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By H. A. Innis

The Canadian Historical Review, March, 1937

Writing at the end of a long period of rapid expansion in the English colonies and at a time when such expansion threatened imminent revolt, Adam Smith concluded that “Plenty of good land, and liberty to manage their own affairs their own way, seem to be the two great causes of the prosperity of all new colonies”.^[2] The second cause was elaborated at great length. The colonies of England conducted their governments upon a much less expensive plan and with a much less expensive ceremonial than those of France, Portugal, and Spain. The colonies of the latter countries had even more serious difficulties to contend with:

The first cause was linked to the second and was described more briefly: “. . . the engrossing of uncultivated land, though it has by no means been prevented altogether, has been more restrained in the English colonies than in any other” (p. 539). “The labour of the English colonists, therefore, being more employed in the improvement and cultivation of land, is likely to afford a greater and more valuable produce, than that of any of the other three nations, which, by the engrossing of land, is more or less diverted towards other employments” (p. 540). “The political institutions of the English colonies have been more favourable to the improvement and cultivation of this land, than those of any of the other three nations” (pp. 538-9) although good land was less abundant. “It has been the principal cause of the rapid progress of our American colonies towards wealth and greatness that almost their whole capitals have hitherto been employed in agriculture” (p. 347). “Agriculture is the proper business of all new colonies; a business which the cheapness of land renders more advantageous than any other” (p. 575). He knew that good land was not abundant in the English colonies and that agricultural technique was inefficient (p. 223) and yet he concluded “. . . through the greater part of Europe the commerce and manufactures of cities, instead of being the effect, have been the cause and occasion of the improvement and cultivation of the country. This order, however, being contrary to the natural course of things, is necessarily both slow and uncertain. Compare the slow progress of those European countries of which the wealth depends very much upon their commerce and manufactures, with the rapid advances of our North American colonies, of which the wealth is founded altogether in agriculture” (p. 392).

One may venture to suggest that the two causes were closely interlocked, but that expansion in the North American colonies as in Europe was the “cause and occasion of the improvement and cultivation of the country”. Adam Smith in his analysis of the division of labour and the extent of the market as determined by transportation, can be quoted in support of this suggestion: “In our North American colonies the plantations have constantly followed either the sea-coast or the banks of navigable rivers, and have scarce any where extended themselves to any considerable distance from both” (p. 19). “As by means of water-carriage a more extensive market is opened to every sort of industry than what land-carriage alone can afford it, so it is upon the sea-coast, and along the banks of navigable rivers, that industry of every kind naturally begins to subdivide and improve itself, and it is frequently not till a long time after that those improvements extend themselves to the inland parts of the country” (p. 18). The improvement of transportation facilitated the expansion of external and internal trade.

Cheap water transportation from Europe to North America stimulated commerce and brought “improvement and cultivation of the country”. The fishing industry capitalized to the full the advantages of water transportation. The discovery of the abundance of fish in the new world was followed by the expansion of the industry from Europe to meet the demands of countries predominantly Catholic and with a limited production of meat products. France prosecuted the industry in relation to her own demands. England was attracted to the Spanish market by the specie obtained from the new world, and occupied Newfoundland, and later New England, as a base for the production of dry fish for that market. The expansion of trade from France to Spain was followed by the occupation of Nova Scotia and the gulf of St. Lawrence. As a result of contact with the hunting Indians of the interior by the St. Lawrence and its tributaries, the fur trade emerged to meet the demands of metropolitan Paris for luxuries and of the aborigines for European goods. Fur, being a commodity of small bulk and high value, supported a trade carried on over increasing distances to the interior. In the more tropical regions, Spain and Portugal were concerned with treasure, England and France with tobacco and later, in the West Indies, with sugar (pp. 156 ff.; 162 ff.).

The technique of production of these various commodities involved sharply differentiated economies. Slaves were taken by English ships from Africa to the West Indies, and supplies and provisions for the consumption of slaves and the production of sugar were carried by colonial ships from the north temperate colonies. New England became an active commercial region with its prosperity based on the fishing industry and shipping to Europe, the West Indies, and Newfoundland. France had an expanding fur trade which handicapped the production of agricultural products on the St. Lawrence and in turn accentuated dependence of the French West Indies and the French fishing industry on the English colonies. Attempts on the part of France to check dependence on the English colonies helped to make a vicious circle in which the costs of production were increased and the necessity of overcoming restrictions enhanced. England had the advantage of a relatively co-ordinated empire, but the principle of exporting staples to the home market was violated to an increasing extent, especially as a result of the expansion of New England. The British Empire competed with the French empire on all fronts—in the West Indies, in Europe, and in North America through the Hudson’s Bay Company by Hudson bay and through New York by the Hudson river. Adam Smith explained the weakness of the French empire as due to its organization rather than to the character of its trade. “Of all the expedients that can well be contrived to stunt the natural growth of a new colony, that of an exclusive company is undoubtedly the most effectual” (p. 542). “The French colony of Canada was, during the greater part of the last century [seventeenth], and some part of the present, under the government of an exclusive company. Under so unfavourable an administration its progress was necessarily very slow in comparison with that of other new colonies; but it became much more rapid when this company was dissolved after the fall of what is called the Mississippi scheme” (p. 538). Recent investigation^[3] has shown that government policy, supplemented by the principle of commercial monopoly, the seigniorial system, and the dominance of the Roman Catholic church, was moulded and designed to strengthen control over the fur trade and was successful in resisting encroachments of the English until the fall of New France. The prosperity of the colony noted by Adam Smith coincided with the extension of the trade from the St. Lawrence to the Saskatchewan, and its collapse with the inability to compete with the British Empire.

The resistance of the French contributed to the unity of the British Empire, and the collapse of the French empire was followed by the collapse of the British Empire in North America. The first British Empire eventually failed to co-ordinate the aggressive commercialism of the colonies, especially New England, with the demands of Great Britain that the colonies be primarily staple-producing regions. The commercial organization of New England became competitive with that of Great Britain. After the American Revolution, with the elimination of New England, the second British Empire proved more efficient than the French empire in co-ordinating the interests of staple-producing regions. The success of the second British Empire was dependent on commercial organization which increased the value of land.

The fur trade on the St. Lawrence was extended beyond the boundaries reached by the French and eventually to the Pacific, as a result of the more efficient industrial and commercial organization of Great Britain, of the migration of technique from the United States as illustrated in the effective development of navigation on the great lakes, and of the efficiency of the co-partnership of the North West Company. Increasing costs of transportation due to the extension of the fur trade over greater distances, combined with Scottish clannishness and nepotism to defeat the North West Company and to lead to its amalgamation with the Hudson’s Bay Company and to the abandonment of the St. Lawrence in favour of the shorter route by Hudson bay.

In the fishing industry of the Maritime Provinces, as in the fur trade of the St. Lawrence, migration of technique from the United States combined with the extension of commercial organization from the Channel islands^[4] to enable Great Britain to occupy territory vacated by the French in the gulf of St. Lawrence, Cape Breton, and Nova Scotia. Nova Scotia attempted to reoccupy the place vacated by New England in the trade of the first empire with the West Indies. The increasingly aggressive commercialism of Nova Scotia succeeded in excluding the United States from the British West Indies, but such exclusion compelled the United States to support expansion of trade in the South American republics. With the growth of their independence, and enunciation of the Monroe doctrine in 1822, substantial modifications in the British colonial system were demanded by Nova Scotia and secured in the trade acts of 1825.

The decline of Britain’s supply of timber from the American colonies as a result of exhaustion and of the American Revolution, and from Europe as a result of the continental system, led to the adoption of substantial imperial preferences on timber from the colonies as a means of hastening the exploitation of the resources of the St. Lawrence and the rivers of New Brunswick. British timber merchants from the ports on the west coast of Great Britain, such as Liverpool and Glasgow, established branch houses in British North America and purchased ships and timber to meet the demands of industrialism in the rise of urban communities and the construction of railways.

The disappearance of the fur trade on the St. Lawrence in 1821 was followed by the rise of the timber trade. The fur trade had involved concentration of a French Catholic population at Montreal at the junction with the Ottawa as the route to the north-west, and on the lower St. Lawrence. The timber trade, on the other hand, hastened the coming in empty timber ships of English-speaking immigrants who crossed the Atlantic returning to Canada. Many of them were unemployed, displaced by the effects of the industrial revolution on handicrafts and agriculture and they were compelled to settle the unoccupied regions of the upper St. Lawrence. The military and political organization which had been developed in the upper and lower St. Lawrence valley in the last decades of the eighteenth century, with the purpose, especially under the United Empire loyalists, of resisting encroachments from the south, now came into conflict with the aggressive commercialism of Montreal which emerged as a result of increasing exports of grain from the newly settled areas of the upper St. Lawrence. The demands of the new commercial class for lower costs of transportation by roads and canals for imports and exports involved a reorganization of the political structure, which followed as a result of the outbreak of revolt in 1837, Lord Durham’s Report, and the Act of Union in 1840. The decline of the British preference on grain and timber and the increasing effectiveness of improved transportation from New York, especially by the Erie canal, necessitated the union^[5] of the governments of Lower and Upper Canada to provide a financial base for a competitive transportation route by the St. Lawrence. But in spite of the completion of the St. Lawrence canals, the chagrin at the loss of the preferences was marked by the annexationist manifesto and the burning of the parliament buildings in 1849.

In Nova Scotia the defeat of attempts to exclude the United States from the British West Indies in 1830 was followed by a policy of rigid exclusion of American trade by tariffs and of American ships from British waters by a narrow interpretation and strict enforcement of the convention of 1818. The retaliatory policy in Nova Scotia against American tariffs, and the effort to obtain a large share of traffic from the western states for the St. Lawrence route in Canada, led to the Reciprocity Treaty of 1854^[6] which admitted Canadian fish duty free and arranged for increasing traffic on the St. Lawrence. In Canada, the competition of the St. Lawrence with New York was strengthened by the construction of the Grand Trunk Railway to provide transportation from the western states to Portland.

The demands of industrial Britain for foodstuffs and the significance of capital equipment for the transportation of grain involved a shift from commercialism to capitalism, from dependence on short-term credit to dependence on long-term credit. The commercial class, supported by the mother country in the French and British Empires and with their chief interests in the fur trade and the timber trade, tended now to be displaced by the capitalist class. The earlier appeals on the part of commercial groups for continuations of the preferences were replaced by the appeals of Hincks and Galt for capital support from the houses of Baring and others. The autonomous capitalist state replaced commercial colonialism. Adam Smith’s arguments, which had contributed to the decline of the colonial system, were now used to support the claim for Canadian fiscal autonomy. In his pamphlet Canada 1849 to 1859,^[7] Galt wrote that in 1849 “the only hope lay in the fact that the people had at last the management of their own affairs”. They had the right to impose a tariff on British goods to secure revenue to meet the demands of British capitalists for interest on loans spent on public works to reduce costs of transportation. “As the expense of carriage . . . is very much reduced by means of such public works, the goods, notwithstanding the toll, come cheaper to the consumer than they could otherwise have done; their price not being so much raised by the toll, as it is lowered by the cheapness of the carriage”, wrote Adam Smith (p. 683), and “It might very easily be shown that any increase of duty which has been placed on English goods is quite indemnified by the decreased cost at which our canals, railways and steamships enable them now to be delivered throughout the province”, wrote Galt.

The emergence of fiscal autonomy as a basis of support for large-scale improvements of transportation necessitated further readjustment in the political structure. The Grand Trunk Railway, controlled from London through British capital support, unfortunately illustrated Adam Smith’s comments on joint stock companies and was hampered by government-supported competition in canals. The imposition of tariffs for revenue involved tariffs for protection and led to the abrogation of reciprocity in 1866 and in turn to demands for measures of defence against the United States. The interests of the government and private capital in increasing traffic and in reducing the burden of fixed charges demanded the extension of the Grand Trunk Railway by the Intercolonial to Nova Scotia, the extension westward to the Prairie Provinces and the Pacific coast, and the creation of a new credit structure in confederation under the British North America Act. The provinces of Quebec and Ontario were restored and Nova Scotia and New Brunswick were added. Cultural areas with their special interests of language, religion, and political and economic organization were given assurance of permanence by the federation. The position of the provinces under the British North America Act is a recognition of the differences in cultural characteristics: of Nova Scotia based on the fishing industry, of New Brunswick on the timber trade, of Quebec on the fur trade and later on agriculture and the timber trade, and of Ontario on the timber trade and agriculture. On the other hand, the influence of the new capitalism, which was essential to the completion of improvements in transportation by railway and canal, left its stamp on the dominion government. This distinction is evident when we examine the creation of the new provinces in the prairie regions and on the Pacific coast.

The demands of private capitalism as represented by the Grand Trunk diverged from those of state capitalism. The Grand Trunk^[8] became concerned with the extension of its line to Chicago to tap the traffic of the western states. The federal government engaged itself in a programme of extension to the east, marked by the Washington Treaty which admitted Canadian fish to the United States duty free from 1871 to 1885, and by the completion of the Intercolonial Railway in 1876, and to the west by the strong support given to the construction of the Canadian Pacific Railway which was completed in 1885. The national policy was designed in 1878 to secure revenue to pay deficits and to increase traffic to reduce deficits. Loss of population, especially from Ontario to the United States, during the long depression from the seventies to the nineties, was finally checked by continual efforts extending from the deepening of the St. Lawrence canals to 14 feet to a programme of intensive propaganda to attract immigrants from Europe and the United States. Competition from New York was eventually offset by improvements of the St. Lawrence, and by the boom which followed the turn of the century and which was hastened by the occupation of the Prairie Provinces and the development of mining in British Columbia and the Yukon and of lumbering and fishing on the Pacific coast. Two additional transcontinental lines of railway were completed by 1914 with substantial government support. With the outbreak of war, the transcontinental railways constructed after 1900 were forced into bankruptcy and acquired by the federal government.

Throughout the economic history of Canada, the dominance of water transportation in the Maritime Provinces and the St. Lawrence has accentuated dependence on Europe for manufactured products and for markets of staple raw materials. The fur trade was followed by the timber trade and agricultural products. Concentration on staple commodities was accentuated by the migration of technique from the United States. As the export trade in staples from the United States to Great Britain declined in importance, the Canadian trade in staples was encouraged. The fur trade was strengthened by American aggressiveness and technique, the timber trade shifted from New England to New Brunswick and the St. Lawrence, the fishing industry migrated from New England to Nova Scotia, agriculture, in the production of wheat in Ontario and the Prairie Provinces and in dairying, benefited from the contributions of the United States. The dependence of Canada on Great Britain was accentuated by the United States indirectly and by British and Canadian policy directly. European markets and European capital dominated Canadian economic development through the background of water transportation.

In the post-war period and during the depression, the St. Lawrence has contracted in influence as a transcontinental factor. The Panama canal attracted wheat from territory as far east as the western boundary of Saskatchewan. The end of expansion in western Canada for the export of wheat has come in sight, and regions which contributed to rapid expansion in Canada have, by virtue of sustained drought, contributed to sharp depression. The iron and steel and coal industries of Nova Scotia and the St. Lawrence, and industrialism based on expansion in western Canada, have felt the effects of the end of a long-run secular trend. Another element in the decline of the St. Lawrence has been the growing insecurity of Canadian trade in the European markets which has made American capital and American markets increasingly important. The mining and pulp and paper industries have emerged as a result of the increasing population and the declining resources of the United States. With changed conditions, the activities and powers of the provinces have assumed a new importance. For example, as a result of the automobile and tourist trade, roads have been built on a large scale by the provinces, while the dominion government continues primarily to be concerned with railroads and transcontinental traffic.

The end of the period of expansion based on the St. Lawrence and trade with Great Britain coincided roughly with the achievement of dominion status which followed the Great War and which was marked by the Statute of Westminster. The end of the struggle for control over external policy has been followed by problems of internal policy; and the decline of the St. Lawrence as a factor contributing to the centralization of the dominion has been accompanied by the increasing importance of regionalism evident in the growth of the powers of the provinces. The cultural features in terms of language, religion, metropolitan and political organizations based on the peculiarities of staple trades from various regions of Canada to Europe, which provided the basis of the provinces in the British North America Act, have hardened and been strengthened by the decline in the influence of the St. Lawrence as a centralizing factor in the Canadian system. The expansion of provincial powers, conspicuous in New Brunswick, Ontario, and Quebec, has been scarcely less evident in Manitoba, Alberta, and British Columbia. The decline in commercialism which accompanied the rise of free trade advocated by Adam Smith and his disciples, left a structure which moulded the growth of capitalism (sponsored by those who paid lip service to Adam Smith) and hastened the growth of protectionism. The extension of the American empire, the decline of its natural resources, and the emergence of metropolitan areas, supported capitalist expansion in Canada and reinforced the trend of regionalism. The pull to the north and south has tended to become stronger in contrast with the pull east and west. The British North America Act and later decisions of the privy council have strengthened the control of the provinces over natural resources such as minerals, hydro-electric power, and pulpwood on crown lands, resources which have provided the basis for trade with the United States and for investment of American capital. The problem of transportation—itself made possible by dominion support to the construction of transcontinental railways—and problems of drought and depression in western Canada, have compelled the appointment of a federal royal commission, which must run the race between the Charybdis of increasing provincial powers and the Scylla of railway amalgamation masquerading as national unity. The energy and genius of Adam Smith have been replaced by a multitude of counsel, and it is significant that the commission has been announced, with regional representation, to consider a revision of financial and taxing powers in a year in which the Anglo-Saxon population of Canada ceases to be a majority.

TRANSCRIBER NOTES

Misspelled words and printer errors have been corrected. Where multiple spellings occur, majority use has been employed.

Punctuation has been maintained except where obvious printer errors occur.

A cover which is placed in the public domain was created for this ebook.

[The end of Significant Factors in Canadian Economic Development, by Harold A. Innis]