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MODULE 4
ECONOMIC BACKGROUNDTO CONFEDERATION, 1846-67
4.1 Introduction
- authors view Confederation as a predictable political response to a set of economic
forces that were building for many decades
- Confederation paralleled events in Atlantic world and Europe
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4.2 STAPLES AND THE ADJUSTMENT
TO THE END OF MERCANTILISM
- the period from 1842 to 1854 saw dramatic shift in commercial policy from colonial
preferences to freer trade
- belief that end of mercantilism spelled trouble for BNA based on idea that colonial
prosperity depended on the success of a few export sectors having preferential access
to the U.K. market
1)
Timber and Lumber
- differential duties on timber were reduced in 1842 and completely removed in
1860
2)
Wheat and Repeal of U.K. Corn Laws
- free entry from all countries in 1849
- exports from Canada West boomed in 1850's
3)
Repeal of Navigation Act
I) Great Lakes
- loss of flour exports based on U.S. wheat
- Drawback Act of U.S. in 1845 redirected some trade to the Erie Canal
III)
Maritime Shipbuilding and Shipping
- Golden Era
4)
Reciprocity Treaty with U.S. (1854-66)
- commercial treaty between BNA and U.S. included
I) Free trade in natural resources products
II) Reciprocal access to fishing grounds
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III) U.S. ships enter Canadian ports
- explanation for booming exports:
I) Lower duties
II) More declared values
III) Trade diversion
IV) U.S. Civil War and inflation
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4.3 COLONIAL MONEY, BANKING
AND FINANCIAL DEVELOPMENT
Commercial Credit in the Colonial Economy
1) 1763-1812
- bulk of commerce in rural areas was based on a system of direct barter
- “long credit” was extended in a chain from
(I) U.K. merchants, manufacturers and banks
(II) Montreal importers
(III) Merchants in regional centres
(IV) Local merchants to individual customers
2) 1812-67
- monetary economy emerges
- bank credit competes with mercantile long credit as a major form of variable
finance capital
Canadian Banking in the 19th Century
Early Canadian Banks
1) Bank of Montreal
- founded in 1817
- charter in 1822
- modeled after the First Bank of the United States
2) Chartered Bank of Upper Canada
-chartered in 1819
-legislature could own equity shares
3) Bank of New Brunswick
-charter in 1820
4) Bank of Nova Scotia
-formed in 1832
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Commercial Crisis, 1837-38
- dramatic decline in circulating currency as merchants reduced borrowing against
Bills of exchange for goods with falling prices of trade
- suspension of specie payments on notes
Early Efforts to Stabilize the Money Supply
- Lord Sydenham was the first Governor General of the Province of Canada in
1841 and an advocate of the English Currency School
- wanted a government owned bank to issue currency to the commercial banks who
would be required to buy government securities
- opposition of chartered banks led to its demise
Free Bank Act, 1850
- modeled after New York legislation
- firms who met application criteria had to adhere to legislative rules and acquire gov't
bonds
- not allowed to open branches
- little success as banks either failed or converted to legislative charters
Act Granting Additional Facilities in Commercial Transactions, 1861& 1865
- transgresses the strict definition of commercial banking based on self liquiding loans
(i.e. bills of exchange)
- allowed farmers and certain resource firms (i.e. mining) to use warehouse receipts or
bills of lading as collateral for loans
Long-Term Finance Capital in Colonial Economy
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1) Large scale transportation
I) canals
II) railroads
2) Colonial bond issues
3) Financial institutions
I) Building societies
- offered mortgages to finance long-term fixed assets with collateral such as
land, structures, farm equipment, etc.
II) Savings banks
III) Life and property insurance
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4.4 TRANSPORTATION, COMMUNICATIONS AND
EARLY INDUSTRIALISM IN UPPER CANADA
Transportation
1) Open Water
2) Road System
- Seasonal
-growing in size and sophistication
3) Canals
4) Railroads
I) Rapid Expansion in 18050's
Table 9-1
Map 9-1
II) Sources of Finance
-U.K. investors
-Province of Canada
- Railway Loan Guarantee Act of 1849
- Local government
-Municipal Loan Act of 1852
- private investors in the U.K., Canada and U.S.A.
III) Capital Structure
-very high debt to equity financing
-Grand Trunk had ratio of 3 in late 1850's and 25 by 1872
IV) Spread Effects
- linkages
- positive externalities
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Early Industrialization in Upper Canada
-all three stages of industrial development existed in the 1850's and 1860's
1) Household Mfg
-homemade cloth, flannel and linen
-clothing
-soap
-food - butter & cheese
-farm animals
-honey & maple syrup
-vegetable and fruit preparations
-baked goods
2) Workshop on Custom Mfg
-metal smithing
- blacksmith
-tinsmith
-clothing
-leather products
-boots and shoes
-saddle and harnesses
-wagons
3) Factory Production
- this mode at production requires:
industrial financing
managerial
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unskilled work force
motive power
- the most prevalent activities found in
sawmills
grist mills
distilleries/breweries
tanneries
shipbuilding
railroad R&M
Role of Fiscal Policy
- the Cayley-Galt tariffs of late 1850's have generated a debate regarding the
linkage between fiscal policy, transportation and protectionism
- Finance ministers claimed that increase of tariffs on manufactured imports was to
finance railroad development and resulted in “incidental protection”
- impact of higher tariffs on imports at higher stage of manufacturing fostered
growth of industries with no abundant resource base:
I) Iron products
- iron works
- agricultural implements
II) Textiles
-cotton and wool
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III) Tropical goods
-sugar
-distilled products
-fruits
-rubber (later)
Profile of Early Industrial
Economy of the Province of Canada
Numerous local industries were begun or expanded in various parts of the Maritime
Provinces, and in Upper Canada in particular. This development was largely due, in
the latter province, to difficulties of transportation, even by roads. Facilities for
establishing water-powers were numerous; millwrights and persons skilled in
building timber structures of some size were in demand. At first the equipment for the
mills came chiefly from the United States, but, later, foundries were established in
Canada, as at Montreal, Kingston, York (afterwards Toronto), Dundas, and even at
Marmora near Belleville, where was established an iron works producing malleable
iron from local ores. In the immediate neighbourhood of each grain mill there was
also often established a saw-mill, a cooperage to provide barrels for the export of
flour, a small woollen mill providing yarn and coarse cloth. A special woollen factory
was erected on the Humber near York. A blacksmith shop was connected with each
mill site, where often a great variety of fairly skilled work was produced, such as
simple agricultural implements and even wagons. At many of these centres there were
also stills, producing alcoholic beverages, whisky, not beer, being chiefly favoured.
Among the more important iron products brought from a considerable distance,
especially from the old French iron works re-established at Three Rivers in Lower
Canada, were domestic stoves, large potash and sugar kettles, the latter of which, on
occasion, were found most useful for many purposes, domestic and other. Special
industries were located at particular places, as, for instance, a nail factory at Port
Hope in 1826
Adam Shortt; ‘Financial Development of British North America, 1840 – 1867’ in the Cambridge
History of the British Empire
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4.5 Productivity in the Colonial Era
Agricultural Productivity in Pennsylvania, 1714-90
dQ = 3% = [.14 * 6%] + [.10 * 21%] + [.76 * - 12%] + dA
Q
A
therefore 3% = [.84% + 2.1% - 9.12%] + dA
A
= - 6.18% + dA
A
therefore dA = 9.18%
A
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4.7 Confederation and the BNA Act
Reasons for Confederation
Textbook pp 172
Profile of Colonial Economies at Confederation
1) Population
Table 10-1
2) Sectoral Composition of Activity
Table 10-2
3) Patterns of Inter-Provincial Trade
Table 10-3
3) Regional Disparities
Table 10-4
Territorial Growth
1867 - union of Ontario, Quebec, N.B. and N.S. (Map 8-2)
1869 - HBC sells Rupert’s Land and hold onto 5%
1870 - Manitoba
1871 - British Columbia
1873 - Prince Edward Island
Infrastructure of Federal Government
1) Civil service
2) Judicial system
-highest court was Privy Council in U.K.
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3) Fiscal policy
- tariffs based on 1866 duties of Province of Canada
4) Monetary policy
- Bank Act of 1871
- gold standard
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