Pacific Scandal - Background

Background

For a young and loosely defined nation, the building of a national railway must be put within the context of active attempts at state-making. Canada, a nascent country with a population of 3.5 million in 1871, lacked the practical means to exercise meaningful de facto control within the de jure political boundaries of the recently acquired Rupert's Land -- building a transcontinental railway was national policy of high order in changing this situation. Moreover, the post civil war era was a period of rapid expansion for the American frontier, as land hungry settlers poured west, exacerbating talk of annexation. Indeed, sentiments of Manifest Destiny were abuzz in this time: in 1867, year of Confederation, US Secretary of State W.H. Seward surmised that the whole North American continent "shall be, sooner or later, within the magic circle of the American Union." With sentiments of this nature in mind, it is little wonder that national interest fell within preventing the infusion of American investment into the project. Established by this point was the purposeful alignment of an "all Canadian route" -- within the rubric of national interest, the federal government refused to consider a less costly route bypassing the rugged Canadian Shield of northern Ontario by passing south through Wisconsin and Minnesota.

However, a route across the Canadian Shield was highly unpopular with potential investors not only in the United States, but also in Canada and especially Great Britain which was the only other viable source of financing. The objections were not primarily based on politics or nationalism - for would-be investors, the financing of a national railway must be put within the context of 19th century economics. At the time, national governments lacked the cash resources needed to fund projects on the scale of a transcontinental railroad. For the First Transcontinental Railroad, the United States government had solved this problem by making extensive grants of public land to the railway's builders. This induced private financiers to fund the building of the railway on the understanding that they would acquire rich farmland along the route, which could then be sold for a large profit. However, unlike the case with the First Transcontinental, the eastern terminus of the proposed Canadian Pacific route was not in rich Nebraskan farmland, but deep within the Canadian Shield. For the Canadian government to copy the American model of railway financing whilst insisting on an all Canadian route, it was implied that the railway's backers would be expected to build hundreds of miles of track across rugged shield terrain (which had little economic value) at considerable expense before they could expect to access lucrative farmland in Manitoba and newly-created Northwest Territories. Many financiers, who had expected to make a relatively quick profit, were not willing to make this sort of long term commitment.

Nevertheless, the Montreal capitalist Sir Hugh Allan, with his syndicate Canada Pacific Railway Company, sought the potentially lucrative charter for the project. The problem lay in that Allan and Sir John A. Macdonald highly, and secretly, were in cahoots with American financiers such as George W. McMullen and Jay Cooke, men who were deeply interested in the rival American undertaking, the Northern Pacific Railroad.