Ilc Royale, 1695-1758.

9. Competition for Empire, 1713-1763 An excellent starting point is Walter Dorn's book, one chapter of which treats specifically the commercial aspects of imperial rivalries. A superlative compendium of factual material on some of the topics covered here is Parry's Trade and Dominion. Williamson and Harlow are also very useful. On the struggle in the West Indies see especially Williams, From Columbus to Castro. Rich is excellent on the fur trade wars in the continental interior, while Innis and Phillips are also quite valuable. Ray's book views the fur trade from the point of view of the aboriginal producers, and is important as the first stage in an attempted rebuttal of the Polanyi-Rotstein position. On the contest in the North Atlantic see Graham, Lounsbury and Innis on the fisheries. On India see Dutt's first volume, Edwardes, Jha, Madison, and Sutherland's work on the East India Company, as well as Hoskin on the early question of trade routes. McCaulay's essays contain intriguing descriptions of East India company nawabs.

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CANADA IN THE EUROPEAN AGE 10. The Triumph and Collapse of British Mercantilism

The Canada-Guadeloupe controversy is discussed in Fregault's War of the Conquest, Williams's Capitalism and Slavery, Harlow, Innis's The Cod Fisheries (very briefly), and Kingsford Vol. 4. And for the imperial geopolitics of the era in general, apart from Parry and Williamson, Harlow is highly recommended. On Pontiac's rebellion see Parkman's classic, but also Graymount on the Iroquois and Jacobs's study of diplomacy in the American continental interior. Lawson sites the fur trade in the context of British imperial planning. The impact of the Conquest on Canadian society has generated a great deal of controversy, and will likely continue to do so. The traditional interpretation was that colonial society was essentially agricultural and was largely undisturbed by the Conquest; the revisionist hypothesis is that it was essentially commercial, and its entrepreneurial class was destroyed by the Conquest. See Nish, Hamelin, Fregault, and especially Brunet for various views of the revisionist side. The "decapitation" controversy was continued more recently by Bernier and summed up by Standen. Greer's Peasant, Lord and Merchant: Rural Society in Three Quebec Parishes, 1740-1840 argues that the Conquest in fact did not alter Quebec society significantly. For the new anglophone commercial class see especially the early section of Creighton's Commercial Empire, which lays down an important hypothesis about its nature, ambitions and effects. See also Neatby and Burt for modern and vintage views respectively of the society and its politics. The literature on the economics of the American Revolution is voluminous. Christie presents a capsule summary, and Van Alstyne is useful in putting the events into a broader context. On money, capital accumulation, and commercial organization, see Nettels, Bruchey, Schlesinger and Hacker. The debt and currency questions are taken up in Ernst, Ferguson and Brock.

//. The Industrial Revolution and the Colonial System Two very readable classics in the literature on the Industrial Revolution are those of Ashton and Mantoux which, along with the relevant sections of Cunningham, were long regarded as definitive. Since the 1950's, however, a growing concern with economic growth and development, and their causes, had led to many economists taking a fresh look at the Industrial Revolution with the inevitable result that controversies and disagreements abound, sometimes resulting not from new factual material but the advent of new ideological-CBm-methodological fads. For more recent views see Deane, Landes, the Crouzet and Hartwell collections, and Hobsbawm's volumes. On the question of the social effects and impact on living standards see Polanyi's pathbreaking The Great Transformation. A great deal of attention has been given to the question of whether living standards rose or fell. Hobsbawm takes the pessimistic side.

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NOTES

On the commercial expansion that preceded the Industrial Revolution, see Harlow, Knowles, and Schuyler among others. Williams attempts in Capitalism and Slavery to link the accumulation of wealth under mercantilism in general and in the slave trade in particular directly to industrial capital accumulation. In the text however only an indirect link is posited, via markets rather than a flow of investment funds. Schumpeter's notion in the Theory of Economic Development, that major innovations in the pattern of investment require the coming to the fore of new social groups, seems a compelling one. On the role of new pools of capital in financing industrial development see Pressnel, and the Hartwell and Crouzet collections.

12. Competition for Empire, 1793-1832 The impact on overseas commercial diplomacy and economic relations of the Industrial Revolution was enormous. See Heckscher and Crouzet on the Continental System and its effects, Hosman and J.B. Williams on AngloAmerican commercial relations, Eric Williams on the abolition of the slave trade and the fate of the old sugar frontier, and Dutt, Jha and Edwardes on India.

13. The Atlantic Seaboard: From Mercantilism to Industrial Capitalism The starting point for the study of Newfoundland's economic history in the later as well as the earlier period remains Innis; for those with the patience to wade through his turgid prose, the rewards are always considerable. Lounsbury too is excellent on the history of the fisheries. The nature of Newfoundland society and the division of labour is explored in Head in considerable detail. It is a very useful update and supplement to the old classics. Graham's Sea Power contains an interesting analysis of changes in the economic and social structure induced by the Napoleonic wars, the longer-term implications of which are explored in McLintock's excellent if misnamed book, which treats far more than simply constitutional history. The early commercial history of Nova Scotia can be garnered from Waller's study of Vetch, from Rawlyk's study of early Nova ScotiaMassachusetts relations, and from the Shortt documents. From the middle of the seventeenth century the authority is Brebner. On international commerce and finance in this period see also Innis, Campbell, and Graham, while Norman Macdonald and Longley are good sources on land and immigration, Butler examines Nova Scotia-U.S. commercial relations, and Copp studies trade during the crucial War of 1812 period. The history of Halifax is treated in Raddall, and further details are in Martell and Aitkins. No Canadian city, with the exception of the rival Louisbourg, assumed the importance of Halifax in international commercial diplomacy and military geopolitics. For banking and finance see Martell's documentary study. On early in-

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dustry see Lorn as and the material on coal and iron in Drummond, Donald, Gilpin, C.O. Macdonald, and Brown. What Innis was to fish and fur, and Adam Shortt to banking and finance, A.R.M. Lower tried to be to the forest industries in his studies of the square timber trade in the nineteenth century and the general assault on the Canadian forest. Despite a wealth of anecdotal and factual material Lower's Great Britain's Woodyard is rather weak analytically. Much of this gap is made up in McClelland's thorough study of the New Brunswick economy in the nineteenth century. These two works can be combined with MacNutt's general history of the province, which is heavily concerned with timber politics. On Quebec's timber trade see Faucher, Ouellet and Creighton. Wallace, in addition to Faucher, provides insights into the early development of the Quebec shipbuilding industry, while Wallace, McClelland, and Rice do so for New Brunswick. Land policy (linked directly to timber politics) is also treated in Norman Macdonald. More recently, the early development of Saint John is described by Acheson (1985). Wynn examines the role of timber in the growth of New Brunswick in the first half of the nineteenth century, and Robertson takes a comparative look at the lumber industry in New Brunswick and Nova Scotia up to Confederation. The early career of Joseph Howe and his part in establishing responsible government in Nova Scotia is discussed by Beck (1982). Miquelon portrays a French merchant's activities in Quebec, the Caribbean and abroad.

14. The Contest for the Continental Interior, 1763-1821 The literature available on this particularly interesting period and phenomenon in Canadian history is vast, but much of it is marred by the fact that the subject matter lends itself too easily to Canadian historians indulging in their passion for eulogizing the lives and times of "great men". As always, Innis and Phillips are essential starting points. But they can be supplemented by a number of studies of various topics, and by one book that treats much of the subject matter, namely Rich's excellent work on the fur trade (his works on the Hudson's Bay Company are also of value here). Furthermore Lawson's study in interesting insofar as it attempts to situate the fur trade firmly in the context of mercantilism. On the social and economic impact of the rise of anglophone fur merchants in Montreal, see Brunei, Creighton (Commercial Empire), Burt, Neatby, and the first volume of Denison's history of the Bank of Montreal. The literature on the impact of the Conquest on Quebec is also of obvious relevance here. The structure of interior trade is examined by Ray and Rotstein, and the qualifications mentioned in the notes to Chapter 4 apply here as well — the whole question of the determination and flexibility of the terms of trade between aboriginal producer and white trader remains a vigorously debated one and raises issues central to the entire intellectual history of economic anthropology. See also Selkirk's sketch for the view of an important protagonist.

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In addition to Rich's history of the Hudson's Bay Company, there are much weaker ones by Mackay and Beckles Willson. Wallace's documents on the North West Company are useful. Bemis has analyzed Jay's Treaty. Two biographies, by Martin and Gray, of Lord Selkirk exist — both eulogistic. For an unorthodox view of John Jacob Astor, which could provide a useful model for future Canadian historians dealing with individuals like Selkirk and Mackenzie, see Myers, History of the Great American Fortunes. Much to the ire of the Canadian historical establishment, Peter Newman has recently encroached on their territory in a lively and provocative volume on the Hudson's Bay Company.

15. Emigration and Colonization, 1763-1841 The Iroquois migration, and the British deception that forced it, is examined in Graymount. See also H.C. Robinson's popularly written biography of Joseph Brant, the most recent of several such biographies, but one which unfortunately tends to judge aboriginal conduct through white standards. On systematic colonization see Norman MacDonald, Goodwin, and the paper by Teeple. Merivale and John Stuart Mill's Principles are interesting contemporary accounts. An examination of the system in New Zealand is provided by Sinclair. Good general books on migration are Cowan and Guillet. They can be usefully supplemented by a number of studies. See Gilpin on English agriculture during the Napoleonic wars and Polanyi on the Speenhamland System. The Ross thesis examines economic conditions in Scotland, as do the various biographies of Selkirk. O'Brien is excellent on Ireland, and Moorehous is useful. Material on the immigration trade comes from Pentland, MacDonald, and Guillet. The perhaps startling observation on the physical and mental condition of the Canadian population in the 1840's comes from Bonnycastle. Though his use of data may be contentious, there is logic to the gist of his conclusion. Norman MacDonald has also provided a superlative account of the "settlement" process. In addition much information is available in Gates and Paterson on the great land carve-up and the social and economic conditions that went with it. On Lower Canadian agriculture a major controversy is extant. It began with some observations by Jones, and a detailed analysis by Ouellet which focused on supply conditions in determining agricultural prosperity or the converse. The major challenge came from Paquet and Wallot who focus on international exchange relations, and draw diametrically opposed political conclusions. All protagonists seem intent on assuming "normal" market responses among a population of peasant proprietors. On the entire controversy see Le Goffs interesting review and a criticism of the logic of the Paquet-Wallot arguments. See also Bourque, Manning, and Dubuc for some of the political consequences of the agrarian evolution of Lower Canada. For some of the recent literature on the crisis debate see Courville (1980), Ouellet (1982), and Redish (1983). Dechene's position, in opposition to

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Ouellet, is that no major agricultural crisis existed. Greer (1985) argues that Quebec rural society was basically feudal and rejects Wallot and Paquet's contention that the peasantry was commercially oriented. The view in the text is that the notion of a crisis, whether demand- or supply-induced, seems to have merit after 1815, and especially by the 1830's.

16. Finance and Politics in Canada, 1793-1841 For the British background see Feaveryear and Bagehot on the development of financing and banking institutions, Binney on the late eighteenth century public and imperial finance, and Chalmers on colonial currency and the efforts to regulate it. The starting point for the study of the evolution of the Canadian financial system, as always, is the massive work of Adam Shortt, his articles on the banking system and on the founders of Canadian banking, his surveys of the economic history of the province, and his articles in various related topics. In addition there are books by Breckenbridge, and Merrill Denison's recent two-volume study of the Bank of Montreal, of which the first volume is a mine of pertinent information. On finance during the military administration see Neatby, Burt, Mavor, the Innis documents, and the Lower article, in addition to the pertinent material by Shortt. On Upper Canadian agriculture Jones is classic, but see also MacCallum's recent study which, while mainly concerned with a later period, nonetheless contains interesting observations on the early part of the nineteenth century as well. Creighton is of course the standard source on the strategy of Montreal commerce vis-a-vis the Upper Canadian grain frontier, but see also the first volume of Denison's Bank of Montreal history. Cartwright's letter books are also intriguing testimony about pioneer commerce; and Shortt's study of the economic impact of the War of 1812, while it seems somewhat exaggerated in some of its claims, is nonetheless interesting. For developments from the constitutional act to the end of the War of 1812 in Lower Canada see Manning's two books, and the Ouellet, Dubuc, Bourque, Paquet and Wallot material cited above. For Upper Canada see Fowke, Jones, Cartwright, and Spelt on agriculture; and Denison on the shift of Montreal commerce toward alternatives to the old fur economy. In addition to Denison and Shortt, the role of British military spending in the Canadian economy is analysed by Pentland's paper on capital (subject to challenge by Hugh Aitken). See also Howard on finance during the War of 1812. Banking in Lower Canada after 1815 is handled by Shortt, Denison and Neufeld, while that in Upper Canada by Shortt, Vaughn and a battery of company histories. See too the biography of William Lyon Mackenzie by Kilbourn, Acheson's studies of early York commerce, and Merrill's biography of William Hamilton Merritt, which contains useful information on early agricultural and induslrial conditions. For the "class struggles" in the U.S. during the Jacksonian period and

54

NOTES

?

their financial implications, my debt to Leibowitz is obvious. See also Hammond's prodigious study. For the implications for Canada, Aitken's study of the Welland Canal, and Merritt are crucial. Useful as well is Ireland's study of public finance in the 1830's. See Pentland on early industry, and Scott and Logan on the emergence of unions. Class politics in this era in Canada are exceedingly complex, and my attempt to apply the Leibowitz hypothesis is only one possible interpretation. See also Creighton's study of the rebellions and Ryerson's basic and rather mechanistic Marxist interpretation in addition to the Ouellet versus PaquetWallot debate, and all the relevant literature cited for Chapter 15. Whatever else can be said about the era, it is stretching credibility beyond the breaking point to see in the events of 1837-38 a "rising proletariat". Consult McCalla (1978) for the role of the wheat staple in Upper Canadian growth and (1979) for his examination of a wholesaler's family business in the mid-nineteenth century. Recent interpretations of the Rebellions include Read and Stagg for Upper Canada, and Ouellet (1980), Senior, and Bernard for Lower Canada.

17. The Triumph of Steel and Gold The notion of a "free trade imperialism" was first raised in the literature by Gallagher and Robinson. Since their seminal paper much discussion has occurred. See Semmel's study of the origins and development of the concept as practical policy advice as well as Fieldhouse's survey. On the British imperial economy in general during the period see Knowles, Economic Development, and Hobsbawm's Industry and Empire and The Age of Capital. Habbakuk's paper is a superlative resume of the international commercial trends of the time. On the changes in British Parliamentary politics that preceded the great wave of trade liberalization, see Burl's Empire and Commonwealth for the late eighteenth century and Brady's biography of Huskisson for the early nineteenth. Commercial policy changes are also examined in detail in Harlow, J.B. Williams, Schuyler, and Holland. On the impact of the railway Knowles's Industrial and Commercial Revolutions is excellent. Jackman surveys British transportation history and Lambert traces the career of Henry Hudson. On finance and overseas investment see especially Jenks; Morrell is useful on the gold rushes; Hidy has written on the Barings and Fulford on the Glyns. On the India question see Hoskin's study of trade routes, the observations on Company rule and the Mutiny in Marx-Engels, On Colonialism, and Dutt's study of India in the Victorian Age. For British policy on Canada as determined by its commercial negotiations with the U.S. see Callahan and Bourne. American regional politics and their economic roots are treated superlatively in Barrington Moore, whose discussion provided the basis for much of the analysis in this chapter.

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The books by William A. Williams provide much illuminating detail. Frederick Merk is a standard authority on the manifest destiny and its commercial-diplomatic implications. The paper by Potter on Atlantic trade provides a useful framework of data around which the political-commercial story can be woven.

18. Commercial Reorientation and Structural Change in the Economy of United Canada For a review of the entire period from the union to Confederation see Careless's study. On the economic background to the union see the pertinent articles of Short! in his history of Canadian banking series, as well as Denison, Longley's biography of Hincks, Creighton's Commercial Empire, and Tucker's Canadian Commercial Revolution. On class politics and British strategy there is no substitute for the Durham Report itself. But see also Creighton, Ouellet, J.B. Robinson on the Compact's reaction to the Union bill, Shortt's biography of Sydenham, and Leacock's glib but sometimes interesting study of the Baldwin-LafontaineHincks administrations. Material on canal building can be found in Tucker and in Pentland's excellent article on the Lachine Canal strike. On the Irish famine and the famine migration see Woodham-Smith's superlative study as well as the O'Brien classic. The Tucker and Moorehous articles provide much additional, valuable information, while the rise of the Orange Order is examined in Pentland, whose work examines the emergence of local production and market integration. For the Corn Laws and their repeal see Tucker, Burns, and Creighton, though there is information concerning this traumatic (from the point of view of Montreal commerce) event in most books treating different facets of this period. On Annexationism see Weir's partially biographical reminiscences, and also those of Hincks. Skelton's biography of Gait is useful, while Allin and Jones provide an account of the rise and objectives of the movement. On Reciprocity and its effects, apart from Allin and Jones, see especially Masters's basic study. Tansill is a useful supplement. Jones treats agriculture during the Reciprocity era; Lower et al. examine developments in lumber, as does Greening; while Drummond and Brown provide information on the General Mining Association. More recent work on the early background to reciprocity is by Ingham, and Skidmore provides a survey of the growth of Canadian canals up to 1848. For the British debate on Canada during this period see Martin's 1982 article. In a case study of Peel County, Gagan argues that the preservation of a favourable family/land ratio promoted the growth of centres of retail trade and service industries. His argument has been criticized for ignoring the increasing opportunities for industry in this period. Statistics provided by

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Pentland, for example, seem to demonstrate the expansion of industrial activities, both proportionately and absolutely. This expansion of industry, if it occurred, would be in part stimulated in the 1840's and 1850's through the construction of canals and railways which might create a more fully integrated local market economy. This is another subject of major contention in Canadian historiography.

19. The Dawn of the Railway Age in British North America The story of Canadian railway building has generated a considerable literature, though the analytical perspective of that literature has often been quite weak — ranging from the purely descriptive to the openly eulogistic, and with little appreciation of the broader politico-economic forces conditioning the behaviour of the leading Canadian participants. For general treatments see Glazebrooke, G.R. Stevens, Biggar, and Gustavus Myers. Transportation before the railway in Canada is discussed in Trout as well as the first volume of Glazebrooke's study. Haliburton's thesis examines road building in the Maritimes. For the St. Lawrence and Atlantic Railway, see Skelton's biography of Gait, Longley's of Hincks, as well as Stevens and Glazebrooke. The role of McNab in the Guarantee Act deliberations is examined in Skelton's revealing The Railway Builders. For the Municipal Loan Fund and its operation see Hind and Keefer, MacArthur's study of public finance in this period, and Faucher's articles. On the Great Western Railway again Stevens, Glazebrooke, and Skelton (The Railway Builders) are relevant. So too is Careless's biography of George Brown, Currie's study of the Grand Trunk Railway, and Masters's work on the rise of Toronto. The Northern Railway is discussed in these same sources, but is subjected to further examination from a rather different perspective by Gustavus Myers. The North Shore lines are treated by Young. For railway development in the Maritimes again Stevens and Glazebrooke are important. But much information is also to be had from Haliburton, and Maxwell's study of Nova Scotian public finance. For the Grand Trunk saga a wealth of important literature is available. See especially Currie's study and T.S. Brown's contemporary indictment. Lovett, Skelton and Biggar are useful additional sources. Longley's biography of Hincks treats the public finance aspect of the railway question in detail. Thompson's reminiscences raise interesting questions about the possibility of a major boodling operation by Hincks and Elgin. See Hincks's own reminiscences for his denial. The quotation from Watkin's London Illustrated News article is taken from his volume of recollections.

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20. The Railroad to Confederation: Canadian Expansion The political economy of Confederation from the Canadian point of view has been discussed voluminously in the literature, yet something often missing from these discussions is a clear specification of the joint British and Canadian strategic and economic imperatives involved. Instead we have been treated to endless prattle about the selfless deliberations of great men intent on creating a "new nation", as if nations are the result of parliamentary debate. On the question of Britain's interest in preserving trade routes to the East see Hoskin and of course Watkin's recollections. The wheat economy in Ontario and its consequences for urbanization and industrialization are analyzed in depth by MacCallum. See also Spelt on urban development, Jones, and Master's analysis of the rise of Toronto. Many references from Chapter 18 are also relevant here. On the land question see Norman Macdonald's second volume, Chester Martin on Dominion lands, and Skelton on "Canada under Republic Government". See also Morgan's collection of Isaac Buchanan's speeches and articles for his views on banking and industrial development. On Quebec agriculture and industry MacCallum is again superb. See too Hamelin-Roby, and Ouellet. For the forest industries Lower and Greening again are basic. See too Faucher's article on Quebec shipbuilding, and Wallace. And see Jones on the links between the forest and agricultural frontiers. For labour organization see Pentland, Langdon, Coats, Lipton and Logan. Banking and finance is, as always, handled in great detail by Shortt, including his article on railway construction and its economic impact. In addition, a number of bank histories — those of Denison, Ross, Schull and Skelton — contain important information and useful observations. And Faucher's articles trace the tangled story of the Municipal Loan Fund and its consequences. On the politics of the period Creighton has written extensively. Note especially his study of British North America at Confederation, and his biography of John A. Macdonald. Careless's biography of George Brown provides a useful contrast. Skelton's biography of Gait is important to the story, since Gait was the architect of the financial arrangements of Confederation. Underbill's sketches of Canadian political factions and parties in the preConfederation era are also useful. And the Confederation Debates themselves are revealing of the motivation of the architects of the scheme. Rudin (1979) presents two case studies of land ownership and urban growth in Quebec, 1840-1914. Since the late 1970's much has been written on the working class in Canada. Much of it examines the role of class, class consciousness, and the cultural environment of industrial workers. The impact of early industrialization is analyzed in articles by Bleasdale, Russell, Tremblay, and Wylie. Broader studies which encompass the postConfederation period include Craven (1984), Kealey (1980), McKay, and

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Palmer (1979 and 1986). Fingard's book (1982) examines the lives of "Sailor Jacks" and female merchant seafarers at Quebec, Halifax and Saint John. Alexander Gait's economic ideas are discussed by Den Otter and Timothy. Francis Hincks's financial policy is explored in Piva's 1985 article. Nova Scotia and Confederation is discussed by Pryke and in Beck's second volume on Joseph Howe (1983).

21. The Railroad to Confederation: The Maritime Response S.A. Saunders has provided the only general survey of the Atlantic provinces and it deals mainly with the post-Confederation era. It is also not very good. Many sources cited for Chapter 13 are relevant here too. For Nova Scotia the financial history is traced by Maxwell and Haliburton, and industrial development by Lomas. For the coal mines see Brown, Drummond and C.O. Macdonald; gold is examined by Evans, Heatherington, and very cursorily by Campbell. See Paint on financing the shipbuilding industry and the books by Wallace for the industry's development. For New Brunswick the basic history is MacNutt's. McLelland's study of the economy in the nineteenth century is very good. See Wallace and Rice on shipbuilding. For Prince Edward Island see MacNutt's survey of the Maritimes to 1857, Bolger's two studies, A.H. Clark's analysis of agricultural and social development, Warburton, and Weale and Bagehot. For the financial prelude to Confederation Maxwell's study and Macphail's survey of Island history are good sources. For Newfoundland I have drawn on MacNutt's survey history of the region; Gunn's political history of the province, which carries on from the story McLintock tells; Harris in the Cambridge History of the British Empire Vol. 2; Fay; Prowse; Rothney; and, of course, Innis. Another major source is an unpublished McGill M.A. thesis by Larry Turewitz, particularly his exploration of the duality of the exchange systems and their political consequences.

22. Reconquest of the Northwest The history of the Canadian northwest in the first two thirds of the nineteenth century is particularly rich, though the historiography is marred by a central Canadian perspective and by certain myths pertaining to the alleged tranquility of the area and benign treatment of the aboriginal population. Apart from the fur trade classics — Innis, Phillips, the E.E. Rich history of the Hudson's Bay Company and his sketch of the fur trade to 1857 — a number of other sources were of major importance. J.S. Galbraith's study of the Hudson's Bay Company, by stressing its role as an imperial instrument, shed new light on the company and its role. A.S. Morton's old general history

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of the area is very useful. There are two good biographies of George Simpson available. Martin's is the older, but still worthwhile, while Galbraith's recent one is excellent. In particular, Simpson's dealings with Canadian politicians, including his judgment of their moral fibre, and his business activities, are well specified in the Galbraith biography. On American pressure and competition see Irwin, Callahan, and Pritchett's useful study of the Red River Valley. Morton, Rich, and Galbraith are also good on this topic. And Sharp is exemplary. On the aboriginal economy Ray's study is again a vital one. As to the Ray-Rotstein debate on aboriginal economic responses, one gets the impression that which position is correct depends in some degree on what time period is under discussion. Haines and Roe on the buffalo and Roe on the horse provide essential background to the plains Indian's social economy. See Howard on the whiskey trade. On Canadian pressures and their consequences Rich and Stanley are good sources of information. Jenks provides the background to the 1860's company promotion mania in England that led to the creation of the International Financial Society. For the Metis and the Riel Rebellion, Howard's study is sympathetic and interesting; Stanley's is more thorough. Between them they provide a good overview. Their information is usefully supplemented by the evidence presented to the 1857 British Parliamentary Commission of Inquiry into the Hudson's Bay Company. On native labour in the Hudson's Bay Company, see Judd's recent work. The Metis and their society have been studied extensively. See for example Bourgeault, W. Clark, Dickason (1982), Flanagan, and Giraud. Brown's study, which in part represents a growing interest in women's and family history, compares the influence of the two fur trading companies on the social lives of their employees. For the Canadian expansionist movement in the west consult Owram (1980). The government's position vis-a-vis the natives is examined in Tobias's article "Canada's Subjugation of the Plains Cree, 1879-1885." Den Otter's book on the Gaits is useful for revealing the important role government played in aiding business expansion westward in the late nineteenth century. A general survey of the Prairies is Gerard Friesen's The Canadian Prairies: A History.

23. The Rise of the Pacific Economy There seems to be no study of the economic development of the Pacific economy as a whole comparable to the various works on the Atlantic economy. Yet the opening of the Pacific clearly stamped the very character of the age in which it transpired. Most general histories of British expansion overseas and such works as Parry's Trade and Dominion have useful material, but they do not add up to a true outline of the process of creating an integrated Pacific commercial system. The opening of China by Britain and the Opium Wars are discussed in

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Edwardes, Greenberg, and Holt. A valuable source of additional information is the Marx-Engels collection On Colonialism. For the Pacific in general see Ward's rather superficial survey of British policy and Morrell's sparse work on the gold rushes. Fitzpatrick on Australia and Sinclair on New Zealand are good treatments of their respective topics. Wallace's books contains some information on the Pacific whale fishery. On the Pacific slave trade Dunabin is good on "blackbirding", while Campbell is excellent on the coolie kidnapping trade. American interests in the Pacific, their growth and development, are analysed by Van Alstyne, while the economic imperatives are examined by William A. Williams in his study of the roots of American imperialism. See Trimble on gold mining and Gustavus Myers's History of the Great American Fortunes for American Pacific railways.

24. Fur Trade and Pacific Empire Much of this chapter deals with the social economy of the aboriginal peoples of the Pacific coast and their early trade relations with whites. Hence apologies are due to anthropologists conversant with the material for two reasons: one is the evident oversimplification of complex social phenomena and skirting of controversial issues that I have had to engage in to keep the material of manageable size; the second is the translation of anthropological concepts into language more appropriate to economic history, a dangerous though necessary act. For general accounts of the history of the Pacific coast see Morton's history of the Canadian west, Begg, and Ormsby. For the early fur trade Phillips is rich in material as is Howay's article, while institutions and European diplomatic rivalries are examined in Rich and Galbraith. For the aboriginal population and its relations with whites, the most important source is the recent study by Fisher. Information on particular nations comes from the work of a number of anthropologists: Mcllwraith on the Bella Coola, Oberg on the Tlingit, Van den Brink on the Haida, Murdock on the Haida and his more general work on various aboriginal peoples, Drucker and Codere on the Kwakiutl, and the pioneering work of Boas. For recent articles on native peoples in British Columbia and their encounter with whites, consult Archer (1980) and Gough (1982).

25. From Company Colony to Company Province The historical overviews mentioned in the notes to Chapter 24, those of Morton, Begg and Ormsby, as well as the work of Howay et al., are relevant sources for much of the information contained in this chapter. None of them are very analytical, however. Hence a fair amount of reliance was put on Paul Phillips's excellent survey article in the Shelton collection (other items in the collection are also on interest for economic history). See too the survey of

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Lugrin in Canada and Its Provinces Vol. 21. For the conflicts between Britain and its Pacific rivals, and their impact on the Hudson's Bay Company and therefore on the economic development of the area, see Rich, Phillips, and Galbraith. See also Gough for the strategic importance of the area to Britain. There are two biographies of James Douglas — by Coats and Gosnell, and by Sage — neither of which is very good. For specific industries see Audain on coal; Lamb on lumber; Morton on farming; Richard, Morton, Ormsby, Phillips, Begg, Trimble, and Howay et al. on gold. The history of Victoria is examined by Gregson and Pethick. Banking and finance are discussed in Ross's history of the Bank of Commerce and Baster's study of the imperial banks. Fisher is a good source on the degradation of the Indians as a result of the gold rush.

26. Imperialist Rivalries, 1873-1914 Old books on controversial subjects are often the best, since they are untainted by Cold War liberalism and its phony "objectivity". The classic of the English language literature on imperialism is by Hobson, a study that is all the more interesting, first because it was written as a denunciation of a process then in full flower rather than as a post mortem, and second because it was Hobson's book that Lenin managed to misunderstand, thus setting off a wave of analytical confusion and ideological diatribe among Marxist writers that persists to this day. Parker T. Moon's monumental examination of the roots of imperialism, written in the 1920's, is a superb factual compilation. The books of Platt and Fieldhouse should be consulted for a different view of imperialism, namely that it was all based on an unfortunate misunderstanding. See also Dobb's sections on the Great Depression of the 1870's and its consequences; and Benian's comments on the impact of new transportation technology. On this last point the Knowles study, cited before, is also invaluable, as is her work on the general economic development of the British empire. The data on competitive industrial development are taken from A.J.P. Taylor's The Struggle for Mastery in Europe. On the British imperial economy and its competition with the rising German imperial economy see Knowles's study of the economic development of the British empire, Breard on the politics of resurgent imperialism, Fuchs on imperial trade policy, Tyler's excellent The Struggle for Imperial Unity, Hoffman, and Rosenberg on the German empire. There is a considerable literature on capital exports from Britain and their link to imperialism. On the economic effects of the capital exports see C.K. Hobson, Imlah, and Cairncross. For an institutional analysis of capital market conditions see Jenks on the earlier period, Edwards, and Feis. On British finance capital and the Argentine see Ferns's interesting study. De Cecco's recent study of the gold standard is particularly illuminating. Some aspects of the domestic politics of overseas investment in Britain are examined by Offer. For other aspects of British overseas expansion see Cain and Hopkins, and Norton.

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27. A Railway from Europe to China Some of the material listed under Chapter 22 is relevant as well to this later stage of railway construction, including the general histories of Glazebrooke and Stevens and the critical assessments of Biggar and of Skelton in The Railway Builders. Commercial policy in general over the period is discussed in a fair number of books including Perry's exacting study of public finance, Porritt's popular contemporary exposes, McDiarmid, Annett, and Naylor, History of Canadian Business Chapters 1,2,11 and 12. For the Treaty of Washington in particular see the second volume of Careless's biography of Brown, G. Smith., and Shippee. For general economic development in the period Mackintosh's study is excellent although, as noted above, it takes the more optimistic view of the links of staple production to general development. Over the entire period T.W. Acheson's thesis is a mine of useful information. See the general surveys of economic history by Skelton in Canada and Its Provinces Vol. 9, and by Brady in the Cambridge History of the British Empire Vol. 6. On the politics of development see Creighton's biography of Macdonald, Craig Brown's study, and two accounts by contemporaries: Cartwright and Tupper. For the Intercolonial Railway see G.R. Stevens. For early transcontinental railway plans see in particular Irwin's study. On the Grand Trunk and the end of its transcontinental ambitions see Currie and Lovett. For the Canadian Pacific there are innumerable eulogies. See however Harold Innis's history for an interesting attempt to link railway building, if largely implicitly, to the expansionary impulses emanating from the development of the staple-extracting frontier. See also the biographies of the triumvirate responsible for directing the development of the enterprise — Vaughn on Van Home, Gilbert on George Stephen, and Preston, MacNaughton, and Willson on Donald Smith. For the Pacific Scandal there are innumerable accounts. See Myers, Creighton's biography of Macdonald, and Irwin for three of them that between them amply cover the ground from three different perspectives. Despite the obsession of historians, the Pacific Scandal is just one instance of a general phenomenon, and represented normal rather than aberrant behaviour by those responsible. For Quebec railways see Marcel Hamelin's study of Quebec liberal democracy in action in the post-Confederation period, and Young's very interesting study of the North Shore lines. On the 1891 election and the role of the GTR, Currie reaches an opposite conclusion to that of the text — and to that of others who have discussed it. For the Esquimault railway see Robin and Howay et al. On the Canadian Northern see Regehr's excellent study which supplements, complements, and to some degree displaces, G.R. Stevens's commentary on the building of the line. For a caustic summary of Canadian railway building experience even before the worst had happened see Willison, while Myers comments on the results near the end of the era.

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CANADA IN THE EUROPEAN AGE 28. The Contest for the Continental Interior, 1873-1914

The economic roots of American continental and international expansion and the politics of silver are ably analyzed in Williams, The Roots of the Modem American Empire. The politics of Anglo-American relations as they affected British North America are discussed in Shippee and Callahan. There are several major studies dealing with immigration and land policy in the late nineteenth century. Norman Macdonald's sequel to his earlier study, while disappointing in comparison to the first book, is nonetheless very good on immigration policy in Europe, on the outflow of population to the U.S., and on land and colonization company activities inside Canada. Land policy is also the subject of a study by Chester Martin, while A.S. Morton contributed a history of prairie settlement. Henry Hind's little expose is a useful supplement. And two short studies by J.S. Galbraith, on the Hudson's Bay Company's land policy and the company's negotiations with the Mackenzie government, are good sources. Behind the veil of Conservative "colonization" projects, a spectacular rip-off of timber, grazing, and mineral lands took place, which Gustavus Myers dissects. See also Culliton on assisted migration, Dafoe's biography of Sifton, and Carrothers's study of emigration from Britain. On the decline and fall of the aboriginal economy and the North West Rebellion see Stanley and Howard. Dempsey has contributed a biography of Crowfoot, and MacEwan has examined Sitting Bull's years in Canada — both of these books tell much about this particularly disgraceful phase of Canadian history. See too Sharp's classic Whoop-Up Country. The role of the white settlers in the political evolution of the area is examined briefly in Wood's study of agrarian movements in Canada, and in Thomas's study of the development of responsible government in the Northwest Territories. On the economic development of the central provinces and its impact on emigration see Hansen and Brebner, Hamelin and Roby, and Norman Macdonald. The question of Asian immigration and Canadian policy to hamper it is treated very ably in the Ferns and Ostry classic study of Mackenzie King. See also Persia Campbell on the coolie trade, Young and Reid on Japanese immigration, and Carrothers on Asian living standards. Since most of the controversy flared up in British Columbia, Martin Robin's study is also good background, particularly in developing the concept of a "company province" and drawing the political implications of the lack of an extensive agrarian frontier.

29. Canada and the Cross of Gold Unfortunately, but for a few articles, Adam Shortt's published researches on Canadian banking and finance ended with the Confederation period. There

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have been many books and articles on the topic since then, but they generally — with a few noteworthy exceptions — have not been based on the depth and breadth of research that characterized Shortt's work. See however E.P. Neufeld's comprehensive The Canadian Financial System, and J.F. Johnson's 1914 study of the Canadian banking system. Much of the material in this chapter parallels that of Naylor, The History of Canadian Business Vol. 1, and full references can be found therein. However, a number of particularly important or supplementary sources merit explicit mention here. See de Cecco on the gold standard in general and Feis on British lending. The battles between the federal and Quebec governments are discussed in G.R. Stevens, Wade Vol. 2, Naylor History Vol. 1, and Myers Canadian Wealth. The quotation of Myers is from his History of the Great American Fortunes. See Shortt's analysis of the collapse of the Commercial and Upper Canada banks in his JCBA series. See Harpell's pamphlet and duCharme's little book for expose of the seamier facets of the pre-World War One Canadian financial system. William Appleman Williams's Roots is useful on "free silver" and farm politics with respect to money and credit in the United States. And the various Canadian bank histories — those of Denison, Ross, Skelton, Schull, and those published directly by their respective institutions, the Bank of Nova Scotia, the Royal Bank, and the Bank of Montreal — are of interest. For Alphonse Desjardins and the Caisse Populaire movement see the book by Roby and the articles of Croteau. Rudin's recent Banking en Francais: The French Banks of Quebec, 1935-1925 examines the ethnic question in banking institutions and their lending behaviour, and traces bankruptcies and consolidation movements.

30. Industrial Development and Continental Integration The books by Porritt, McDiarmid, Annett, and Perry on tariffs are relevant here, as is the excellent survey of the entrepreneurial history of Canada in the late nineteenth and early twentieth centuries by Acheson. See too Clark's study of the Canadian Manufacturers' Association. The notion of the two paths to industrial development is originally from Marx, elaborated upon by Dobb, and well attested to by a wide range of studies on the social origins of the Industrial Revolution in England/The theme was developed in Naylor's History of Canadian Business Chapter 2; and the agrarian foundations of such a dichotomy in Canadian development patterns were laid in MacCallum's study. On the development of the corporation in the U.S. and the roots of its rise to multinational status see Cochran and Miller, Mira Wilkins, Cleona Lewis, and the study of patent protection by Edith Penrose. For the rise of big business in the U.S., Kolko and Tarbell are excellent. Edwards has interesting material on the development of the American capital market. Myers's History of the Great American Fortunes is, as always, full of intriguing details about day-to-day business operations. See for example his treatment of J.P. Morgan.

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On the spillover of American firms into Canada see Field; Marshall, Southard and Taylor; Naylor Vol. 2; and Wilkins. On patent protection and Canadian innovation see, in addition to Naylor Chapter 10, JJ. Brown's study. On the rise of big business in Canada see Naylor Chapter 13 and the references cited therein; Harpell's overview of the late nineteenth and early twentieth century; Acheson; and Ferns and Ostry and Ball on anti-trust law. A useful comparison to Canadian experiences at the same time is given by Dunning's study of American direct investment in British industry and Penrose on international patents. On provincial development policy see Nelles's excellent work on Ontario, and Hamelin and Roby on Qubec. Certain industry studies are useful, in particular Aikman (automobiles), Dales (hydro-electric power), Denison (power), Denison (agricultural implements), Donald (iron and steel), Forsey (coal), Kilbourn (iron and steel), Main (nickel mining), Mandel (asbestos), Moore (mining in general), Phillips (agricultural implements), and Reich (pulp and paper). The mechanics of the triangular transfer between Britain, the U.S. and Canada are developed in Viner's Canada's Balance, a rather contrived piece of work that in its zeal to create an example of a theoretical principle in action completely ignores the fact that the boardroom of the Bank of Montreal and not "the market" was responsible for instituting the triangular commodity and capital flows. Craven and Traves, whose work on the state is excellent, also look at Canadian railways as "manufactures", 1850-1880, in an extension of a confusion between characteristic and function started by Larry Macdonald in 1975. Recently there has been much written on the comparative development of utilities in Canada. See the works by Armstrong and Nelles (1983 and 1986), and Dewar. For case studies of entrepreneurship and manufacturers in Ontario look at Middleton and Noble. W. Armstrong takes a comparative look at industrialization in Australia, Argentina and Canada, 1870-1930. On the Canadian economic "boom" see Ankli.

31. Transcontinental Empire On the process of creating an integrated national economy W.A. Mackintosh's Economic Background is superlative. For a more detailed treatment see Naylor's History of Canadian Business. Much of the treatment of Reciprocity is due to the Canadian Annual Review of 1911 and an excellent paper written by a former student at McGill, Anne Baxter. Farm politics can be traced in Porritt and in Wood. The development of the labour movement is treated in Ferns and Ostry, Logan, Lipton, Scott, and Jamieson's two studies. For the integration of the different factions of the capitalist class in the late nineteenth century see T.W. Acheson.

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NOTES 32. Canadian Expansion Overseas

The subject of American late nineteenth century overseas expansionism is treated in a number of sources. Williams's Roots is excellent on the general underlying economic imperative. Van Alstyne is important for Asia; Lewis and Wilkins give much detail on the political involvements resulting from American overseas investments; Pratt, Healey, and Freeman and Nearing are good on 1898, its causes and consequences. See too TishendorfF for Mexico under Diaz. The Canadian material parallels Naylor History Vol. 2, though the perspective on the material has been altered as a result of recasting it in broader terms. See Tate on Hawaii; Fay, Prowse, and especially Turewitz on Newfoundland; Winks on the Caribbean; Gault and Ogelsby on Latin America. See too Vaughn's biography of Van Home and Mackenzie's of Max Aitken. Canadian investment in Mexico is examined in a recent article by Armstrong and Nelles. 33. The Approach of War The scramble for empire that led to the First World war is best treated in Moon's classic. But there are many other important studies as well. Much of the story of the scramble for Africa is surveyed in Chamberlain and discussed in contemporary accounts such as those of John Hobson and Leonard Woolf. For the South African war and the remarkable gap between reality and what was fed to the newspaper reading public, see Knightley's fascinating but depressing The First Casualty. On India's vital importance to Britain see Saul on trade and finance, Knowles's Economic Development, and Dutt. The Egypt question was directly derivative from the struggle to control India, and is the central one for much of the intrigues of the era. See Hoskin on British trade routes, and the works of Mansfield, Nutting, Landes (Bankers and Pashas), Moorehead, Chamberlain, and Loutfi's study of Egypt under Cromer. Most of these works, particularly Mansfield, Nutting, and Moorehead are useful on the Sudan as well. For Tunis see Moon, Woolf, and Amin. Morocco is treated well in Moon and Amin; for China, see Moon, Van Alstyne, Edwardes and other references noted above. 34. The Canadian Economy in the Great War In general this chapter is an abridgment and simplification of Naylor, "The Canadian State, the Accumulation of Capital, and the Great War," Journal of Canadian Studies 16:3-4, Winter 1981, reprinted in Dominion of Debt. Full references can be found therein. Only a few of the most important sources will be mentioned here.

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On pre-war expansion see the seminal study by Mackintosh, Economic Background, the Rowell-Sirois Report, and Shortt's "Railway Construction and National Prosperity." For the impact of the war see Shortt's excellent "Early Economic Impact of the War on Canada." The course of the war and its effects on the Canadian economy and society can be followed in the pages of the Canadian Annual Review for 1914 to 1919; much of the detail about the politics of planning and industrial progress and regress in the text comes from this source. In addition the studies by Vaughn and Carnegie are essential information for war industries and their organization. On finance see Neufeld, The Financial System, Naylor Vol. 1, J.F.Johnson on the pre-war banking system, and Mclvor's sections on the transition effected by the war. On labour see Jamieson, Lipton, Logan, and the works on the Winnipeg General Strike cited in the notes to the next chapter. Apart from Mackintosh and Wood which have some material, the basic source for the prairie economy in the war is Thompson's The Harvests of War. On the distribution of income during the war and its relations to national finance see J.J. Deutsch's classic study. In general the data used in this chapter is taken or calculated from the Historical Statistics of Canada.

35. The Aftermath of War The classic study of the political economy of the "peace" is of course Keynes's Economic Consequences of the Peace. Keynes's book set offa major controversy, with Mantoux and Ohlin arguing that Germany could in fact meet the reparations bill; and it was from this debate that much modern international trade theory, especially those parts dealing with capital transfers and exchange stability, derive. In addition to Keynes and his critics see John Hobson's little study of reparations, and Einzig on the financial aspects of the war. The political and economic effects of the "peace" on Germany are discussed in Manchester's study of the Krupps and Shirer's massive treatise — though the last should be read critically, as AJ.P. Taylor's revisionist history of the period well demonstrates. On the overseas colonial carve-up, see again Moon for the relevant details. But the great power intrigues in the Middle East that led to the tragedy of Palestine and the current legacy of superpower conflict are of course largely absent from Moon's 1926 study — for this topic see Antonius, Nutting, and Mansfield. On the general trends of the developed economies in the inter-war period W.A. Lewis's Economic Survey is a highly readable work. For an interesting view of the collapse of the gold standard viewed through the eyes of an important protagonist in the debates surrounding it, see Cassell. The politics of the end of the gold standard, and indeed the entire self-regulating market that went with it, are dealt with in Polanyi's iconoclastic The Great Transformation.

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For Canada during this period see Cudmore on reconstruction; Mclvor and Neufeld on finance; MacKintosh, Fowke, and MacGibbon on prairie agriculture and its problems; and Corry on the development of federal government powers and responsibilities. See also the references in Naylor, "The Canadian State," as noted above. On the Winnipeg General Strike, its causes and consequences, there is an ample volume of literature. See in particular Jamieson, Bercuson, Lipton, Masters, and Penner. For Mackenzie King's relations with Rockefeller, apart from the always excellent Ferns and Ostry, there is the recent Horowitz study of the Rockefellers and their friends. The Winnipeg general strike continues to interest working class and labour historians. See the articles by Horrall, Kealey (1984), and Peterson. For the Amherst sympathy strike consult Reilly. The radicalism of European immigrant workers and sojourners is examined in Avery's Dangerous Foreigners. Michael Piva (1979) examines the Toronto working class, 19001921, in a study which complements Terry Copp's earlier work on Montreal. Mackenzie King and his role in developing an industrial relations system at the turn of the century is explored in articles by Baker and in Craven's 'An Impartial Umpire' (1980).

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Abbreviations Ac AHR CaiP

Acadiensis American Historical Review Canada and its Provinces, Adam Shortt and A.G.

Doughty, eds. CB CEHE

CHR CHBE CJEPS EHR JCBA JCS JEH L/IT NSHR OH PSQ RHAF RS SH

Canadian Banker Cambridge Economic History of Europe, E.E. Rich

and C.H. Wilson, eds., Vol. 4; HJ. Habakkuk and M.M. Postan, eds., Vol. 6. Canadian Historical Review Cambridge History of the British Empire Canadian Journal of Economics and Political Science Economic History Review Journal of the Canadian Bankers' Association Journal of Canadian Studies Journal of Economic History Labour lie Travail(leur) Nova Scotia Historical Review Ontario History Political Science Quarterly Revue d'Histoire de I'Amerique Franfaise Recherches Sociographiques Social History/Histoire Sociale

European Imperial Expansion: General Background Barbier, Jacques, and AJ. Keuthe. The North American Role in the Spanish Economy, 1760-1819, Manchester, 1984. Bautier, R.-H. Economic Development of Medieval Europe, London, 1971. Bloch, Marc. Feudal Society, 2 vols., transl. L.A. Manyon, Chicago, 1961. Bovill, E.W. The Golden Trade of the Moors, 2nd ed., New York, 1968. Braudel, F.P., and F. Spoens. "Prices in Europe from 1450 to 1750," CEHE Vol. 2. Cheyney, E.P. The Dawn of a New Era, 1250-1453, New York, 1936. Childe, V. Gordon. What Happened in History, Harmondsworth, 1942. Cipolla, Carlo M. Before the Industrial Revolution, New York, 1976. 562

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General Works in Economic History and Historiography Armstrong, Robert. An Economic History of Quebec, Agincourt, Ont., 1985. Baran, Paul. The Political Economy of Growth, New York, 1957. Brownless, W.E. Dynamics of Ascent: A History of the American Economy, New York, 1974. Cameron, Rondo (ed.). Banking in the Early Stages of Industrialization, Toronto, 1957. Banking and Economic Development: Some Lessons of History, Oxford, 1972. Clough, S.B., and C.W. Cole. Economic History of Europe, 3rd ed., Boston, 1952. Comeau, Robert (ed.). Economie Quebecoise, Quebec, 1969. Cornell, P., J. Hamelin, F. Ouellet, and M. Trudel. Canada: Unity in Diversity, Toronto, 1967. Cox, Oliver C. Foundations of Capitalism, New York, 1959. Cunningham, William. The Growth of English Industry and Commerce in Modem Times, 2 vols., Cambridge, 1919. Curtis, C.A. Statistical Contributions to Canadian Economic History, Toronto, 1931. Dobb, Maurice. Studies in the Development of Capitalism, London, 1953. Easterbrook, W.T., and Hugh Aitken. Canadian Economic History, Toronto, 1956. and M.H. Watkins (eds.). Approaches to Canadian Economic History, Toronto, 1979. Eccles, WJ. "A Belated View of Harold Adams Innis, The Fur Trade in Canada," CHR 60:4, December 1979. Falardeau, J.C. "L'oeuvre de Guy Fregault," RHAF 35:1, June 1981. Fieldhouse, D.K. "Imperialism: An Historiographical Revision," EHR 2nd series, 14, 1961.

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Index

Abbot, John J.C., 383 Abneki Indians, 91 Abyssinia, 489, 493, 495-496, 525 Acadia, 34, 38, 89-91, 94, 96, 112113, 120, 123, 131-132, 136-137, 177 Act of Union (1840), 274, 293, 295, 362 Afghanistan, 497 Africa, 5, 7-9, 23, 28, 40, 62-63, 79, 120, 135, 488-496, 525 agriculture, 10, 13-17, 36, 40, 55, 69,98-99, 102, 114, 149, 169, 180, 197-198, 205, 214-216, 224, 229, 371, 452-454, 461-464, 468, 513-514 Aitken, Max (Lord Beaverbrook), 447, 485 Alabama, 18 Alaska, 251, 344, 363 Alberta, 320, 390, 452, 467 alcohol, 37, 63, 79-80, 83-85, 111113, 127-130, 137, 142, 150, 314, 320-321, 353 Aleuts, 344, 347 Algeria, 489-490 Algonquin Indians, 38, 74-75, 124, 347 AH, Ismail, 490-491 Ali, Mohammed, 490 Allan, Hugh, 382-383, 389, 399, 424, 476 Allan Steamship Lines, 382-383, 409, 478 Aluminum Company of America, 446 Alvarado, Pedro de, 16 American Civil War, 136, 438

American Colonies, 126-135, 197 American Confederation, 135-136 American Fur Company, 190, 314-316, 318-319, 346, 389 American Revolution, 129, 132, 134-135, 140-142, 150, 157, 176, 198, 205 Amherst, Jeffrey, 125 Ango, Jean d', 33 Annapolis Royal, 136 Appalachian Mountains, 131-133, 197 Arab Empires, 4-6, 62 Arawak Indians, 10-12 Argentina, 375-377, 472 Arnold, Benedict, 208 Aroostook War, 250 Assiniboine Indians, 100, 189 Astor, John Jacob, 190, 314, 339, 346 Australia, 238, 328, 333-336, 340, 359, 452 Aztecs, 14-15, 17, 40 Baffin Island, 23 Bahamas, 151, 199, 481 Baie des Chaleurs Railway, 422 Baldwin, Robert, 257, 265 Balkans, 499-500 Baltic, 52, 78, 177-179, 181, 206 Bank Act (1871), 426-427, 507 Bank of British Columbia, 361 Bank of Canada, 219 Bank of Commerce, 424, 451, 487, 520 Bank of England, 217-218, 273 Bank of Montreal, 219-220, 226, 230-232, 291-293, 389-390, 424604

INDEX

426, 449, 451, 476, 479, 486 Bank of New Brunswick, 230 Bank of Nova Scotia, 429, 479, 482

Bank of the United States, 224 Bank of Upper Canada, 221-223, 230, 291-292, 424 Bank of Westmoreland, 305 Banks, Joseph, 169 banks and banking, 103, 105-107, 117, 152, 163, 173,214,217225, 228, 230-232, 238, 286,

291-293, 295-296, 305, 308-309, 323, 376, 418, 421-422, 423-432, 452, 454, 478-479, 482, 526 see also by name Barbados, 61 Baring, Alexander (Lord Ashburton), 164, 232, 314 Baring, Evelyn (Lord Cromer), 490 Baring Brothers Bank, 228, 232233, 241, 269-270, 272, 276-278, 291, 293, 295, 299, 302, 304, 322-323, 376 Basques, 25 Bay of Passamoquoddy, 159, 173174 Beatty, Edward, 380 beaver, 37, 72, 84, 101, 103-104, 316-318 Bechuanaland, 494 Belgium, 492 Bella Coola Indians, 347 Bennett, C.F., 311, 313,478 Beothuk Indians, 27-28 Bering, Vitus, 344, 351 Bermuda, 175 Bertram, Alexander, 511 Bienville, Jean-Baptiste Le Moyne de, 104, 107 Big Bear, Chief, 404-405 bison, 83, 103, 315, 317-319, 324, 400-402 Blackfoot Indians, 314, 400-401, 404 Bligh, William, 335 Boer War, 376, 473, 495

605

Bolivia, 19, 40 Bounty (ship), 335 Bowes, John G., 283 Boxer Rebellion, 498-499 Brant, Joseph, 198-199 Brassey, Thomas, 241, 273, 277, 302, 323 Brazil, 18,41,52,61-62,92, 117, 151, 164, 375, 483 British American Land Company, 211,229,271 British Columbia, 238, 326, 347364, 388, 414, 459-461, 466-467, 476-478 British North America, 157-158, 162, 166, 171-172, 177-179, 183, 208,251,322,480 British North America Act (1867), 518 British South Africa Company, 493-494 Brittany, 25 Brown, George, 270-271, 274-275, 283-284, 293-296, 322, 379, 382, 384, 457 Bruce Frederick, 333 Bryan, William Jennings, 398, 410 Bubble Act, 218, 323 bullionism, 20-22, 26, 33-34, 39, 45-47,67, 78, 117, 160 Burma, 497 Burke, Edmund, 172 Business Profit Tax, 508 Bute, Earl of, 120, 123, 140 Byzantine Empire, 4-6, 35 Cabot, John, 22, 25, 27 Caisse Populaire, 430 California, 238, 251, 258, 339-341, 355-360 Canada, 38, 79,81, 115, 119, 121126, 157, 162 annexation to U.S., 257-260, 362, 373, 384 economy, 253-255, 257-258, 295, 388, 418, 450-452, 503-505, 507-509, 519-521, 526-528 government (from 1867), 296,

606 363, 378-379, 382-384, 388, 394-395, 418-419, 421-422, 425, 461, 529-531 industrial growth, 229, 238, 285-288, 440-449, 454-457, 465, 509-513, 520, 527-528 Canada Company, 210-211, 221, 229, 271 Canadian Bankers' Association, 487, 507-508 Canadian Explosives Limited, 447 Canadian Labor Union, 457 Canadian Manufacturer, 458 Canadian National Railway Company, 521 Canadian Northern Railway (CNR), 394-395, 451, 453, 520521 Canadian Pacific Railway (CPR), 372, 380-382, 389-394, 399, 402403, 405, 413, 451, 460, 466, 476-478 Pacific Fleet, 476 Colonial Bank (West Indies), 482 Columbus, Bartholemew, 22 Columbus, Christopher, 9-13, 16 canals, 224, 226-227, 249, 254-255, 257, 296, 470, 474 Erie, 221, 224, 226-228 Lachine, 227 Panama, 421,472, 474 Rideau, 227 Suez, 134, 278, 298, 305, 378, 474, 490, 501 Welland, 227-228, 232 Canary Islands, 4, 8, 13 canoes, 71, 189, 348, 353 Cape Breton, 58, 115, 121, 177, 204, 260 Cape Horn, 115 Cape of Good Hope, 9, 344, 494 Carib Indians, 10-12, 31, 76 Caribbean Islands, 10-13, 18-19, 24, 27-29, 32-34, 37, 45, 52-55, 60-62, 76, 78-79, 91-92, 94-95, 108-109, 115, 120-123, 128-129, 134-135, 150, 155-160, 162, 172173, 479-485

CANADA IN THE EUROPEAN AGE Carranza, Venustiano, 472 Cartier, George-Etienne, 274-275, 292-294, 322, 364, 382-383, 406 Cartier, Jacques, 31-33, 35 Catholic Church, 4, 15-16, 23, 31, 83, 168, 294, 407 Central America, 470, 485 Central Pacific Railway, 341, 381 Chamberlain, Joseph, 374 Champlain, Samuel de, 34, 38-39, 65, 68, 73, 475 Chandler, E.B., 268, 304 Chapleau, Joseph-Adolphe, 420 Charles I, 54, 58 Charles II, 57, 62, 84, 90, 116 Charlottetown, P.E.I., 305 Charlottetown Conference (1864), 311 Chateau Clique, 220 China, 4, 7, 41, 79, 160-161, 191, 243, 273, 327-333, 337-338, 473, 497-499, 525 Circassians, 5, 8 City Bank of Montreal, 220, 231 Clayton-Bulwer Treaty (1850), 470, 474 Clive, Robert, 115, 118-119, 160 coal, 176-177, 239, 260-261, 299302, 356, 359, 363, 385, 387388, 459-461 Coalminers' Mutual Protection Society, 459 Coast Salish Indians, 347 Colbert, Jean-Baptiste, 76-77 Commercial Bank (Newfoundland), 478-479 Commercial Bank of the Midland District, 223, 292, 424 Company-Family Compact, 362 Company of Cathay, 23 Company of New France, 67-68, 75 Company of Senegal, 78, 105 Company of the West Indies, 81 Confederate Council of Trade, 480 Confederation, 293-296, 301-302, 305, 308-309, 311-313, 323, 326, 357, 362-364, 380, 475, 479

INDEX Congo, 492-493 Congress of Chambers of Commerce (G.B.), 374 Conservative Party (from 1867), 378-380, 383, 390-392, 442-443, 451, 465-468 Constantinople, 4, 6, 8, 35 Continental System, 155, 159, 172, 179, 206 Cook, James, 344, 351 Cooke, Jay, 342, 381-384, 389, 438 copper, 36, 311, 321, 351 Corn Laws, 165, 200, 205, 215, 218, 249, 255 Cortereal, Caspar de, 25, 27 Cortez, Hernando, 13, 15-16 cotton, 11, 35,40,53,63, 79, 121, 135, 150-151, 161, 248-249, 374, 444, 477 counurs de bois, 82-84 craftsmen, 44, 82, 85, 148, 166, 181, 209, 224, 229-230, 238, 285-286, 440 Credit Foncier Franco-Canadien, 420, 422 Cree Indians, 84, 100, 113, 189, 192, 401, 404 Crimean War, 244, 261, 272, 281, 288-289 Cromwell, Oliver, 53, 58, 76 Crowfoot, Chief, 401, 404 Crusades, 4-7, 11, 30, 35 Cuba, 12-13, 115, 120, 138, 151, 305, 473-474, 480-485 Cuba Company, 484 Cuban Electric Company, 483 Cunard, Samuel, 298, 300, 307, 363 Custer, George, 401 Dakota Indians, 401, 411 Denmark, 168 des Groseilliers, Medard Chouart, 84-85 Desjardins, Alphonse, 430 Detroit and Milwaukee Railway, 292 diamonds, 372, 494

607

Diaz, Porfirio, 471, 485-487 Diaz del Castillo, Bernal, 15 Disraeli, Benjamin, 490 Dominion Grange, 463 Drake, Bernard, 27 Drake, Francis, 24, 27-29, 334 Dunsmuir, Robert, 356, 459 Dupleix, Joseph-Francois, 118 Durham, Lord, 253-254, 264 Dutch East India Company, 52, 116, 130 Dutch West Indian Company, 68 East Indian Company, 53, 62-63, 115-116, 118-120, 130, 160-161, 166, 191,243-245,282,322, 328-332, 335, 344-346 East Indies, 35, 45, 78, 143, 161163 East-West trade, 5-9, 22, 39, 45, 66, 78, 115-116, 118, 160-161 Easton, Peter, 57 Edward VI, 22 Egypt, 4-6, 8, 134, 243, 489-491, 493 Elgin, Lord, 257, 260, 272-273, 326, 333 Elizabeth I, 23, 26, 28-29, 52 Ellice, Edward, 194 Embargo Act (1807), 159, 169, 172,434 Empress of India (ship), 477 England, 4-6, 8, 20-29, 35, 37-39, 51-54, 58, 60, 120, 147-148, 154155, 200-201, 370-377, 408, 525 colonial policy, 52-53, 56-67, 8687, 108-109, 119, 121-123, 125-126, 131-132, 151-152, 164-166, 170-171, 175-176, 184, 202, 210, 252, 309 foreign policy, 489, 491 industrial growth, 44, 80, 121, 135, 148-153, 162-166 war, 22-24, 26, 29, 44, 51-54, 56-57,83,89,93, 110, 151, 156, 250 see also specific war English Board of Trade, 128, 131,

608

166, 233 English in Canada, 124-126, 136138, 199, 226

see also settlers, English Europe, Medieval, 3-9, 34-35 16th century, 20-27, 30-40 17th century, 41-47, 65-66, 7677, 80, 85-86, 93-95 18th century, 108, 110, 116, 134 19th century, 155, 163-164, 168, 367-372, 377 20th century, 498-502, 522-525 European and North American Railway, 265, 268, 284, 304 Fair Trade League, 373 Falkland Islands, 115, 121 Family Compact, 220-223, 254 famine, 44, 54-55, 98, 106, 111, 141, 156, 169-170, 175, 193, 201, 244, 255-256, 331, 401, 404, 496 farm movements, 462-463 Farmers' Bank, 465 Farmers' Bank of Rustico, 428, 430 Farquhar, Percival, 483-484 Ferdinand, Archduke of AustriaHungary, 501 Ferdinand, King of Spain, 9 Fielding, W.S., 465 Finance Act (1914), 526 fisheries, 109, 120, 382 Acadian, 87, 89, 137 Atlantic, 22, 24-25, 35, 56, 78, 89, 121 Canso, 109, 111, 131, 138-139 Cape Breton, 111 Irish Sea, 25 Louisbourg, 97-98 New England, 128-129 Newfoundland, 22, 25-28, 56-58, 63, 79,87-89, 110-111, 141142, 168, 170-171 North Sea, 25, 39, 52, 78 Nova Scotia, 260, 384-385 whale and seal, 303, 334-335, 339

CANADA IN THE EUROPEAN AGE Flanders, 21 Flavelle, Joseph, 511 Fleming, Sandford, 299, 301-302, 311-312,478 Florida, 18, 67, 120, 127, 159 ForakerAct (1900), 484 Forsyth, Richardson and Company, 191 Fort Garry, 399, 401 Fort Whoop-Up, 320 Foster, George, 481 Fox, Charles, 147 Fox Indians, 113 France and the French, 4-6, 8, 2022, 25, 28, 30-39, 60, 65-66, 75-

76, 103-107, 121-122, 154-155, 371-372, 409, 419, 421 colonial policy, 67, 78-80, 84, 86, 99, 102, 104-105, 108 industrial growth, 77-79 war, 32,34,38-39, 76, 81, 110 see also specific war Franco-American Alliance, 156, 329 Franco-Prussian War, 371-372, 381 Francois I, 31 Franklin, Benjamin, 122, 139 free trade, 164-165, 217-218, 238, 258-262, 331-332, 374, 382, 464-

465, 467-468 French in Canada, 124-125, 225226, 232, 254, 287, 406 French Revolution, 142-143, 156, 158, 205 Frobisher, Martin, 23-24 Frontenac, Comte de, 82-83, 85 fur trade, 28, 34-39, 57, 67-68, 7l76, 79-87,99-102, 107, 113-114, 124, 135, 186-196, 314-317, 319, 329, 343-347, 351-353 forts, trading posts, 37, 39, 87, 114, 189, 190, 193, 195,315, 323, 346, 352, 355-356 Gait, Alexander, 266, 270-272, 274-276,292-293,311,403 Gait, John, 185, 201

609

INDEX Gama, Vasco da, 7-8 General Mining Association, 176, 184, 260, 265, 299-300, 363 Genghis Khan, 5 George III, 140, 147, 151 George IV, 176 Georgia, 18, 120, 126 Germany, 76, 371-372, 409, 523524 Gesner, Abraham, 299, 313 Gilbert, Humphrey, 24, 26, 57 Gladstone, William, 491 Globe, The, 271, 423, 504 Glyn, George Carr, 242 Glyn, Mills and Company, 232233, 242, 269-270, 276-278, 291, 293, 322-323 gold, 5-19, 23, 32, 40, 67, 92, 117, 163, 171,217,231,238,301302, 336, 340, 360-361, 376, 401,410,494 gold rushes, British Columbia, 357-360 California, 340-341 Klondike, 410-411 gold standard, 163, 217-218, 238, 397, 410, 417-418, 425, 505-506, 522, 526 Gompers, Samuel, 516 Gordon, Charles, 333, 491 Gore Bank, 291,424 grain trade, 78-79, 157-158, 205, 215-216, 255-257, 261, 281-282, 405, 453-454, 463-464, 496, 527 Grand Trunk Railway (GTR), 261, 256-266, 269-279, 292-295, 305, 314, 322, 342, 364, 380381, 383, 391-395, 461, 464, 466-467, 521, 530 Grange, 462-463 Grant, Cuthbert, 324 Grant, Ulysses S., 384 Granville, Earl of, 475 Great Depression, 527 Great Lakes, 36, 85, 94, 113, 135136, 227, 257, 531 Great Northern Railway, 391-392, 464, 477

Great Western Railway, 265-267, 269-271, 273, 277, 293, 391-392 Greece, 30 Greenland, 4, 23, 25 Grenada, 9, 11, 92, 123 Guadeloupe, 115, 121-123 guano, 335-337, 371 Guarantee Act (1849), 266-267, 269-270 Gulf of Mexico, 100, 113,250 guns, 116, 150, 318, 333-334, 353, 370, 372

see also munitions Haida Indians, 347, 349-353, 357 Halifax, N.S., 112, 129, 137-140, 151, 159-160, 172-175, 207 Halifax Banking Company, 230, 482 Hamilton Times, 491 Hanseatic League, 21-23, 35, 52 Hapsburg Dynasty, 42-43 Hastings, Warren, 489 Hat Act, 131 Hawaii, 472-474, 477-478 Hawkins, John, 28 Henri IV, 34, 38-39 Henry VII, 22, 24 Henry VIII, 23, 31 Henry the Navigator, 7 Hill.J.J., 389-391,464, 477 Hincks, Francis, 257, 265-266, 268-269, 272-274, 283, 322, 382383, 425-426 Holland and the Dutch, 8, 34-35, 37, 39, 43, 52-53, 61-62, 68, 76, 78, 83, 92, 166 Homestead Act (1872), 399 Howe, Joseph, 268-269, 297, 299300, 302, 307 Hudson, Henry (explorer), 68 Hudson, Henry ("railway king"), 242 Hudson Bay, 84, 94, 113, 192, 392 Hudson's Bay Company, 62, 8485, 100, 113-114, 122, 188-196, 214, 278, 280, 283, 294, 314317, 319-326, 329, 346, 353-359,

610 388-389, 399, 402-403 Huerta, Victoriana, 471-472, 487 Hughes, Sam, 511 Huguenots, 35 Hundred Years' War, 5-6, 20, 24, 30 Huron Indians, 36, 38, 68-75, 8182, 101, 347-348 Huskisson, William, 165-166 Iberville, Pierre Le Moyne d', 8687, 104 Iceland, 4, 22, 25 Idaho, 401 Illinois, 113,282 Imperial British East African Company, 493 Imperial Federation League, 373, 496 Imperial Munitions Board, 511512, 520 Incas, 14, 16-18, 40 India, 4,41, 79, 109, 115-121, 134, 160-162, 243-245, 327, 330331, 496-497 Indian Ocean, 7-8, 116, 525 Indians, North American see Native people Industrial Disputes Investigation Act (1907), 461 Insurrection Act, 205 Intercolonial Railway (ICR), 265, 268, 278, 294-295, 304, 311-312, 380, 383, 391-392 International Financial Society, 323

International Nickel, 446 Inuit, 23 investment, 44, 152, 370, 455 American in Canada, 288, 320, 433, 437, 439, 442, 444, 446447, 509, 528, 531 British in Canada, 269, 277, 375, 377, 417-418, 429, 449451, 495 Canadian in Cuba, 482-485 Canadian in Mexico, 485-487

CANADA IN THE EUROPEAN AGE Canadian in West Indies, 482485 Iowa, 282 Ireland, 23-25, 44, 52, 54-55, 193, 204-206, 255-256, 409 iron, 5, 57, 63, 79, 150, 250, 301, 350, 372, 374, 385, 387 Iron Act (1750), 131 Iroquois Indians, 13, 31-32, 35-39, 68,71, 73-76, 78,81,84-85,91, 94, 101-102, 113-114, 123-124, 197-199, 347-348 Isabella, Queen of Spain, 9 Italy, 4, 6, 30, 43, 525 ivory, 7, 25, 492 Jackson, Andrew, 224-225 Jackson, Henry, 269, 304 Jamaica, 92, 94, 109, 151, 156, 199,481,485 James I, 51-53, 116 James II, 116 Japan, 328, 334, 414-415, 497, 525 Jay's Treaty (1794), 158, 178, 190, 198, 212-213 Jefferson, Thomas, 159, 190, 339 Jesuits, 39, 421 Jesus (ship), 28 Jews, 55 Johnson, William, 197 Journal of Commerce, 484 Kansas City, Mexico and Orient Railroad, 486 Kentucky, 135-136 King, William Lyon Mackenzie, 414-415, 460, 466 Kingston, Ont., 219-223 Kirke, David (father), 58, 67 Kirke, David (son), 84 Kittson, Norman, 389 Knights of Labor, 457 Kwakiutl, 347, 356 la Mothe-Cadillac, Antoine de, 85, 104, 106 la Salle, Robert de, 83, 85, 100 la Verendrye, Louis-Joseph, 100

INDEX labour, 149, 153, 180-181, 201202, 239, 388, 406-408, 458-461, 512, 514-516, 521, 529 child, 149, 153, 458 Chinese, 337-338, 340-341, 360, 363, 412-415, 460, 477 forced, 55, 60-61, 142, 206, 330, 337 Japanese, 414, 460 Lafontaine, Louis, 257, 265 Lake Champlain, 135, 157, 178 land sales, 124-125, 132, 202, 209, 402-403 land tenure, 132, 169-170, 199, 208-211,306-308,316,399 Indians, 197-198, 358, 361, 383, 400-402, 404 Metis, 325, 399, 405 seigneural system, 126, 133, 199, 282 Laurier, Wilfrid, 393-395, 422, 464-466, 468 Law, John, 94, 103-107 Lawrence, Charles, 112 League of Nations, 525 leather industry, 12, 83, 103-104, 319 Leon, Ponce de, 18 Leopold, King of Belgium, 492 Lesseps, Ferdinand de, 474, 490 Levant, 4-6, 8, 78 Liberal Party (from 1867), 379, 382, 384, 387, 393-395, 442-443, 451,465-468 Liberia, 489, 496 Libya, 496, 500 Liliuokulani, Queen of Hawaii, 472 Lincoln, Abraham, 250 livestock, 40, 44, 98, 112, 198, 262, 318-319, 402, 453 Livingstone, David, 492 London and Bristol Company, 5657,59 Lord Elgin (ship), 338 Louis XIV, 76, 82, 85 Louis XV, 93

611

Louisbourg, 89, 97-98, 110-112, 114, 120, 131, 136-137 Louisiana, 85, 103-107, 113, 121122, 136, 160 Lower Canada, 178, 191, 208-211, 216, 220, 225-226, 229-233, 254 Macdonald, John A., 273-275, 277, 292, 294, 296, 309, 313, 373, 378-379, 382-386, 388-392, 402-403,422,425,491,517 Mackenzie, Alexander, 191, 194, 196, 345-346, 379, 384, 399, 475 Mackenzie, William, 394 Mackenzie, William Lyon, 221, 223, 226, 228, 230-231 McKinley, William, 398, 483 MacNabb, Allan, 266, 273-274, 380 Madeira Islands, 7-8 Madero, Francisco, 471, 487 Mahdi, The, 491 Maine, 178-179, 232, 250-251 Mamelukes, 5-6, 8 Manitoba, 326, 383, 387, 392, 394, 399, 406, 453, 467 Manitoba and Northwest Farmers' Protective Union, 405, 463 Mann, Donald, 394 Maritimes, 199, 264, 280, 294-295, 308, 429-430 "Maroons", 156 Martinique, 122-123 Maryland, 127 Mashones, 494-495 Massachusetts, 91, 129, 137, 207 Matabeles, 494-495 Mayans, 13, 16 McTavish, Frobisher and Company, 191 Meares, John, 344-345 mercantilism, 45-47, 77-78, 86, 117, 122, 147, 160, 163, 165, 196, 199 Merchants Bank of Canada, 424 Mercier, Honore, 420-423 Metis, 195, 320, 324-326, 355,

612 399,401,404-405 Mexico, 13-15, 19,33,40, 115, 250, 318, 339, 433, 470-472, 485-487 Michigan, 124, 382 Micmac Indians, 28, 123, 137 Middle East, 4-7, 525 Middleton, Frederick, 405 military expansion, 5-7, 9, 20-21, 77, 112, 133, 138-140,213-214 Milnes, Robert Shore, 208-209 Minnesota, 282, 314, 319, 383, 389-390, 400 Minorca, 115 missionaries, 74-75, 118 Mississippi, 18 Mississippi Company, 104-107 Mississippi River, 99-100, 104, 113, 135,262 Mohawk and Hudson Railroad, 265 Mohawk Indians, 74, 198-199 Molasses Act (1733), 129, 133 Monetary Times, The, 483, 486 money, 103, 105, 163-164, 217218, 222, 231, 312, 317, 375376, 397-398, 425-427, 438, 479, 506-508, 526 Mongols, 5, 8 Montagnais Indians, 38, 74 Montana, 320, 402 Montreal, 83, 85, 126, 187-191, 196, 212-215, 257, 286-287, 386387, 451, 530 Monts, Pierre de, 34, 38 Moors, 6-7, 9, 11,44 Morgan, J.P., 438, 446-447 Morocco, 7, 489, 493, 496, 500 Municipal Act (1849), 266 Municipal Loan Fund Act, 267, 295 munitions, 446-447, 511-513, 520, 528 Murray, James, 124-125, 131 Muscovy Company, 117 Musgrave, Anthony, 475 Myers, Gustavus, 423, 530

CANADA IN THE EUROPEAN AGE Napoleon, 154-155, 159-160, 162, 489 Napoleonic Wars, 142, 154-155, 161, 163-164, 167-168, 194, 204, Natchez Indians, 107 National Policy tariff, 442-445, 450, 457, 459, 476, 480 Native people, 59, 67, 80-81, 83, 86-87, 105-106, 113-114, 123124, 132-133, 196, 315-321, 344345, 347-353, 355-358, 361, 400402, 404-405 see also by tribe intertribal trade, 36-37, 71-73, 349-351, 353 intertribal wars, 39, 68, 73, 75, 318, 350-351, 353 reservations, 400-402, 404 naval expansion, 5-7, 34, 78, 112, 137-138, 140, 171, 178, 356, 474 Navigation Laws, 53, 63, 87, 91, 136, 157, 166, 169, 171, 183, 249 Nebraska, 282, 341 Neutral Indians, 36, 70, 73, 75 Nevada, 341 New Brunswick, 177-182, 184-185, 199, 232, 250, 259, 295, 302305, 384, 408, 467-468 New East Indian Company, 117 New England, 55, 63, 88, 91, 97, 111-112, 114, 121-123, 129-132, 135, 139, 141, 158-160, 171 New France, 39, 67-68, 75, 78, 8184,86-87,96-107, 112-113, 120, 123, 127 New Hampshire, 128 New Mexico, 318 New North West Company, 191 New York, 91, 100-102, 114, 198, 257 New Zealand, 328, 359 Newfoundland, 25-28, 52, 55-58, 87-88,94,96, 111, 120-122, 128, 135, 140-142, 167-171,310-313, 478-479 government, 57-58, 142, 169-

INDEX 170, 182-183,309-310,478 Newfoundland Act (1775), 141 Nez Perce Indians, 401 Nicaragua, 470, 474 Nine-Hour Movement, 457 Nipissing Indians, 36, 70, 73-75 Nobel, Charles, 473, 495 Non-Importation Act (1806), 159 Non-Intercourse Act (1810), 434 Nootka Indians, 347, 350 Normandy, 4, 25, 35 Normans, 4-5, 30 North, Lord, 142, 147 North America, 4, 18, 26, 31, 3436, 52, 59, 67, 133, 143 North Pole, 67 North West Company, 189-196, 214, 314, 324, 346 North West Mounted Police, 321, 403 North West Transportation Company, 322 Northern Pacific Railway, 342, 381-383, 389-390, 394, 401 Northern Railway, 265, 272, 274, 283,293,311 Northwest Passage, 22-23, 25, 31, 35, 65, 100, 113, 117, 344 Northwest Rebellion, 404-405, 463 Northwest Territory, 405 Norway, 168 Nova Scotia, 58, 128-129, 136-140, 156, 162, 172-177, 183-185, 238, 259-260, 264, 295, 297-303, 382, 384-386, 408, 443-444, 467, 513 Ohio, 114, 120, 126, 135, 158, 186, 188-190, 198 Ojibway Indians, 124, 189 Oneida Indians, 198 Ontario, 199, 387, 408, 440-443, 465, 468 Ontario Manufacturers' Association, 442 opium, 243-244, 273, 329-333, 339 Oregon, 251, 257, 339-341, 346, 354-355

613 Ottawa Indians, 71, 73, 81, 123124 Pacific areas, 333-337, 373, 472474 Pacific cable, 477 Pacific coast, 191, 251, 322, 326, 328, 333, 339, 343-345, 355, 475 Palliser, Hugh, 141 Panama, 470, 474 Paraguayan Wars, 375 Papineau, Louis-Joseph, 225, 231 patents, 440-442, 444, 446, 511 Patrons of Industry, 463 Pax Britannica, 505, 526 Pearson, F.S., 483, 485 Pennsylvania, 114, 124, 198, 207 Perrot, Francois, 83 Persia, 5, 497 Peru, 19, 33, 40, 335 Peter the Great, 333-334 Peto, Morton, 241, 268, 276-277 Peto, Brassey, Jackson and Belts, 268, 273, 304 Petun Indians, 70, 75 Philippines, 115, 121,334,474, 481 Phips, William, 90 Phyn, Ellice and Inglis, 191, 194 piracy, 24, 28-29, 33, 39, 57-59, 60-61,66-68,94,97, 116, 140141, 173-175 Pitt, William, 120, 147 Pizarro, Francisco, 16-18 Plantation Act, 129, 133 Polk, James, 470 Pontiac, Chief, 123-124, 187, 198 Poor Laws, 200-203, 206 Port Royal, 89-91, 111, 136 Portugal and the Portuguese, 6-9, 11, 18,23,25,27-28,31,41-43, 47,52-53,60-62,92-93, 116, 151, 164, 329-331 Poundmaker, Chief, 404-405 precious metals, 10, 21-22, 32, 40, 47, 66, 163, 217 "Pretended Bank of Upper

614 Canada", 222-223 Prince Edward Island, 177, 194, 204, 259, 295, 303, 305-309, 364, 467 Proclamation of 1763, 133,186, 197 Protestantism, 56, 66-68, 85 Provincial Workingman's Association, 459 Prowse, Hall and Morris, 478 Puerto Rico, 474, 480-481, 485 Quebec, 38, 65, 75, 83, 121, 125126, 136, 179,211,225,284, 286, 294, 321-322, 406-408, 419423, 430, 442-443, 459, 468 Quebec Act (1774), 125-126, 133 Quebec Bank, 219, 231 Queen Charlotte Islands, 347, 357 Radisson, Pierre, 84-86 Railway Act (1871), 308 railways Canada, 261-262, 264-272, 278, 284-286, 296, 298-300, 308309, 319, 363-364, 380, 384395, 421, 453, 461, 510, 520521, 527 see also by name Cuba, 484 Great Britain, 238-243 India, 244-245 Mexico, 471, 486-487 Newfoundland, 311-312, 478479 Panama, 470 Puerto Rico, 485 South America, 375 Sudan, 493 Turkey, 501 United States, 249-251, 265, 278, 292, 339, 341-342, 381, 384, 527 see also by name Raleigh, Walter, 24, 57, 59 reciprocity see free trade Red River Colony, 195, 214, 324325

CANADA IN THE EUROPEAN AGE Red River Valley Railway, 392 Reform Act (1832), 166,240 Rhode Island, 127 Rhodes, Cecil, 494-495 Rhodesia, 495 Ricardo, David, 165, 217 Richelieu, Armand du Plesis de, 65-68, 118 Riel, Jean-Louis, 324 Riel, Louis, 325-326, 388, 405, 420 roads, 263-264, 322, 360-361 Roberval, Jean-Franfois de la Roque, 32-33 Rocky Mountains, 113, 402 Rose, John, 309, 424-425 Rothschilds, 473, 494 Royal Africa Company, 62, 94 Royal Bank, 429, 479, 482 Royal Niger Company, 493 Royal William (ship), 298 rubber, 386, 492 Rupert, Prince of England, 84 Rupert's Land, 314-316, 319, 322, 355, 381 Russia, 23, 35, 37, 72, 155, 238, 244, 251, 281, 343-344, 354, 377, 524-525 Russian Revolution, 502, 512, 523 Russian American Fur Company, 344 Russo-Japanese War, 499 Sable Island, 34 St. Dominique, 115, 121, 156-157, 159 St. John, N.B., 151,303,305 St. John's, Nfld., 88, 141-142, 169170, 182,478 St. Lawrence and Atlantic Railway, 265-267, 269-272 St. Lawrence River, 65, 102, 135136, 152, 157-158, 160, 196, 221, 227, 255, 257, 262 St. Paul, Minnesota and Manitoba Railroad, 383, 389-391 St. Pierre and Miquelon, 120-121, 134, 168 salt, 52, 58, 299

INDEX Saskatchewan, 390, 452, 467 Sayer, Guillaume, 320 Scandinavia, 4, 25 Scotland, 22-23, 193-194, 203-204, 409 sea otter, 329, 339, 343-344, 346, 351-352 seigneural system see land tenure Selkirk, Thomas, Earl of, 193-1%, 204, 325 settlers, 206-211, 213-214, 399, 402-405, 408-416 American, 139-140, 199, 208209,409,411,462 Eastern European, 411-412 English, 185, 201-203, 451 French, 106-107 Icelandic, 409 Irish, 55-56, 111, 170, 199,205206, 256, 409 Mennonite, 409 Scottish, 195, 199, 203-204, 409 Seven Years' War, 110, 112, 114, 119-120, 126, 129, 133-134, 150, 160 Shea, Ambrose, 312, 478 shipbuilding, 82, 139, 176, 262, 289-290, 303-305, 385 shipping, 5, 27, 40-42, 53-54, 78, 156, 160, 173-175, 179-180,206207, 298, 304, 330, 359, 374375, 385, 476 Sicily, 4 Siege of Ottawa, 464 silk, 6, 31, 35, 40, 66, 316, 329 silver, 6-7, 9, 15, 17, 19,27,32, 40-41,44, 79,93, 115-117, 163164, 217, 231, 238, 329, 331332, 397-398, 410 Simcoe, John Graves, 220 Simpson, George, 314-316, 322, 324

Sioux Indians, 400-401 Sitting Bull, Chief, 401-402 slavery, 7-8, 11-12, 18-19, 27-28, 40-41, 45, 52, 60-64, 76, 78-79, 92-95, 105, 109, 120-121, 127129, 150, 156-157, 247-248, 336-

615 337, 348-351,493 Smith, Donald A. (Lord Strathcona), 388-390, 476, 495 smuggling, 88, 92, 97-98, 114, 129-130, 137, 142, 159, 173-174, 190, 305, 320, 330-331 Soto, Hernando de, 18 South America, 12, 14, 16-19, 52, 78-79, 92-93, 164 South Sea Company, 94-95, 100, 107, 109, 329, 334-335, 344-345 South Sea Islands, 328, 333, 336 Spain, 4, 6, 8-13, 15-19, 23, 26-33, 39-47,51-53,60,92,94, 115, 120-121, 164, 329, 343, 345, 351, 474 Spanish-American War, 474, 482 spices, 5-9, 22-23, 40, 52, 116-117 Springhill Mining Company, 459 Stamp Act (1765), 133, 139 Stanley, Henry, 492 steamships, 237, 298, 311, 363, 477, 478 steel, 250, 372, 374, 385, 387, 444 Stephen, George, 388-389, 391 Stephenson, George, 239, 241 Stephenson, Robert, 239, 242 Stillwell, A.E., 486 stock exchanges, 455-456, 507 Sudan, 491,493 sugar, 5, 7-8, 11,37,40-41,52-53, 60-63, 76, 78,91-92, 109-110, 115, 120-122, 129-130, 143, 150, 156, 162, 385-386, 443-444, 473474, 477-478, 480-481 Susquehannock Indians, 36 Sutherland, Duchess of, 204 Sydenham, Lord, 233, 254, 306 Syria, 5, 8 Tache, Etienne, 273 Talon, Jean, 82, 92 tariffs, 179, 187, 223, 246-250, 259, 262, 275, 295, 305, 333, 371-374, 379, 385-388, 393, 407, 418, 442-445, 447-448, 450, 464465, 508 see also National Policy tariff

616 tea, 40, 117, 130,328-329, 331, 443-444, 496 Tea Act, 130 telegraph, 237, 286, 296, 312, 322 Tenant's League, 307 Tennessee, 135-136 Texas, 250-251, 257-258, 318-319 textiles, 5, 7, 37, 117, 131, 149, 443 see also cotton, silk, wool Thirty Years' War, 42-43, 54, 61, 65, 75 Tibet, 497 Tilley, Leonard, 305, 386, 388, 444 timber, 79, 128, 158, 177-182, 184185, 232, 255, 261, 288, 303, 388 Tlingit Indians, 347, 349, 351 tobacco, 36, 40, 53, 59-61, 69-70, 76, 121, 127, 353 Tobago, 135 Toronto, 220-221, 270-271, 283, 293, 451 Toscanelli, Paolo, 9 Tracy, Alexandre Prouville de, 78, 81 trade unions, 166, 175, 224, 229230, 239, 412, 457, 457-461, 466 Trades and Labor Congress (TLC), 457-458 Treaty of 1763 (Peace of Paris), 134, 160 Treaty of Breda (1667), 90 Treaty of London (1604), 51 Treaty of Munster (1648), 43 Treaty of Nanking (1842), 332 Treaty of Peking (1860), 338 Treaty of Tientsin (1858), 333 Treaty of Utrecht (1713), 86, 89, 93-94,96-97, 108, 113, 119 Treaty of Versailles (1919), 523525 Treaty of Washington (1871), 382, 384-385, 441 Trinidad, 151,481,485 Tsimshian Indians, 347, 350, 353 Tunisia, 490

CANADA IN THE EUROPEAN AGE Tupper, Charles, 297-299, 302, 373, 386, 388, 390, 392, 442444, 476, 480, 504 Turkey and the Turks, 5-6, 8-9, 13, 39,43,66, 281,489,499501, 524 Union Bank (Newfoundland), 479 Union Bank of Prince Edward Island, 309 Union of Soviet Socialist Republics see Russia Union Pacific Railway, 341, 381 United Empire Loyalists, 132, 157-158, 177, 199, 208 United States of America, 147, 157-160, 162-164, 171, 223-225, 232, 245-251, 259, 262, 295, 317, 339, 377, 396-398, 406-409, 433-440, 470-474, 525 Upper Canada, 174, 194, 199, 208-209, 211-216, 220-223, 226233, 246, 254 Upper Canada Banking Company, 221 Urban II, Pope, 3 Utah, 381 Van Home, William, 390, 392, 413, 483-485 Vancouver, George, 345 Vancouver Island, 323, 347, 355359, 361-363 Vanderbilt, Cornelius, 470 Venezuela, 12, 52 Venice, 4, 30, 39 Verazzano, Giovanni de, 31 Vermont, 135-136, 157-158, 177178 Vetch, Samuel, 91, 136 Victoria, B.C., 357-359, 361-362, 475, 477 Vikings, 25 Villa, Pancho, 472, 487 Virginia, 52, 59-60, 114, 127 Virginia Company, 59 voyages of discovery, 9-13, 22-29, 31-35, 40

617

INDEX vqyageurs, 189 Walker, Edmund, 487 wampum, 36, 71 War Measures Act (1914), 530 War of 1812, 136,160,173-174, 187, 190, 209, 214, 434 War of the Austrian Succession, 110-112, 118-119 War of the Spanish Succession, 89,91,96, 103, 109-110, 128 Washington, George, 114 Watkin, Edward, 278, 280, 294, 314,323,364,381,475 Webster, Daniel, 232, 317 Webster-Ashburton Treaty (1842), 250-251 Welland Canal Company, 227228, 232 West Indies see Caribbean Islands, see also by name Western Charter (1634), 58 Whoop-Up Trail, 320

William, King of England, 86 Wilson, Woodrow, 525 Winnipeg General Strike, 529 Winnipeg Grain Exchange, 453 Wisconsin, 382 Wolfe, James, 114 Wolseley, Garnet, 326, 333, 381, 389, 491 Wool Act (1699), 131 wool trade, 5, 12, 24, 44, 55, 80, 117, 149 World War I, 441, 503, 512-516, 519-522 war debts, 523 XY Company, 191 York see Toronto York, Duke of, 176 Yukon, 467 Zapata, Emiliano, 472, 487 Zetland (ship), 338