The Canadian Pacific Contract [1881]

This contract was negociated between the Conservative government of John A. Macdonald and the principals of the Canadian Pacific Railway (Donald Smith and George Stephen) in 1881. Its main terms were:

•The company would undertake to build the transcontinental railway from Montreal to Vancouver. There was expectation from the government that this construction was to proceed rapidly so as to fulfill our promise to British Columbia.
•The railway was to follow an all Canadian route. This meant that significant costs would be incurred to construct the sections in Northern Ontario and through the Rockies. There was no question of constructing the line by linking to existing American railways.
•The Government of Canada promised an outright subsidy to the Company of $25,000,000. This amount was nearly equal to two years of revenues for the Government of Canada.
•The Government of Canada handed over to the Company the existing sections of the transcontinental that had been built by the government under the administration of Alexander Mackenzie. About 710 miles of line had already been built. This was a gift valued at close to $38,000,000.
•The Company was also exempted from paying tariffs on material imported from abroad, provided that such material was intended to build the railway.
•The Company was guaranteed a rail monopoly for the next 20 years. No other company could build a railway south of the CPR line. Presumably, this was to prevent another company from siphoning all of the benefits of the line south to the United States. The consequence of this monopoly, is that freight rates were very high on the CPR line. Western farmers saw a considerable portion of their farm income go to the CPR to carry their products and to the banks. For a long time, the CPR and the banks were percieved as the Western farmer’s worst enemies. When the Manitoba government attempted to challenge through legislation the monopoly of the CPR, such legislation was diallowed by the federal government.
•In the course of the contract, the Government of Canada also guaranteed loans negociated by the Company and a return of 3% on ordinary shares.
•Lastly, the company was given 25,000,000 acres of land in the Prairies. This land was to be claimed in alternate sections, on both sides of the railway line, throughout the farmable part of the West. The CPR land was incorporated in the township system created in 1872 under the Dominion Lands’ Act. In effect, the CPR was given about 44% of the farmable land of the West. Coupled with the school grants and the land set aside for the Hudson Bay Company as per its agreement to sell Rupert’s Land to the Canadian government, the amount of good land available for free homesteading in the West was rather restricted. It is primarily with this asset in hand that the Company was able to raise money in the London financial markets.

In 1885, as Charles Tupper, Minister of Railways, was discussing in the House of Commons further help to finish the railway, he declared:

“The interests of this country demand that the Canadian pacific Railway should be made a success … Are the interests of Manitoba and the North-West to be sacrificed to the interests of Canada? I say, if it is necessary, yes.”

The transcontinental railway was successfully completed in 1885. It was an important element in assuring Canadian sovereignty over the West, in putting down the North-West Rebellion, in keeping British Columbia in Confederation, and in attracting immigrants to the Canadian prairies.

© 2007 Claude Bélanger, Marianopolis College

Canadian Pacific Railway

The Liberal government was committed to the policy of obviating the disadvantages of monopoly control. In 1897 the Crow’s Nest pass rate agreement (60-61 Vic. c. 5. 1897) brought a reduction of rates from points east of Fort William to points west of Fort William of 33% per cent. on green and fresh fruits, 20 per cent. on coal oil, 10 per cent. on an itemized list, and 3 cents per 100 lbs. on flour and grain from points west of Fort William to points east of Fort William. A commission was appointed to investigate the rate problem, and reports submitted by S. J. McLean in 1899 and in 1902 were followed by the creation of the Board of Railway Commissioners, in 1903 (3 Edw. VII. c. 58). The relatively weak financial position of the Canadian Pacific Railway and rapid increase in wheat production were responsible for a policy in which concessions with monopolistic privileges were granted to private companies for the rapid construction of elevators. The agitation of western farmers was followed by a royal commission, and grievances were removed by the passing of the Manitoba Grain Act (63-4 Vic. c. 39. 1900). Finally, the existence of the vast stretch of the northern prairies left vacant by the policy of the Canadian Pacific Railway in following a southern route against the advice of Sandford Fleming, and the efforts of the provincial and Dominion governments to stimulate competition, led to the development of the Canadian Northern Railway in northern Manitoba under the direction of Mackenzie and Mann, and to its eventual emergence as a second transcontinental railway. For similar reasons, the Grand Trunk, under pressure of competition in eastern Canada, succeeded in securing arrangements with the Canadian government for the construction of the National Transcontinental, and with the Grand Trunk Pacific a third transcontinental line was built. The emergence of prosperity, accentuated by the discovery of gold in the Klondike in 1896, and the mi­gration of population from the United States, Great Britain, and the continent, contributed to the success of a policy of railway construction designed to check monopoly conditions.

Source : Harold A. INNIS, “Canadian Pacific Railway”, in W. Stewart WALLACE, ed., The Encyclopedia of Canada, Vol. 1, Toronto, University Associates of Canada, 1948, 398p., pp. 369-374

Further Reading

• H. A: Innis, A History of the Canadian Pacific Railway (London, 1923),
• G. Moore, Investment analysis of the Canadian Pacific Railway (Toronto, 1929);
• T. E. McDonnell, The story of the Dominion Express and its change of name (n.p., 1926);
• R. G. MacBeth, Romance of the Canadian Pacific Rail way (Toronto, 1924);
• K. Morris, Story of the Canadian Pacific Railway (London, 1923);
• Report of the Royal Commission to inquire into railways and transportation in Canada, 1931-2 (Ottawa, 1932);
• H. A. Innis, Problems of staple production in Canada (Toronto, 1933).

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This entry was last updated: November 6, 2014