The Last Spike: The Great Railway, 1881-1885 (46 page)

The Prime Minister’s rosy predictions did not come true. Canadian Pacific stock shot up briefly to a little over sixty-three dollars. It hovered at that price for a few days and then began to drop back again, fluctuating day by day but slipping slowly until, by the end of 188–3, it was down to fifty-two.

Long before that point was reached, Stephen was forced to revise his plan. He would guarantee a dividend, not on one hundred million dollars worth of stock but only on sixty-five millions. That meant that, since fifty-five millions were already issued, he had only ten million dollars worth of unissued stock available to him. He dared not put that up for sale at the reduced price but was able to use it as security to get a loan of five million dollars in New York through J. S. Kennedy’s firm.

The gamble had been disastrous. To raise five million dollars, George Stephen had put up nine millions in cash and pledged another seven millions in securities. The railway was worse off than it had been before he took the plunge. And in December it was hit by another blow: the Canada North-West Land Company was in difficulties. The
CPR
, to keep it alive, was obliged to take back about half of the land grant bonds that it had sold to the company on time, and an equivalent amount of land, to bail it out.

The
CPR’S
situation was critical. The
New York Times
, in predicting that the stock would drop out of sight, had remarked darkly that “Canada politics and Wall-street stock jobbery seem equally mixed up in the affair” and declared that the Canadian people “may expect to see Canadian securities, stocks, bonds, and all go down in a heap together.” Stephen realized that the railway had scarcely a friend left in the international financial capitals: “Things in New York are simply disgusting, every fellow there and in London too is ready to cut our throats if he could be sure of robbing us.” He tried to keep his spirits up: “I am not discouraged and confident that in some way we shall triumph over all obstacles and disappoint all our
enemies
and pretended
friends
.” But
Macdonald, to whom he poured out his feelings, knew that he was close to despondency. The incurable Stephen optimism was beginning to wear thin in banking circles, as Rose confided to the Prime Minister in his oblique way: “Most strictly between us, our friend Stephen’s assurances are rather regarded now with less trust than I like to see.” Stephen’s reputation for financial legerdemain had suffered a bad blow as a result of the gambit that failed. Rose wanted to know about
CPR
securities. Many of his friends were “foolishly sacrificing” their shares as a result of adverse reports. Would he be warranted in advising them to hang on? Even a hint from Macdonald would help.

Macdonald had already, though with great reluctance, made his decision: the government would have to come to the company’s aid and find some way of forcing a new loan down the throat of Parliament. It had taken considerable persuasion to budge the Prime Minister. One evening late in November a powerful
CPR
delegation visited Macdonald at his private residence, Earnscliffe. Stephen, Angus, McIntyre, Van Horne, and Abbott, the lawyer, were all present to make the case, but Macdonald could not be moved. Van Horne later described the scene and its aftermath to O. D. Skelton, the historian.

“Gentlemen, I need not detain you long,” the Prime Minister told the group. “You might as well ask for the planet Jupiter. I would not give you the millions you ask, and if I did the Cabinet would not agree. Now, gentlemen, I did not have much sleep last night, and should like to go to bed. I am sorry but there is no use discussing the question further.”

Stephen and the others tried to argue; Macdonald refused to listen to any further entreaties. The five men went dolefully back to the city to wait for the four o’clock morning train to Montreal. It must have seemed to them that their careers were at an end.

They stopped in at the old Bank of Montreal cottage to spend the intervening hours. There they encountered John Henry Pope, the acting Minister of Railways, stretched out on a couch reading, a strong habitant cigar between his teeth and a glass of whiskey at his side.

“Well, what’s up?” Van Horne remembered Pope saying.

While McIntyre danced nervously about, Stephen gave him the bad news.

Pope rose slowly, lit a new cigar, heaved his gaunt frame into his shaggy coat, clapped his old otter cap on his head, and called for a carriage.

“Wait till I get back,” was all Pope would say. It was now past one o’clock.

He returned an hour and a half later, poker-faced, kicked off his rubbers
without a word, doffed his cap and coat, poured out another pony of whiskey, lit, with maddening deliberation, a fresh cigar, and finally broke the tension: “Well, boys, he’ll do it. Stay over until tomorrow.”

Pope, who had got the Prime Minister out of bed, had used the one argument that could convince his chieftain that the
CPR
must get its loan: “The day the Canadian Pacific busts the Conservative party busts the day after,” he told him.

The following day Stephen and his colleagues appeared before the Council to find the Prime Minister out of sorts, Alexander Campbell totally opposed to further help, and Leonard Tilley, the finance minister, openly advocating that the government take over the railway. Macdonald desperately needed Tupper at his side. Sir Charles, though still a Member of Parliament, had been dispatched to London to replace Galt as High Commissioner. Now that most pugnacious of political in-fighters, “the most fearless combatant that ever sat in the Parliament of Canada,” was required in Ottawa. Tupper, said his political opponent George Ross, “wrestled with his subject as a strong man would wrestle in the amphitheatre with an antagonist.” Since his original memorandum in the spring of 1880, he had been the Canadian Pacific’s greatest defender within the Cabinet. On December 1 Macdonald sent him a curt cable: “Pacific in trouble. You should be here.” The new high commissioner was handed the message just as he was rising to speak at a dinner in his honour, but he was not long in dispatching a reply: “Sailing on Thursday.” When he arrived in Ottawa, he “found everybody in despair.”

Stephen was frantic: “Something must be done at
once”
he told the Prime Minister, otherwise he must give up and let the government take over the railway. He needed $3,850,000 cash by January 1, 1884, to pay immediate debts. By January 8, he needed an additional $3,812,240 to pay off a short-term loan in New York. Another payment was due the government – $2,853,750 – by February 1. The company’s total debt was fifteen millions, the remainder of the money owing being on a longer-term basis.

Stephen, flitting between New York and Montreal trying to stave off disaster, apologized to the Prime Minister for the heavy stream of correspondence. “I am doing my best to keep the Bank [of Montreal] quiet,” he told him two days before Christmas, “…  but our wants are great and constant and not very easily supplied. Smithers [the president] knows very well that I would not allow the bank to lose a cent by the
CPR SO
long as I could pay the money myself, and that feeling helps us not a little just now.”

A bank crisis was not inconceivable. Stephen himself feared that if the heavy advances to the railroad, made without adequate security, became known to the public, there would be a run on the Bank of Montreal. The bank’s chief executive officers were in a state of terror. Tupper privately told them that they must advance the railway the money it needed; the government stood right behind the company and would guarantee payment. That was not good enough for the bankers. Confidence in the
CPR
had reached such a low point that they demanded a secret memorandum, which they insisted be signed not only by Tupper but also by Tilley, the Minister of Finance, and by the Prime Minister himself. They had to be satisfied with a paper, signed by Tupper alone; in a close vote they agreed to extend the loan. It was, as Stephen knew, “a narrow squeak.” Several of the directors were determined to refuse the application and “smash the whole thing up.” Stephen was convinced that they were under Hickson’s control and also motivated by “envy, hatred and malice.”

This short-term aid did not solve the railway’s long-term problems. There could, in fact, be only one solution – a government loan. Stephen, who needed fifteen millions to pay off the company’s debts, figured he could complete the road with an additional twenty-seven millions, of which he had twelve millions coming in unpaid government subsidies. In short, he needed a loan of thirty million dollars.

He formalized the request in mid-January, asking for a loan of $22,500,000, repayable May 1, 1891, and further relief in the form of a five-year postponement on the second instalment of more than seven millions that he had so recklessly promised in order to guarantee the dividend. This was an enormous sum for any company to raise in 1884; it represented almost a whole year’s revenue of the federal government. In addition, Stephen asked that both the remainder of the subsidy and the extra money provided by the loan be paid out to the
CPR
, not on a mileage basis but on the basis of actual work done. In return, he promised to finish the job in exactly half the time stipulated in the original contract. To get the necessary working capital, Stephen was forced to mortgage the railway. As security, he put up “everything they had in the world” (in Van Horne’s words) – the main trunk-line, all the rolling stock, and everything else connected with the railway, including outstanding stock and land grant bonds. With this loan, the
CPR
had exhausted all further means of raising capital.

This was the medicine that Macdonald and Tupper must force their reluctant followers to swallow. It would not be easy. A platoon of powerful forces was arrayed against the railway: the Opposition under Edward Blake, the most eloquent man in the House; half the newspapers in the country; the great international press associations – Reuters and
AP –
which seemed to be spokesmen for the Grand Trunk; the large financial houses; and a good many of Macdonald’s own followers, including several Maritimers (who had no interest in a western railroad), most of the Quebec
bleus
(who wanted an equal share in any largesse the government intended to dispense), and the Manitobans, who represented a growing popular antagonism to the
CPR
.

The building of the railway had laid a bundle of annoying problems at the Prime Minister’s door that Christmas season of 1883–84. Andrew Onderdonk was haunting the lobbies trying to get a further subsidy for his section of the road. He had arrived at a singularly unpropitious moment. A few days before Christmas, disgruntled Manitoba farmers had organized themselves into a pressure group, the Manitoba and Northwest Farmers’ Union. Its formation marked the beginning of a vexing and perennial Canadian problem: the disaffection of the agrarian West with the industrial East. The symbol of that disaffection was the
CPR
.

There were a good many reasons for western discontent in 1883 and not all of them were the fault of the railway. The collapse of the Manitoba real estate boom, followed in September, 1883, by a killing frost, had left a legacy of despair and disillusionment. Economic conditions, which had been steadily improving since 1878, took another downturn throughout the continent. The pioneer settlers along the North Saskatchewan were bitterly disappointed over the
CPR’S
unaccountable change of route: they had expected to make a killing out of land speculation. The government’s land policy was also in contention; its treatment of squatters along the railway line suggested an indifference to the interests of western Canadians. In Manitoba, the farmers wanted to run their own show – to establish their own land policies and build their own railways. The tug of war between provincial and national interests was beginning.

Overriding these specific dissatisfactions there was a more serious and subtle grievance – a feeling on the part of the western farmers that the new Canada was being exploited purely for the material advantage of the wicked and grasping East. There was considerable historical evidence for this belief. A generation before, when the good land ran out in Ontario, Toronto expansionists began to envision the North West as a kind of suburb. Montreal interests, of course, had been mining it of furs for two centuries. Macdonald himself had seen the Pacific railway project in the context of his National Policy. The
CPR
would haul away the prairie’s great natural resource – grain – to eastern Canada and, in turn, deliver the
protected manufactured goods of Ontario and Quebec to the prairie consumers. As the farmers saw it, they were paying through the nose in two ways. First, they felt the prices on manufactured goods – especially agricultural implements – to be exorbitant because of the protective tariffs. Secondly, they felt the freight rates to be equally excessive because of the
CPR’S
monopoly.

The railway, then, was seen mainly as an arm of the eastern industrialists – a tool to crush the farmer. The time would come when the
CPR
would be blamed for almost every catastrophe on the plains. The story about the settler whose crop was flattened by hail and then devoured by grasshoppers, shaking his fist at Heaven and crying, “God damn the
CPR!”
was not too far-fetched.

More than anything else, it was the Monopoly Clause in the original contract that enraged the westerners. If they were suspicious of the
CPR’S
motives in the matter of freight rates, they had cause to be, for the
CPR
Syndicate was the lineal descendant of the hated Kittson Line, whose steamboats had enjoyed a monopoly of Red River traffic in the seventies. The Kittson Line, which, as everybody knew, was controlled by Jim Hill and Donald A. Smith, had charged outrageous rates. Its successor was the Pembina Branch of the
CPR
and its corporate cousin south of the border, the St. Paul, Minneapolis and Manitoba Railway. Since no competing line was allowed, the two connecting railways linking Winnipeg with St. Paul could and did charge what the traffic would bear. John Henry Pope, a good friend of the
CPR
, was one who thought the rates were “exorbitant.” Van Horne’s letters indicate that a rate-fixing agreement between the two companies existed. In July of 1883, for example, he wrote a letter to the general manager of the St. Paul road, chiding him for selling any second-class tickets at all to eastern Canadian points. “It looks to me like an unnecessary loss of revenue,” he said.