The New Railroad Syndicate

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A few episodes back I talked about the Pacific Scandal, an incident which effectively delayed the railroad for at least five years and ended the first incarnation of the Canadian Pacific Railway. Today, I am looking at the second incarnation of the syndicate that would be the Canadian Pacific Railway, the organization that exists to this day, generating $7.7 billion in revenue, employing 11,908 people and managing 20,100 kilometres of track.

In the last episode I talked about the construction of about 1,000 kilometres of track from Thunder Bay to Winnipeg through the Canadian Shield, which was no easy task.

When Sir John A. Macdonald and his Conservatives came back into power on Oct. 16, 1878, his major focus from the beginning was getting the railroad built. The building of the railroad would continue, and MacDonald would not choose the total route for the railroad, to its terminus in British Columbia. I will talk about the choosing of that route on July 22, so I won’t get into detail here.

What I will get into detail about is the syndicate that was created on Oct. 21, 1880, that was not related to the previous one, which had been created by Sir Hugh Allan, the man at the centre of the Pacific Scandal. The contract would state quote:

“For the better determination of this contract, it is hereby declared that the portion of the railway hereinafter called the Eastern section, shall comprise that part of the Canadian Pacific Railway to be constructed, extending from the Western terminus of the Canada Central Railway, near the east end of Lake Nipissing known as Callander Station.”

There was speculation that instead of pursuing the creation of a syndicate, Sir John A. Macdonald would instead go to other governments to obtain money. Sir Alexander Galt would state in the Montreal Gazette on Oct. 19, 1880, just prior to the creation of the syndicate, quote:

“The idea of a syndicate is an old one with him, dating back to 1873 when the road was finally turned over to Sir Hugh Allan and others for completion. I can really say nothing about the terms made with the present syndicate or its members. A very ridiculous story has been published to the effect that an attempt was to be made to borrow money here in the United States…We never wanted to borrow money here even if it were easily obtainable, which is perhaps doubtful.”

This creation of this new syndicate came only a few months after Sir Charles Tupper, future prime minister of Canada, dismissed Sir Sandford Fleming as chief engineer and hire Sir Collingwood Schreiber as its chief engineer in June 1880. Schreiber had come to Canada in 1852 with his family and began to work as a railway engineer soon after on the Toronto, Hamilton and Buffalo Railway. He would then leave after four years to work with Sir Sandford Fleming, the man he eventually replaced. By July 1880, Schreiber was named the general manager of all government railways in operation. As such, he would conduct railroad inspection tours, arrange financing and oversee much of the project with Sir William Cornelius van Horne, who I talked about in the previous episode.

This new syndicate would agree to build the railroad in exchange for $25 million, about $625 million today, in credit from the Canadian government and, most importantly, the granting of 25 million acres, or 100,000 square kilometres of land. That land grant would allow the syndicate to create towns across the landscape, sell lots and make a fortune in the process.

In addition to the land grant and the credit, the syndicate was given ownership of the sections of railway the government had already built in the east, as well as the line from Port Moody to present-day Kamloops, which had cost an estimated $37 million during the previous years. The government also deferred all surveying costs and exempted the railway from paying property taxes for two decades. The stations, grounds, workshops, buildings and yards would be free from taxation forever and the land for those would be provided for free. There would also be no regulation of rates for the railroad until the company was earning 10 per cent. Needless to say, this was a good deal for the syndicate, although the syndicate did need to come up with an estimated $100 million in funding because the construction of the railroad through British Columbia was estimated to cost $60 million alone. A major change from the previous syndicate was that while the government would have originally supervised the construction of the railroad under Sir Hugh Allen, the new syndicate had no such rule.

The contract would be drawn up by future prime minister Sir Charles Tupper.

Speaking on Feb. 18, 1881, regarding the land grant, Archibald Woodbury McLellan would state in the House of Commons, quote:

“If the syndicate does nothing more than settle the 25 million acres of land that we have intermixed with theirs they will confer an incalculable benefit upon this Dominion.”

It was clear to everyone involved, even those who opposed the construction of the railway, that without settler development in the west, the entire project would be worthless. On Feb. 3, 1881, Sir Alexander Campbell would say that for the syndicate, quote:

“Construction of the railway was not the greatest part of their undertaking. They have undertaken to people a continent. If they do not send settlers in very large numbers into the Northwest, it is impossible that the lands could be of any value and the railway would be less than valueless.”

As can be expected, the terms the government provided for the syndicate were widely criticized by the opposition in the House of Commons and those who opposed the railroad in general. The most contentious aspect of the contract was not the money or land provided, but the monopoly clause that forbid the construction of any competing line to the south of the railroad during the next 20 years. No line south of the Canadian Pacific Railway line could be constructed within 15 miles of the United States border.

The Opposition also stated they would have preferred the limiting of the land grant, while increasing the cash subsidy. This land was given to the syndicate in alternate sections of 640 acres each from a strip of 48 miles wide running from Winnipeg to Jasper House.

The Ottawa Free Press referred to the contract agreed to as, quote:

“A stupendous outrage. Nothing that ever entered the human mind can equal it. The terms are more like what would be imposed by a military conqueror after the country had been prostrated by an unsuccessful war.”

The Montreal Daily Witness would write, quote:

“One stands aghast before this Pacific Railway contract, so monstrous are its provisions and so monstrous its omissions. We take days to gather breath to discuss it and then we quail before the uselessness of the task.”

Newspapers looking to capitalize on the Pacific Scandal that was still fresh in the minds of many would call the contract the “Pacific Swindle” or the “Pacific Disgrace”

Rumours quickly began to fly regarding the syndicate members. One was that Sir Charles Tupper had joined the syndicate, which would have been a massive conflict of interest. Another said that the Governor General had urged that Parliament be dissolved so that the matter could be decided by citizens. A further rumour said that Sir John A. Macdonald was going to retire over the whole affair. Of course, none of these proved to be true.

Even those who supported the syndicate did not hide their own views regarding the company. Thomas Scott, a Member of Parliament, would say in the debate regarding the syndicate bill, quote:

“The gentlemen interested in this scheme are all men of reputation, personally known to most of us and I have for them the highest respect but they have entered into this matter, not from patriotic motives, not from any desire to relieve the Dominion of the burden of building this road, but they have gone into it as most businessmen, as they have a right to do, for the purpose of making money out of it. I think I am quite within the bounds of truth and property when I make that statement.”

This statement was backed up by the fact that under the Act, the members of the syndicate could transfer shares between each other as they saw fit but unless the board members approved, outsiders could not be admitted to purchase stock. When the shares were issued to the original partners, each received 57,646 shares. Within three years, each share was worth $140, which meant each partner was worth $8 million in the company. Of course, without a railway being built, those shares would be worthless. In 1882, the partners issued themselves $2 million worth of stock, and in 1883, issued themselves $10 million worth of six per cent bonds for $1 million, netting a profit of $9 million. The attorneys who worked for the syndicate were offered the choice of $25,000 or half a million in stock. Since many saw the railroad as a folly, they chose to take the cash. Those attorneys, if they held onto their stock for 30 years, would have stock worth $30 million.

Scott would state in that debate, quote:

“This is a very extraordinary feature of this charter, one that is quite unusual. The usual practice in granting charters to companies to build great works is that the stock books shall be opened, and the people shall have an opportunity, if they think the enterprise a good one, to put their money into it and share in the profits.”

William Bullock Ives would speak out in favour of the syndicate, citing the money that it had to pay to build the railroad. Citing an estimate that the syndicate would have to pay $82 million to build the railroad after the $25 million was deducted, he would say on Dec. 24, 1880, quote:

“I propose to add five years of interest at four per cent and it makes a total of $11 million, which the syndicate must pay during the ten years of construction…well sir, that is not all the interest, we must add to the estimates of the leader of the Opposition. He has always argued that this road would not pay running expenses, at all events during the first years of its operation and if it will not pay running expenses it certainly will not pay interest on capital account.”

Ives would estimate that by the end of it, with interest, the syndicate would need to pay $95 million, or $2.2 billion today.

The contract from the government called for the commencement of construction by the syndicate in the east on July 1, 1881. The company quickly set up its construction headquarters at Winnipeg. The contract also stated that the syndicate would follow the proposed route that the government had chosen in October 1879, going west from Winnipeg to Edmonton, through the Yellow Head Pass, into British Columbia and to Kamloops. The syndicate instead chose to change the route and adopt a southerly route that would run through Calgary instead and the Kicking Horse Pass. For the syndicate, a more southerly route would prevent the Northern Pacific Railway from commanding the bulk of traffic on the southern prairies and British Columbia. It would also the syndicate to capture traffic from the south and the north, forcing people in both regions to use their railroad at some point along the journey.

Beginning on Dec. 9, 1880, the great debate over the syndicate would soon begin. At the time, it was likely the most important debate in the history of the country. When the debate started, a special gallery that was soon crowded with observers.

Edward Blake would call the contract a national scandal and his main goal was to oust the government over it, the same thing that had happened seven years previous during the Pacific Scandal. Over the course of the next two months, the debate with rage. The Opposition would hit as hard as it could against the government, citing American interests in the syndicate, accusing the government of bribery, corruption and political handouts. Blake truly believed that history would repeat itself and an election could be forced. Of course, Macdonald had a majority government and the independents, which amounted to nine MPs, were on his side but he needed to hold them in line. Another issue, as illustrated by Sir Charles Tupper regarding Blake was that his speeches, quote:

“Contained more matter than even the House of Commons could assimilate, and to that extent his labours were lost.”

At the time, the debate was the longest to ever be held in the House of Commons to that point, and today remains one of the longest in the history of Canadian Parliament. During that time, its estimated one million words were spoken on the subject of the contract, and many were filled with venom at opponents across the aisle.

Goldwin Smith, a historian from the time, would say quote:

“Seldom has any country been summoned to deliberate upon an enterprise so vast in comparison with its resources or so vitally connected with its fundamental policy, what is truly momentous, and makes this a turning point in our destiny, is the choice which our people are now called upon to make between the continental and anti-continental system, between the policy of antagonism to our neighbours on the south and that of partnership.”

Sir Charles Tupper would state quote:

“If I have no other bequest to make to my children after me, the proudest legacy I would desire to leave was the record that I was able to take an active part in the promotion of this great measure by which I believe, Canada will receive an impetus that will make it a great and powerful country at no distant date.”

On Dec. 21, the Opposition hoped for a Christmas recess as it wanted as much time as possible to take the issue to citizens at public meetings and to appeal to the supporters of Macdonald through petitions from their own constituents. Macdonald would ensure that the recess was as short as legally possible.

On Dec. 23, the Opposition put forward a bill that carried a clause which stated if any corporation that was granted the charter to build the railway, in other words the syndicate, was found to have contributed any amount of money to any member of parliament for campaign expenses, then the corporations would forfeit the charter. This would fail, as many expected it would.

Commons would soon adjourn and be back on Jan. 5. This gave the Opposition only two weeks to gain support from the country to his cause. The five-hour speech that Blake gave in the House of Commons was turned into a pamphlet and handed out throughout the country. Blake would be busy during those two weeks and the Ottawa Free Press would call him, quote:

“A Canadian statesman coming forward on behalf of the people at a great national crisis.”

Tupper in response, after being denied the chance to speak for half the time at the meetings Blake held, would instead have someone attend every single meeting Blake held and then report to him what was said and what the crowd said.

By this point, Macdonald was dealing with many who were questioning the syndicate and the contract, with supporters from Halifax to Quebec to Manitoba beginning to change their tune. Many worried the Conservative Party would be crushed by the financial load of the railroad. Macdonald used all of his political talents to hold things together, and on Jan. 11, his supporters came out in force in the House of Commons when the resolution was taken out of committee.

At this point, the only opposition open to the Opposition was to put together a rival syndicate that would offer the government a better proposal. On Jan. 12, 1881, as Alexander Mackenzie, the former prime minister, talked for the first time about the bill, a meeting was being held in the Queen’s Hotel in Toronto to draw up a tender and send it to Ottawa. Sir William Howland, former Lt. Governor of Ontario in 1873, was chosen to be the president. This new syndicate would ask for 22 million acres of land and $22 million in cash. There would also be no monopoly clause and would ask for no exemptions from the tariff on railway materials.

As Macdonald attempted to push the contract bill through first reading, the Opposition would filibuster the process. Nonetheless, his goal was to kill this new syndicate. On Jan. 17, Macdonald spoke in the House of Commons, despite being ill and needing to be helped to his feet. He would state quote:

“Notwithstanding all the wiles of the Opposition and the flimsy arrangement which it had concocted, the road is going to be built and proceeded with vigorously, continuously, systematically and successfully until completion and the fate of Canada will then, as a Dominion, be sealed. Then will the fate of Canada as one great body be fixed beyond the possibility of honourable gentlemen to unsettle. The contract was declared oppressive, we were giving away whole lands of the North West. The comedy was that when every one of the speeches of these honourable gentlemen were read to them, it was proved that last year, or the year before, and in previous years, they had thought one way and that now they speak in another way.”

On Feb. 1, after debates, filibusters and 24 amendments proposed by the Opposition, including one that was 3.5 pages long, the longest in the history of the House of Commons at the time, the bill was given its final reading. The only task left was for the bill to go to the Senate where it would pass.

On Feb. 15, 1881, the legislation to create the syndicate received Royal Assent. On Feb. 16, the company was officially created, and its founding partners would deposit $1 million in security for the construction of the railway. The partners also agreed to build the railway across the continent on or before May 1, 1891.

The syndicate would be comprised of five men officially, and two silent partners who raised $2 million of the first $5 million needed to get the project moving.

The five official partners were George Stephen, James Hill, Duncan McIntyre, Richard Angus and John Stewart Kennedy.

George Stephen was the director and president of the Bank of Montreal and one of the richest men in the country. In 1877, his cousin Donald Smith, introduced him to James Hill and that led to the creation of a partnership that would become one of the most profitable in the history of the railway industry in North America. That partnership would consist of not only Hill and Stephen, but John Stewart Kennedy, all three of whom would help form the syndicate. Also in the partnership were the two unofficial silent partners of the syndicate, Donald Smith and Norman Kittson.

Smith would be a major force on the syndicate, even though he was an unofficial partner. His immense capital into the project gave him a lot of power in making decisions, and in honour of his association with the Hudson’s Bay Company, a beaver was chosen as the logo for the company. Smith had begun his career as a factor for the company, eventually rising to become governor of the company after a long career in the beaver fur trade. Smith was the main financier of the syndicate, and much of his wealth was put into the company. So why wasn’t he a director of the company he often bankrolled? That comes down to Sir John A. Macdonald, who did not like Smith and whom Smith did not like. The two had been friends but in 1873, the prime minister delayed reimbursement of earlier expenses for Smith during the Red River Resistance when Smith was negotiating with Louis Riel. Smith, who was serving as a member of the House of Commons at this point, voted to censure the government in a motion over the Pacific Scandal, and was therefore responsible for the defeat of the Conservative government and the fall of Macdonald from prime minister for the next five years. Smith then sat not as a member of the Conservatives, but as an Independent Conservative.

Stephen would be named as the first president of the Canadian Pacific Railway and it fell to him to not only figure out how to build through forests, swamps, rivers and mountains, but also secure the $100 million still needed, and of which only half had been secured. Hill would be the man who would convince Stephen to hire Charles Van Horne to construct three major sections of the track.

At this same time, Richard Angus was traveling to Ottawa, New York and London with Stephen, attempting to negotiate land grants and subsidies. The two proved to be a formidable pair in gaining funding but it was often an uphill climb. Angus would serve as the general manager of the CPR until Vane Horne came along, and he then became the vice president, which made him responsible for the eastern network of the railway.

By the end of 1881 though, Stephen would state that the project was far beyond his calculations, and he stopped all other activities and devoted all his time to building the railroad and securing its financing. The financing was proving to be a huge problem for Stephen, who by 1883 was seeing that the entire organization was straining under the immense financial obligations it had. Using his fortune and his mansion as collateral, he would begin to see the original syndicate partners resign. Hill would resign in 1883 when he realized his own railroad competed with the Canadian Pacific Railway, while Kennedy resigned soon after, sending the stock of the company down and further complicating the matters of Stephen and his drive to find capital. McIntyre resigned in 1884, and the other directors were forced to buy his shares as a result.

Stephen would continue to secure funding, finally achieving the last of what he needed in 1885 when he went to Lord Revelstoke and the Barings Bank personally to underwrite the sale of company stock. He was also helped by the Railway Relief Act of 1884, which provided an additional $22.5 million in loans to help the syndicate.

When the last spike was driven into the railroad at Craigallachie, British Columbia on Nov. 7, 1885, by Donald Smith, only three members of the original seven partners remained, Smith, Stephens and Angus. Those three would see their fortunes increase enormously thanks to the railroad. With that last spike, the railroad was completed by the company six years before the deadline.

Of the original seven partners, Richard Angus would die last, passing away in 1922 one year after Stephen. Angus served as a director and committee member of the CPR for 40 years but would turn down becoming president of the railway in 1888, and twice turned down knighthoods due to his working class roots and desire to remain true to them. Smith would be passed over for the position of president of the company once again, but he would remain a member of the board of directors for several years. He would pass away in 1914, by this point elevated to Lord Strathcona. Upon his death he was given a state funeral at Westminster Abbey and would have been buried there but he had chosen to be buried next to his wife, who died only a few months previous.

Information comes from Canadian Encyclopedia, Canadian Coin News, Wikipedia, Surrey History, Musee McCord Museum, Montreal Gazette, Ottawa Daily Citizen, Ottawa Daily Citizen, Railway Libraries, the Canadian Pacific Railway and British Columbia 1871-1886,

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