At first glance, the Canadian Pacific Railway contract fiasco of the early 1870s is the granddaddy of all Canadian scandals, featuring that drunken old rascal Sir John A. Macdonald, desperately pleading with Sir Hugh Allan for more and more money for his election expenses, in return for awarding him the CPR contract. On the surface, that's what it looks like, and that is what generations of historians have repeated ad nauseam. The real story is far more gripping, and is actually one of the more fascinating events in Canadian business and political history.
The scandal involved Canada's largest company, the Grand Trunk Railway, a British financed line that ran from Montreal to Chicago, and from Montreal to the ice-free port of Portland, Maine. Its chief solicitor, Sir George-Étienne Cartier, at the same time minister of militia, and chairman of the Commons Railway Committee, was at the centre of the matter.
The Grand Trunk was pretty much a Canadian public work. In the early 1870s, Cartier was engineering two new lines: the Intercolonial Railway to Halifax, and the Canadian Pacific Railway, promised by Cartier to the B.C. Confederation delegates.
Cartier and Macdonald had carefully protected the Grand Trunk and the new Canadian lines by a simple clause inserted into the British North America Act, 92.10.c, the federal power of disallowance -- which let the cabinet disallow any railway that crossed a provincial boundary, or crossed into Canada from the United States.
Armed with this power, Cartier began to pull together bids from Canadians interested in building the line. He was fully aware of the possibilities of groups south of the border scheming to get control of the CPR, and some of his political friends tried flushing these groups out. One of them, Montreal steamship magnate Hugh Allan, would prove to be a major player, getting himself involved with the Americans, and then lying to their faces.
The US transcontinental roads had a ten year head start on the CPR. The Central and Union Pacific, like the shorter main lines, made colossal profits for their shareholders, and more for the construction companies that built them. Congress and state legislatures were liberally greased with money by the railroad barons, and they responded with generous grants and subsidies. The most profitable lines were those that stayed in their own territory, and the railroad barons fiercely defended their turf against any competitors wanting to bleed business away from their lines.
This fact of life left many U.S. cities, states, financiers and political parties extremely frustrated, unable to break through the territories of established players so that they could get a piece of booming western traffic.
One such city was Boston, Mass., one such state was Vermont, and one such frustrated financier was Philadelphia's Jay Cooke, financier of the Civil War and a charter member of President Ulysses S. Grant's Kitchen Cabinet.
Boston was forever doomed to languish in a railway backwater, losing business to big cities farther south, unless it could break through to Chicago and beyond. And really, looking at a map, the best way to do that would be to cross the Canadian border, run up the Ottawa Valley and across to Northern Michigan at Sault Ste. Marie. The state of Vermont, and the Vermont Central Railway also wanted in on the scheme, since they ran small milk lines in the Eastern Townships.
U.S. financier and promoter Jay Cooke desperately needed a fresh project to attract more capital to his Philadelphia bank. He buffed up the Northern Pacific Railway, incorporated five years earlier, and got to work to control and, if possible, bring down the CPR.
Others who got involved in the Northern Pacific were Chicago-based Union Pacific promoters William B. Ogden and Charles Mather Smith, General George W. Cass of the Pennsylvania Railroad; Thomas A. Scott of the Philadelphia and Erie and Pennsylvania lines; and Gregory Smith of the Vermont Central.
First the Cooke partners had to eliminate the risk of losing the Ottawa Valley route to the CPR. The one man who stood in their way was Sir George-Étienne Cartier, who intended Montreal to be the base of a transcontinental trading system, and who said to the B.C. Confederation delegates, "never will a damned American company have control of the Pacific railway."
Satchels of cash were always available to compliant legislators on the U.S. side of the border. The Cooke consortium felt that things could not be that different north of the line, and they were right. They soon found allies in several eastern townships politicians like Conservative Senator Asa B. Foster, and Liberal MP Lucius Seth Huntington, backer of a small line that did business with the Vermont Central. As Canadian railway historian George Stevens has noted, "nothing in Canadian railway history approaches in deviousness the story of the Vermont Central Railroad."
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