The Canadian state was consolidated at a point in history when fundamental transformations in the world economic order were in motion. The first of a series of long waves of economic expansion, which was based on water power and the world hegemony of the British textile industry, had given way by the 1840’s to the new age of steam and steel.¹ The steamship, the railway, and shortly thereafter the telegraph revolutionized the structure of the Atlantic economy, and then spread even further afield. The communication and transportation revolution precipitated further transformations. Industrialism ceased to be a British phenomenon, and spread...

The formation and evolution of the Canadian state structure is fully explicable only when explicit cognizance is taken of the commercial and financial relations of the colony to more advanced economies, notably Britain and the United States. Many of the most critical political decisions taken by the ruling class in the colony were conditioned by the state of Canada’s relations with the British capital market. British capital built most of the major works of commercial infrastructure in the provinces; public finance depended upon the pleasure of the imperial government and the London private “merchant” banks; and Canadian development policies and...

The Canadian banking sytem, like virtually all the country’s economic institutions, was a truncated import from a more advanced economy, specifically from England. What is important is not the nationality of the bankersper se, (who were largely Scots) nor the legal niceties attached to early charters (which were largely American-derived), but the actual manner of functioning of the banks.¹ And in this respect the Canadian banking system was a colonial variant of London joint stock commercial banking.

The migration of English banking to Canada was not complete. Only part of the system took root in the colony. For purposes...

The refusal of the successful chartered banks to undertake a significant role in financing industrial fixed capital formation was justified on the grounds that lock-ups in industry led to failures. But many banks failed that did not become involved in industrial banking. The failure record reflects the pre-war division of the Canadian banking system into two distinct systems. The first embraced the Ontario and Montreal and Halifax banks, whose activities were restricted to orthodox commercial banking. The other included the “French banks,” in small centres in Quebec, and the Maritime banks. The banks belonging to the second group had few,...

Of the four component parts of the English banking system, the London commercial banks and, to a limited extent, the Bank of England, had their counterparts in Canada; the private “merchant banks” like the Barings or Glyn, Mills did not. An institution that was, on the surface, analogous to the country bank seems to have flourished in Canada—the private bank. But on a deeper view, there were fundamental weaknesses in Canadian private banking compared to the English country bank.

Canadian private banks in general failed to exercise the independent industrial functions of an English country bank, largely because of...

The post-Confederation period witnessed the financial integration of Canada. Though the banks played the dominant role in the evolution of the capital market and the creation of a national pattern of flow of funds, other institutions grew up to take on specific roles. Still others declined over the same period, as their roles were displaced by the growth, monopolization, and diversification of other financial institutions. The period from 1873 to 1896 saw the decline in relative importance of the chartered banks and the expansion of private banks and mortgage loan companies. From 1896 to 1914, the relative rates of growth...

To a substantial degree, the terms of Confederation were designed explicitly to placate British investors after the Grand Trunk debacles of the 1850’s and 1860’s, and to restore the Province of Canada’s sagging credit. Yet despite the efforts of the Canadian politicians British confidence did not return on a great scale until after the great expansion began at the end of the century, though there was, of course, substantial foreign and British investment in Canada before that date.

In 1881 in London there existed a chain of debts, the structure of which reflected the financial hierarchy envisaged in the Confederation...

Sir Henry Tyler, long head of the London board of the Grand Trunk, once claimed that “the prosperity of Canada is the prosperity of the Grand Trunk Railway.”¹ It was no idle boast, for at the time of Confederation and for a few years after both verged on bankruptcy simultaneously. But soon rival schemes to drain the coffers of the Dominion, provinces, and municipalities were afoot. And essential to the success of any railway enterprise was the ability to float bond issues in London.

Dominion government borrowings for railway building began in 1868 with an Intercolonial Railway Loan of £1.5...

Immediately after Colonel Garnet Wolsely had made Manitoba safe for democracy, civilization, and Donald A. Smith, there came a second army of invasion, composed of land speculators and dealers in Métis scrip. Land grants of 160 acres each were distributed to the troops with the option of selling it, and the land speculators secured the bulk of these lands as well. The effect was that even by 1870 bona fide settlers were being pushed away from the Winnipeg area to more inaccessible areas.¹

The transfer of Rupert’s Land to the Dominion from the Hudson’s Bay Company was followed by the...

The use of imported technology had a role in the development history of most advanced industrial economies. Theft of technology and skilled workers, even the murdering of artisans to preserve secrets from potential or real competitors, and similar policies — all played their role in European mercantilist strategy. The preservation, or attempted preservation of industrial secrets as an objective of national policy was also in evidence even well into the nineteenth century. Britain, for example, tried to maintain industrial hegemony through the prohibition of the export of machinery and the blocking of the emigration of skilled labour. At the same time,...

One key objective of the National Policy was to shift the locus of industrial production from the U.S. and Britain to Canada. It also aimed to shift Canadian commercial patterns so that manufactured goods flowed on an east-west nexus, while industrial capital in Ontario and Quebec would be able to capture both the Northwest and the Maritime market. It mattered little if the capital invested in manufacturing was of Canadian or foreign origin. In fact, given the underdevelopment of Canadian industrialism, an inflow of foreign direct investment was an obvious prerequisite if the strategy was to succeed. As the CMA...

In addition to tariff and patent laws, the federal government granted bounties of various orders of magnitude to some primary processing industries, such as the lead and iron and steel refiners and smelters. Occasionally the provinces followed suit. But most prolific of all the levels of government in the granting of largesse to corporations were the municipalities, and of all the multitude of techniques used by various levels of government in Canada to increase the rate of industrial capital formation none was as bizarre as the system of municipal bonusing. In large measure, bonusing was a stop-gap policy to plug...

Even without the existence of federal or provincial subsidies, the competitive system of bonusing industry thrived in all facets of secondary production. Bonusing served to build up local industry, to attract it away from neighbours, and to draw in foreign direct investment. It was partly done on a free-for-all basis, but often distinct patterns would emerge. A particular industry would be regarded as crucial for a municipality’s development plans, and one town’s success in attracting it would spark a wave of competitive bidding from others.

There were two distinct patterns to municipal efforts to induce the location of food processing...

Whenever competition existed in Canada, so too, it seemed, did an effort by businessmen to avoid it. In this they were powerfully assisted by government policy, both by its presence in the form of high and rising tariffs and by its absence in the lack of enforceable combines legislation. Many combines from the beginning were continental in scope, involving associations of manufacturers, wholesalers, and retailers in Canada with manufacturers in the U.S. and even, on occasion, in Britain. The devices for the regulation of competition were many and varied, ranging from the gentlemen’s agreement, to formal trade associations (often under...

Because Canada remained largely an agrarian society, Reciprocity with the United States, at least in natural products, remained on the level of theory, if not in fact, the ultimate objective of federal commercial policy until 1911, when the issue was finally settled.

From an early period, leading manufacturers began to point out the difficulties inherent in Reciprocity. Aside from the issue of patents, where Reciprocity would lead to a wholesale destruction of Canadian business operating in Canada under licence from the U.S., the loss of branch plants was an early and powerful counter-argument. The possibility was also raised that branch...

During the period before World War I when Canada was a net borrower, it was also engaged in the export of capital. Nor were these international loans always minor in scale, for during the period 1895-1901 the balance of trade was in surplus over-all and an export of capital net of continued borrowings from the U.S. and Britain occurred.

Because of the unevenness of development of various sectors of the economy, capital tended to flow more facilely internationally and intrasectorally than it did intranationally and intersectorally. These tendencies were particularly acute in Canada before the war because of the sharp...

Canada undoubtedly represents the outstanding case of “industrialization by invitation” as a conscious development strategy, and the lessons to be drawn from Canada’s “success” and the resulting structures are important ones. The Canadian strategy in effecting the transition from a mercantile-agrarian economy to a partially industrialized one involved drawing heavily on the resources of two metropolitan economies, from Britain for financial and commercial development and from the United States for industrial. In many respects it was an incompatible mixture.

In terms of industrial development, patent regulations and tariffs both aimed at keeping the border open to the flow of factors...

Canadian development policy in the National Policy era was essentially a policy of mercantilism, of consolidation and expansion led by a commercial capitalist class in which the state structure in the hands of that class played a critically active role. Access to foreign capital and technology was thesine qua nonof success. It was a strategy inextricably related to the state of the British Empire. The Empire provided markets and thereby the rationale for both the expansion of major staples and the influx of American manufacturing investment and technology. Britain supplied, as well, portfolio capital for financial and infrastructural...