Upper Canada in the Canal Era

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The Canal Era encompasses the years from 1775 to 1850. These were the years in which, following the American Revolution, The British Empire adjusted to the loss of most of English-speaking North America. Imperial policy fell into a confused conservatism. The French Revolution, and threats of revolution in Ireland, strengthened its conservatism. Napoleon, having risen from the chaos of the French Revolution, held Britain's attention until 1815. Thereafter, the strength of industrialization in Britain, and its implications for trade policy, became evident. The result was a new Imperial policy of expansion without mercantilist political supports. `Free trade imperialism' took shape, but it was not formalized until the Canal Era was virtually over. 'Free Trade Imperialism' would evolve into `Railroad Imperialism', of which, in the 1860s and 1870s, Confederation and the transcontinentalization of Canada was a part, but that is another epoch. During the Canal Era, Canada was very much an embattled remnant of Britain's former glory, working out its destiny in the confused conservatism of the time.

Montreal: Emporium of the Second Empire

Montreal aspired to be the Imperial emporium for Upper Canada and the United States Midwest. Britain did not immediately give up its posts west of the Great Lakes, and many in Britain and in Canada did not consider that territory irretrievable, economically or even politically. Montreal continued to compete with Philadelphia and New York, building canals and railways to tap the trade of the agricultural frontier of North America. With Montreal tied in this way to expansion in Upper Canada and the Midwest, the interaction of agriculture, manufacturing and canals that occurred in the United States had a parallel in English-speaking Canada.

Montreal never aspired to reduce Upper Canada to a staple producing region modeled on the United States South; any more than New York considered the territory about Chicago to be another Georgia. It was part of the information environment of the time that a successful `aristocratic' society in Canada, that is, an attenuated feudal society like that of the old colonies in the South, might entice the Midwest away from the squalor of `the democracy', but that was not a part of the more limited and pragmatic aspirations of the merchants of Montreal. Even in terms of its limited goals, however, Montreal was not wholly successful. Its ambitions ran up against two major obstacles. The Constitution Act removed the Upper Canadian frontier from direct control by Montreal's colonial elite, and the Erie Canal gave `the West' an alternative to the Montreal dominated St. Lawrence River system.

Wheat and flour, timber and deal, and potash exports (though timber was Quebec City's trade), and the flow of settlers from Britain to the frontier, tied Montreal to `the West' within the nexus of Imperial trade. Imperial policy, eventually supporting economic integration and political union of the Canadas, was important in this respect. The whole can be seen as one simple picture: staple exports to the `mother country' earned foreign exchange to pay for imports necessary for growth in the colonies. Still, reliance on Imperial policy and primary product exports was a passing phase. What was growing was not an economy based on primary product exports, but a substantially balanced economy that followed the Smithian sequence of development from agriculture to commerce to manufacturing. The level of imports and exports was impressive. It was impressive in New England and the Midwest of the United States too; and the kind of economy that developed in the Midwest, in particular, was the kind of economy that developed in Upper Canada.

Although this all took place in the Canal Era, it was related to the coming of railways, not only because the first railways were built before the Era was closed, but because railways, like canals, in the first instances, were built to service existing economies. It was only after 1860 that the railway became the defining instrument in the economic integration of continents, appearing in advance of other aspects of development. It was only after 1860 that railways became the apparent cause of, rather than just another element in, economic growth and development.

Imperial Commercial Policy in the Second Empire

Imperial commercial policy responded to Imperial priorities. Political revolution notwithstanding, the former colonies remained economically important to Britain. Trade between the Empire (including British North America) and the United States was formally resumed with the Treaty of Commerce in 1795, though it became illegal again with British-American hostilities in the War of 1812. Towards the end of the Napoleonic period, Britain's problems in Europe led to a British North American timber preference and a booming export trade in the affected provinces.

After the War of 1812, trade relations between the Britain and North America began a slow process of adjustment. By the Canada Trade Act of 1822, and its 1825 supplement, Parliament set uniform duties, averaging 15%, on Upper and Lower Canadian exports to Britain. Wheat and flour exports, subject to the sliding rates of the Corn Laws, faced a low tariff when British prices were high, and a high tariff when British prices were low. Wheat and flour imports from the United States into Canada were tariffed at one shilling per bushel and five shillings per barrel, that is, in the order of 30% ad valorem.

An arrangement, set out in the Act of 1822, awarded Upper Canada a share in customs collected in Lower Canada. The share was to be determined by the portion of imports passing up the St Lawrence beyond Montreal. The arrangement was not administratively feasible. Upper Canada did not receive its share. Indeed, it rarely received any returns at all.

In 1831, the Colonial Trade Act lifted the duties on agricultural produce entering the Canadas from the United States. It was a response to the needs of the Empire and to the petitions of certain Canadian merchants, either in Montreal or having Montreal connections. Settlers in the Upper Canadian Assembly were opposed to the legislation.

Following the Rebellions of 1837, Lord Durham was sent out by a Whig Government to report and recommend. His proposals reflected contemporary Imperial policy: union of the Canadas to facilitate a rationalized customs and public works policy, assimilation of the French, and responsible government. The goal of this policy was to secure a source of primary products for Britain, and to ensure a destination for its manufactures, without the costs of a political empire. This goal was achieved by 1850, but in a much wider context than intra Imperial trade. By 1850, the policy entailed free trade with the United States, the end of the Second Empire, and the end of Imperial support for Montreal as the emporium of the West.

A minor detail in the policy, assimilation of the French in Canada, was not successfully executed, and, within a decade, French was reestablished as an official language.

Removal of Montreal's Second Empire economic supports was accomplished with ironic cruelty. In 1843, the British Parliament passed the Canada Corn Act, allowing Canadian wheat into Britain at a tariff of one shilling per quarter (eight bushels), regardless of the price in Britain. This was a substantial preference over foreign wheat. Further, United States wheat milled in Canada was admitted as colonial flour. There followed a marked increase in the St Lawrence system flow-through of United States produce. Large amounts of capital were invested in milling in Canada, and the canal system on the St. Lawrence was pushed to completion. Then the tide of fortune turned. In 1845, the United States passed `Drawback' acts, allowing Canadian produce a dutyless passage by canal or railway through New York to Britain. Most Upper Canadian grains took advantage of the lower rates thereby made available. Between 1846 and 1849, the Corn Laws of Britain were repealed altogether, giving the United States direct, free access to Imperial markets. In 1845, the timber preference was dramatically reduced, and, in 1849, the Navigation Acts, restricting Imperial trade to Imperial shipping, were repealed. Montreal's aspirations had come to nothing.

While Montreal was reeling from these economic blows, the whole Euro-American economy experienced a financial crisis. Crisis upon crisis, in 1849, the Rebellion Losses Bill was passed in the Canadian Assembly and signed by the Lieutenant Governor on behalf of the Crown. This established responsible government with the agrarian Reform Party in power. Montreal's commercial-colonial elite was devastated. Its members pelted the Governor's carriage with rotten vegetables, burned the Assembly building, and issued an {\itl Annexation Manifesto\/}. In their view, with the passing of the Second Empire, Canada was neither economically nor politically viable, except as part of the United States.

British North American Commerce in the Second Empire

There were two forms of commerce in Upper Canada, as there were in Lower Canada: local and international.

Local commerce grew out of the demands of the frontier for the necessities of start-up farming, and out of the on going needs and specializations of settled areas. This was commerce in seed, breeding stock, nails, wire, pots and pans, stoves, tools, shoes, clothing, lumber, furniture, and the like. Some things had to come from outside the province: salt, sugar, paper, certain kinds of clothing and implements, and iron and iron products that could not be produced in blacksmith shops and small forges. In bad years, even basic foods came from the outside. Much was produced locally, however, though the local transactions associated with domestic production were registered in the scattered records of country merchants, if they were recorded at all. As the economy developed, such transactions became more numerous and complex. They included more and different locally produced items, while different commodities were obtained through international trade.

International commerce was the export of commodities such as wheat and flour, and wood and potash, and the import of relatively sophisticated manufactures. The exports earned exchange to pay for what had to be imported, or bought from neighbours with cash. The associated transactions were recorded by customs officials and shippers, and by larger merchandising operations with sources of credit in Britain.

Given the scattered nature, or non existence, of records of local commerce, the ratio of export trade to all trade cannot be estimated. Still, some idea can be formed of the relative importance of the so-called staple trades. In 1806, wheat and flour exports accounted for about 50% of foreign exchange earned in English-speaking Canada. That was approximately 10% of `Gross Provincial Product' (See Appendix.). In 1830, wheat and flour exports accounted for about 25% of earned foreign exchange, and accounted for approximately 3% of `Gross Provincial Product' (See Appendix.). Timber and deal exports, in 1830, may have earned more exchange that wheat and flour.

The Timber Trade

During Upper Canada's (and Montreal's) Canal Era, from 1820 until 1850, the most important staple export, by value, was wood: pine and oak. The market was mainly Britain, though exports of lumber to the United States began in the 1840s, at the latest. Exceptionally tall pine trees were `broad arrowed' by the Admiralty, that is, reserved to become masts on naval vessels. The oak was used in ship construction. Most of the Red and White Pine exported was used for whatever wood was used for during the industrialization and urbanization of Britain in the first half of the nineteenth century.

In the eighteenth century, Britain had drawn its forest products from Baltic countries and, to some extent, from northern New England. The American Revolution reduced the accessibility of the latter, though some United States timber continued to move to Britain through Quebec. The Napoleonic Blockade eliminated the accessibility of the former.

From 1779 to 1808, the principal port of export for forest products in British North America was St. John, New Brunswick. With Napoleon's Blockade, and the establishment of a considerable tariff preference for colonial timber and deals, Quebec became the principal port of export. Firms that had operated in the Baltic trade set up branch operations in Quebec, establishing an oligopoly of buyers who purchased from more numerous, smaller, competitive contractors in woods operations throughout the St. Lawrence drainage basin.

Advance of the forest products frontier beyond Quebec City was unimpeded. By 1810, woods operations extended to the junctions of the Rideau and Gatineau Rivers with the Ottawa River, and to Lake Ontario, on the St Lawrence River. Kingston was in the trade by 1820. By 1830, the Kingston, Perth, Arnprior connection was established, and the east end of Lake Erie was in. By 1835, the front had reached the portage between the Ottawa River and Lake Nippissing, and, by 1840, it was on the eastern shore of Georgian Bay. In the 1850s, the front completed its passage through Canada West, arriving in Michigan by 1860.

Tariff preference was the important factor in this expansion. In most years from 1805 to 1845, the absolute advantage of the preference was equal to the freight on board price at Quebec. When the preference ended, the Napoleonic Blockade being long over, British buyers drifted back to sources in the Baltic. Over the period of the drift back, Canada was drawn into the lumber market of the United States.

When the trade was at its height, there were twenty to thirty major buyers operating from Quebec, and there were commission houses to which brokers and producers could turn when regular buyers or sellers had nothing to offer one another. At first the inland trade was characterized by a large number of small, independently financed producers who brought their rafts to Quebec on speculation. As the trade developed, informal long term contracts between buyers and producers became common, and the size of production operations grew.

A significant number of contractors in the woods operations were originally United States citizens who had been engaged in the trade in northern New England. The labour force in the shanties was French Canadian and Irish.

Very little fixed capital was required for the making of square timber. The deal trade, which grew in importance over the period, required saw mills. Capital for these operations was drawn from Britain. Production technique and organization of the trade were modeled on practice in the Baltic trade. The Russian `gang saw' (several saws operated on one frame driven by water power) was ubiquitous. As fixed capital was added to woods operations the size of the characteristic firm increased. Increasing use of water power made Bytown the center of milling operations in the Ottawa Valley. In the 1860s, Bytown became the locus of operations for a small group of large lumber dealers who were independent of British and United States capital.

A number of factors reoriented the forest products trade to the United States after 1830. Completion of the Rideau Canal in 1832 drew lumber down to Kingston and across the lake to Oswego. The advance of United States railways in the 1840s, and of Canadian extensions of United States railways in the 1850s, opened Canadian forests to United States milling companies, just when the steam engine and the circular saw were reducing the cost of lumber.

After 1850, the Baltic replaced Canada as Britain's principal source of supplies. After 1860, wooden sailing ships were replaced by iron steamships, further reducing the demand for British North American forest products. The colonial preference in timber, having been reduced in the 1840s, was completely removed in 1866.

The general nature of the timber trade in the first half of the nineteenth century in Upper Canada is well summed up in A.R.M.~Lower's account of the determination of prices.

General business conditions in England determined English demand. English demand in practice meant demand in Liverpool ... . [This] determined the number of ships that would be chartered to fetch timber. The number of ships arriving in Canada as compared with the quantity of wood awaiting shipment determined the prices being offered in Quebec. The number of ships arriving or expected to arrive also determined the rate of freight, which in its turn powerfully influenced prices. Freight rates were settled by an infinite variety of conditions. Late fall rates would soar, for instance, if there were few ships in harbour, since no more could be expected. The seasons and the weather became critical factors, and while prolonged west winds in late season, by preventing ships coming up the river, would raise the rates, an open spring with an occasional east wind to bring ships up would lower them.
The purely local factors centered around supply. A large stock wintering over would depress prices in the spring. A winter of light snowfall would raise them since it would be hard to get the timber out of the woods and to drive it, owing to low water in the rivers. A dry spring would act similarly. Then, too, since at least in the early decades of the nineteenth century, almost anyone could go into the woods and make a little timber, production was so easy that when prices promised well, vast quantities were made and, coming down to salt water, flooded the market. This was a condition that was more or less overcome in the last half-century of the square timber trade, as it got into stronger hands and the timber on private lands disappeared. On the other hand, a little discouragement was enough to dry up the supply and raise prices quickly (Great Britain's Woodyard, p.~156.)

It is difficult to persuade oneself that timber and deal exports to Britain were not important in the growth of the Upper Canadian economy. They earned foreign exchange for the Canadas in the same order of magnitude as any other single export, including wheat and flour. They provided early cash for settlers in those parts of Upper Canada that eventually turned to full time, mixed farming. The characteristics of development associated with the trade in New Brunswick and parts of the Ottawa Valley (a relatively impoverished population involved marginally in both farming and lumbering) did not appear in other regions. Still, because the character and importance of linkages between staple exports and development in Canada have not been clearly demonstrated, it would be disingenuous to pass over the conclusions of the foremost student of the trade.

The Canadian forests contributed to the prosperity of the British timber importer and the enrichment of the American [United States] lumberman (Great Britain's Woodyard, p.~250.) ... As for the British American colonies, what did they get out of their forests? There was much labour provided -- most of it low grade. Probably persons employed in equipping and supplying the camps did well. The forest industry had a great deal to do with the growth of Quebec, St. John, Ottawa, Pembroke, and smaller places, and some of this growth ... was healthy. ... They planted a good many settlers ... on the margins of the Shield and in the Shield, whose chief contribution to the Canadian future was to burn the forests and leave behind them broods of children as the founding stock of the large poor white element in Canada ( Great Britain's Woodyard, p.~249.).

Wheat Exports and Agriculture in Upper Canada

Second Empire expectations respecting early settlement in Upper Canada were not realized. Governor Simcoe was convinced that the superiority of a well run `aristocratic system' would win the United States back. The confusions of the time, nonetheless, were evident in his policies. For example, he thought of Upper Canada as a future staple producing region, and he proposed, based on the practice of Virginia's tobacco growers, that paper money be issued on the security of wheat in storage, and redeemed when the wheat was sold in Britain. At the same time, he favoured the `Leader and Associates' system of land grants, typical of Connecticut (not the tobacco plantations of Virginia), whence his own troops, the Queen's Rangers, had come; and the size of grants in his colony, limited to 1,200 acres for ordinary settlers, but usually 200 acres, was simply inappropriate for plantation agriculture.

Although the system of land alienation was important, more general historical forces played a role in determining the the nature of agriculture in the province. The general advance of capitalistic institutions and of farming techniques, the nature of the soil and climate, and of available markets, and the experience and expectations of the settlers, were capable of shaping actual land tenure and use despite legal regulations. This was evident in the emergence of large land holdings in cattle ranching country in the United States southwest, and, much later, in the large pulp wood holdings of Northern Ontario. In both of these cases initial small grants were consolidated into large holdings as a result of economic and social forces. The nature of farming in Upper Canada, the extent to which it did or did not became a wheat staple exporting activity, ultimately depended upon all of the circumstances of agriculture in the province.

Before Europeans arrived in America, what is now South Central and Southwestern Ontario, like parts of the United States Midwest, was

... thickly settled with a countless number of human beings cropping largely Indian corn, kidney beans and squash and sunflowers which they traded for furs (Jones citing Champlain).
The suitability of the land for agriculture was beyond doubt.

Until the War of 1812, the Europeans came from the old English colonies and from the United States. The first were Loyalists, but the United States frontier was at Oswego on the eastern end of Lake Ontario in 1782, and it passed beyond Lake Erie by 1830. Many of those who came were indifferent to British or United States rule. The North American frontier swept across Upper Canada, settling it with Second Empire modifications of institutions and techniques tried in New England. Governor Simcoe encouraged United States citizens with frontier experience to cross the border, granting 200 acres to any who would pay the entailed fees, and swear allegiance. In 1812, 80% of Upper Canadians had been born south of the Canada-United States boundary. Only 20% were Loyalists. By 1812, the whole of the north shore of the Lower Great Lakes was settled.

The period immediately following the Revolution was one of adjustment to the conditions of the Second Empire. Institutions of land tenure continued to evolve towards capitalism, despite some belief that they would return to early New England or Southern colonial forms. The Constitution Act of 1891, establishing Upper Canada as a separate colony, continued Crown grants, and denied the Assembly any control over land alienation, but it made no mention of quit-rents, putting all grants in the category of free and common soccage.

After 1820, immigrants came from Britain, England and Scotland, and, particularly after 1835, from Ireland. By 1850, settlement had reached Georgian Bay in the west, and the upper Ottawa Valley in the east. During the 1850s, when the first railway boom, the emergence of manufacturing, and expansion of banking, overshadowed the progress of the frontier in Canada West, the last empty spaces were filled in, and the limit of arable land at the rise of the Laurentian Plateau was reached. By 1866, at the end of the American Civil War, on the eve of Confederation in Canada, the frontier closed, and emigration to the frontier in the United States became as large as immigration from Britain.

From 10,000 in 1784, the population of Upper Canada expanded to 71,000 in 1806, 237,000 in 1831, 952,000 in 1851 and 1,396,000 in 1861. Having surpassed the population of Lower Canada [Canada East] before 1851, the population of Canada West exceeded it by 250,000 in 1861.

Many post-1820 immigrants came with the assistance of settlement companies. Most, carrying their own capital, were self-supporting. Perhaps 250,000 pounds sterling, in 1831, and 600,000 pounds, in 1832, was brought in by immigrants. That is about $1,000,000 and $2,500,000, respectively, in 1831 dollars. After the immigration of Irish came to be made up of famine-destitute former tenants, in the 1840s, the 15 pounds sterling assumed to be carried in by the average immigrant could hardly have been representative See Appendix, Topic 12 It is possible that, more than any who had preceded them, these Irish selected wage labour as a preliminary to farming. With the building of canals and railways, and with the emergence of manufacturing, wage labour was available as it never had been before; and a colonial policy of land sales at sufficient price, insofar as it was a success, allowed post-1841 settlers little alternative but to work for a time in the cities and towns, or on the canals.

Wheat was a common cash crop in the early period of settlement. Trees were felled on a portion of a holding, and wheat was sown between the stumps. In a year or two, when the original fertility of the soil had been reduced, the stumps were sufficiently rotten to be removed. Other crops (oats, buckwheat, peas, and forage) were then sown on the cleared land, other parts of the holding were put to the axe, and wheat was sown there. When the holding was sufficiently cleared, and the 'front' had move further into the interior of the continent, 'wheating' stopped.

Agriculture in Upper Canada was not everywhere oriented to Imperial grain markets.

Upper Canadian growers ... were tributary to the cattle fatteners around New York and Philadelphia, just as were the pioneers in the newly opened portions of New York, Pennsylvania and Ohio (Jones, p.~32.).

The upper Canadian frontier was an extension of the United States frontier, and when the Erie Canal penetrated the Midwest in 1825, Upper Canadian exporters used it. When United States railways penetrated to and beyond the Canadian Border, the connection was strengthened. After 1849, Upper Canadian wheat moved to the United States despite a tariff of $0.25 per bushel. After 1845, wool, eggs, horses, butter and barley moved south. In 1851, Boston buyers scoured the countryside in Canada West, buying up geese, turkeys and eggs.

Between 1849 and 1853 Upper Canada was caught fully in a development characteristic of a whole region tributary to Boston, New York and Philadelphia (Jones, p.~185).

Connections with the United States were evident in parallel developments in the improvement of agricultural techniques in Upper Canada and the Midwest. Advances in labour-saving implements, characteristic of United States agriculture in the period, were transferred immediately to Upper Canada. Between 1830 and 1850, cast iron ploughs, the revolving hay rake, seed drills, and Hussey and McCormack reapers, all horse-drawn, became commonplace north of the lakes. Manufacture of such implements in Canada West began before the tariff of 1858, but progressed faster thereafter as United States firms moved their operations across the border.

The advent of the new implements, encouraged horse breeding and the growing of oats. Cattle breeding began much earlier.

... the first pure-bred cattle in Upper Canada were probably Ayrshires. Even before 1800, Scottish ship masters usually took a few Ayrshire cows on board to supply their passengers with milk, and sold them on arrival at Montreal or Quebec (Jones, p~155).
By 1850, the Guelph area had breeders of internationally distinguished cattle.

Gentlemen's agricultural societies, on the British model, appeared in Upper Canada about the turn of the nineteenth century. More practical societies, modeled on the Elkanah Watson society in Pittsfield, Massachusetts, held exhibitions of produce and stock in the period immediately after the War of 1812. After 1830, with government subsidies, these societies sponsored demonstrations of new implements, new seeds, and new breeds of stock.

In short, agriculture advanced on a broad basis behind a wheat producing frontier. The Upper Canadian economy cannot be labeled a staple exporting economy. Upper Canada did not find in wheat a staple export of the importance of tobacco in Virginia. It did not have an economy dependent on a single staple export, as the West Indies had. The extent to which even early economic growth in Upper Canada can be attributed to exports of surplus wheat is debatable. Foreign exchange needed to import capital goods came from other sources: indemnities to Loyalists, immigrant's capital, Imperial military expenditures, and investment in canals and railways. In an order-of-magnitude comparison, wheat exports earned only a quarter of total incoming foreign exchange See Topic 12 Appendix. This is not to say that Upper Canadian settlers were everywhere single mindedly devoted to building up a balanced, agriculturally based economy.

The evils of the attempt to combine lumbering and agriculture were found even in the long settled parts of the Ottawa Valley, though nowhere did they prevail to such an extent as in New Brunswick. ... `If the farmers of the Eastern District [Glengarry, Stormont and Dundas Counties] ... would pay a little more attention to agriculture, and proportionately less attention to the speculative undertakings of the lumber business, many a good farm would be released from the death grasp of a mortgage' (Jones, p~115.).


In 1850, output of manufacturing in Canada (Montreal--Canada West) was 18.3% of Gross Provincial Output, $169 million. In 1860, it was 15% of $319 million (Marr and Paterson, pp.~6, 22, 142.). The decline in the portion in manufacturing is accounted for by the rise of railroads, which , though they were categorized as transportation, were the largest manufacturing establishments in the province. The relative size and structure of manufacturing in Canada was comparable to that of the adjacent United States.

While some manufacturing grew out of the staples trades, the characteristic manufactures of Upper Canada did not. Flour and grist mills, and saw mills of larger size, with heavier capitalization and larger work forces were required for the export trades. The domestic needs of settlers and the residents of the small towns of Upper Canada were met by smaller operations. It was the latter that had long run significance. In 1820, Kingston had a population of 2,300; York (Toronto), 1,250; and the next largest, Belleville, 150. Still, as these initially small centers grew, manufacturing grew, reaching significant proportions by 1850.

Balanced growth began in small, decentralized operations related to specialization of tasks in relatively self-sufficient farming communities. At first it was protected from outside competition by poor communications. As communications improved, foreign competition increased, but markets expanded for local producers as well. The size of operations increased. Capitalization increased with more sophisticated plant and equipment. Concentration in certain urban centers became evident as better transportation and provincial policies of support generated further possibilities for specialization. Still, as of mid century, `economies of scale remained absent or unexploited' (Spelt, pp.~74-79.). The Canal Era only laid the foundations of industrialization in central Canada.

... manufacturing remained a village handicraft in small workshops. Closely linked with the largely self-sufficient agriculture, it partially or wholly processed materials provided by the farmers. Its services extended over relatively small areas, as the inadequate transportation network made it difficult to ship goods and raw materials, particularly flour and lumber, over long distances. Consequently, because of a limited market, the workshops did not grow into large factories (Spelt.).

... the handicrafts and workshops are closely linked with the general distribution of population. Their size is limited by the number and prosperity of the nearby inhabitants. With prosperity \dots these small industrial establishments increase in proportion to the population. Essentially, they are service industries, and they follow the general spread of population. As such, they contribute little to the overall growth of population, although their presence made a district more attractive to new settlers. Also, by being concentrated at certain points, they helped the growth of small service and market centres (Spelt.).

At first, the home market was rather isolated from the outside world by the St. Lawrence barrier. The high costs of imported goods, owing to the long distance and transportation difficulties, justified the manufacturing of goods in Ontario itself. Isolation tended to encourage industrial growth. But this did not last very long. As the communication system between Upper Canada and the outside world improved, it became easier for British and foreign goods to enter the Ontario market and compete with local manufacturing. ... in spite of this, several larger plants were established ... Their number, however, remained small before 1850. A paper mill was established in Belleville in 1831. Two years later, it was reported that Toronto had an elaborate engine works operated by steam power. It employed about 80 men and produced steam engines. At about the same time, another plant in Toronto manufactured `substantial and beautiful carriages which were said to be equal to those built in London' (Spelt.).

Several times attempts were made to establish an iron industry near the ore deposits at Marmora, about 30 miles north of Trenton. But the attempts were not successful, even though the government placed large orders to promote the industry. The high costs of transportation, the inefficiency of the production, and competition and lower prices in the market caused all undertakings to fail (Spelt.).

The iron and steel industry was more successful than this would indicate. In particular, the Normandale works at Potter Creek on the north shore of Lake Erie flourished between 1823 and 1858. Still, iron and steel were more in evidence in Montreal and Three Rivers than they were in the economy of Canada West (Arthur and Ritchie.).

[T]he woolen industry was more successful. Gradually more sheep were raised, and several small woollen mills were established. Some grew into important plants, such as the one in Cobourg which employed about 170 persons. It seems that some very good textiles were produced in Ontario in the forties. In the first provincial exhibition in 1846, tweeds, blankets, flannel, and other materials were shown, which were said to be equal to any imported products (Spelt.).

According to the census of 1851, South Central Ontario had in that year 1,500 industrial establishments. Most numerous were the saw mills and grist mills, 756 and 282 respectively \dots oatmeal mills (20), carriage factories (19), planing mills (11), lath factories (10), potasheries (9), cabinet factories (9), boot and shoe factories (9), and others (Spelt.).

The 1851 census reported for Toronto among others, one axe factory (38 empl.), one iron and brass factory (17 empl.), one glue and oil factory, one oil cloth factory, one patent leather factory, one mustard and spice mill, one ginger and syrup mill, one looking glass factory. Some of the more important industries in Kingston were two steam engine and machinery factories, respectively employing 20 and 50 men, one copper works (8 empl.), one iron works (22 empl.), one marine railway and shipyard (50 empl.), one match factory. Belleville, Cobourg, Streetsville, and Dundas were other centres which had one or more large manufacturing establishments (Spelt.).

Toronto's industrial development by 1851 was different from the rest of South-Central Ontario only in that its industrial production displayed a greater variety. The establishments in Toronto did not have a larger average employment than those in other places.

Toronto was surrounded by a larger and more fertile agricultural district than either Kingston or Montreal. By 1850, Toronto's population was 31,000, Kingston's 25,000, Hamilton's 14,000, Ottawa's 8,000, Montreal's 58,000. (Halifax's was 21,000, Quebec City's 42,000.) Canal development at the end of the 1840s allowed Montreal traffic to Toronto to bypass Kingston, and Toronto's external trade to bypass Montreal through New York. In 1847, Toronto was connected by telegraph to both New York and Montreal.

What appears in Montreal--Upper Canada [Canada West] is a manufacturing sector related to local needs, growing on the basis of capital drawn from agriculture and commerce in the province (Inwood, pp.~208--281, Macdonald.)

Manufacturing was more concentrated in Montreal, with the manufacture of marine steam engines being an outstanding distinguishing activity. The general advance of Montreal, however, cannot be separated from the development of Upper Canada because, in the Second Empire, Montreal was the emporium of the west, and the francophone economy to its east was still relatively uncommercialized. Improvement of canals and development of manufacturing occurred contemporaneously in Montreal. In particular, completion of the Lachine Canal generated an industrial agglomeration along its banks: seven nail and spike factories, a sugar refinery, flour and textile mills, and furniture, glass, and boot and shoe factories. With the coming of the railway after 1836, but particularly in the 1850s, foundries and metal working developed rapidly in Montreal. Still, the first steel rails made in Canada came from the Toronto Rolling Works in 1857.

Banks and Banking

The progress of banking in the Canadas in the Canal Era was typical of the Second Empire situation of the provinces. Throughout the period, the Empire tried repeatedly to have British precedent in banking and British currency institutionalized. There was some success in this endeavour, but, by the end of the Canal Era, the Canadian banking system was drawn from precedent in the United States, and Canadian currency was based on the United States decimal system. Banking in Canada responded to North American conditions, displaying the general similarity of economic conditions north and south of the United States--English-speaking Canada boundary.

The first attempt to establish a bank was made in Montreal in 1792, one year after the establishment of the First Bank of the United States. The same interests attempted again in 1808, and in 1815. In each case an appeal was made for a charter, which Imperial authorities did not grant. In 1817 and 1818, three private banks were established. All were branch banking institutions modeled on the First Bank of the United States. One, indeed, was owned by United States interests, and circulated United States paper currency. All of the banks issued notes. The ground for acceptance of this paper by the public had been prepared by the wide circulation of military paper during the prosperity of the War of 1812. Perhaps the ground had been too well prepared, because there was reasonable doubt, both in Canada and in the adjoining States, that the post-war circulation was sound. Still, some form of currency was needed to service the increasing commerce of the colony, and, on this ground, the Imperial government did not disallow charters granted by the provincial governments after 1820. The Bank of New Brunswick was first, in 1820. The Bank of Upper Canada was chartered in 1821. The Bank of Montreal, in 1822. By 1840, eighteen banks had been chartered in the Canadas, one in Quebec City, two francophone banks outside of Montreal: seven banks in Montreal itself, and eight in Upper Canada. One quarter of them failed.

Private banks and their notes were not prohibited in 1820. By 1850, all banks were chartered and only chartered banks issued notes. It is not clear how this came about. Two forces seem to have been at work: the United States influence, and the Imperial influence working through the colonial elites. Fundamentally, of course, it was the general economic circumstances of the colonies that shaped events.

At this time the Canadas enjoyed a surplus of money payments over repayments with Britain, and suffered from a deficit of money payments with the United States. The United States enjoyed a surplus with the Canadas and a deficit with Britain. That is to say, Canada imported more goods from the United States than it sold there, and sold more in Britain ( or received more in exchange due to Imperial political and military expenditures) than it bought. The United States bought more from Britain than it sold to Britain. In consequence, pounds sold at a premium in New York, and dollars at a premium in Montreal. There was, then, a constant drain of `hard' Imperial currency from Canada to the United States, with the resulting Canadian currency being depreciated coins and United States dollars of dubious value.

Want of adequate circulation to accommodate local business was typical of all of the North American European colonies. The usual remedy was to legally raise the value of hard currency. This, in effect, lowered the price of colonial goods (just as devaluation of colonial currency, had there been colonial currency, would have lowered the international price of colonial goods), encouraged exports and, in this way, encouraged an inflow of hard currency. These devaluations may have worsened, not improved, the situation, because they overvalued some elements of the circulation in relation to others. By Gresham's Law, this encouraged the withdrawal of the more expensive currency from circulation even within the colonies. The whole situation was symptomatic of the conditions of a frontier economy in which investment using imported capital was in the nature of things.

With dis-establishment of the First Bank of the United States, shortly after the War of 1812, the currency problem was acerbated by the entailed multiplication of questionable State chartered banks. The Canadas needed a sound currency, despite the drain of Imperial currency to the United States, and despite the influence of unstable United States banking practices. Out of these circumstances came the predominance of chartered banks. The prestige and public confidence imparted by the charter, the guarantee of government acceptance of notes issued by a chartered bank, and the usefulness of the charters in establishing a degree of monopoly (by freezing out United States interests, in particular), all contributed to the success of chartered banking.

British influence took two forms. It limited the issue of the banks to bills of five pounds and over; and shaped other regulations put upon the chartered banks, including a tax on their note issue. The tax on bank note issue, a United States as well as a British practice, was introduced in Sydenham's legislation in the early 1840s. It was intended to compensate for his failure to get the colony to accept a provincial bank of issue, that is, a government owned bank with a monopoly in note issue. Note issue by colonial governments had been prohibited by Imperial legislation prior to the American Revolution, and the prohibition had been used to disallow a number of Canadian bills prior to 1840. Sydenham represented the forces of the Third Empire, however, so Second Empire conservatism was absent when he proposed a Provincial Bank of Issue to aid in funding public works. The tax on chartered bank notes was compensation for the failure of the provincial Assembly to pass the Provincial Bank legislation.

Regulation of the small denomination note issue was another matter. In the 1820s, Britain issued small denomination coins (less than five pounds) that were over valued. That is, the nominal value of these coins exceeded the value of their metallic content. Under the guise of unifying the exchanges of the Empire, regulations were enforced, through disallowance of colonial legislation, to ensure the circulation of these coins. In Canada, this meant that the banks were not allowed to issue small notes, and that Imperial currency was to supplant the circulation of dubious currencies, including United States issues. Sydenham's legislation confirmed the illegality of small note issue by the provinces chartered banks. It did not prevent the circulation of small denomination merchant's notes, called `shinplasters', as in the United States.

These minor victories of Imperial policy did not alter the general drift of banking development in Canada. Complaints of frontier interests leading to the disestablishment of the First and Second Banks of the United States were paralleled north of the border. Agrarian interests in the Canadas alleged that the Bank of Montreal and the Bank of Upper Canada were captive to merchant interests aligned with the un-elected colonial elites; and rapid multiplication of Canadian banks, before 1837, reflected the desire of all interests to have their own captive banks. A principle complaint of the rebels, in 1837, was the privileged position of the elites and their banks. Following achievement of responsible government, in 1848, the Government introduced legislation, in 1850, establishing free banking on the New York model.

Eventual acceptance of a decimal currency with the dollar as the basic unit, was further evidence of the force of North American influences. During the period of the Reciprocity Treaty, when trade between British North America and the United States increased, the need for a uniform currency suited to the province's circumstances again came to the fore. When United States legislation of the late 1840s had threatened to flood Canada with depreciated coins, the provincial government proposed a decimal currency that would include bills and coins below the value of five pounds. A first bill to enact the proposal was disallowed by the Imperial government in 1850. Francis Hincks protested that the disallowance was contrary to the principle of responsible government, but there was no forcing of the issue. Matters dragged on until 1857, when the decimal system was again legislated. Despite the authority this legislation gave to the provincial government to issue bills, and to issue them in denominations of one and two dollars, the Imperial government acquiesced.

There is no doubt that banking in the Montreal--Upper Canada economy was influenced by the banking practices of the United States, and by year to year events in that country. In 1835--1837, economic depression in Britain cut heavily into demand for United States cotton. Consequent low prices for the staple aggravated the results of a general crop failure throughout North America; and President Jackson, in a belated attempt to stop speculation based on currency inflation, further aggravated matters by having all government land sales transacted in gold or silver (as opposed to paper) currency. The expansion of bank notes stopped, but not in time to prevent a run on the banks. Note redemption was legally suspended, on both sides of the Canada--United States boundary. During the `crisis' there were failures and mergers among Canadian banks. The number of chartered banks having peaked at 21, in 1836, declined to 15 by 1842, when a period of relative stability set in.

The extent to which the nature and growth of the Montreal--Upper Canada economy depended on its banking institutions is simply not known. Their day to day operations were not, and still are not, public knowledge. Certainly their existence and number contributed to the diversity of economic activity, and indicate Smithian type development of the sort that characterized the United States Midwest. Following the crisis of 1837, the number of banks remained constant until the next crisis, in 1848. Thereafter, under the influence of free banking legislation, the number rose from 16, in 1853, to 30, in 1860. In this period the rate of growth of banking was greater than the rate of growth of the economy, even in the boom years of the mid Fifties. This is not proof that banking was leading the rest of the economy in the sense of causing, or even permitting, its growth. The increase in banking may have been merely speculative and therefore excessive.

The Montreal--Upper Canada Economy

Disaffected vested interests of the Second Empire notwithstanding, the Montreal--Upper Canada economy survived the crisis of the late 1840s to enter its most prosperous decade up to that time. Evidently the Imperial connection, and mercantilist legislation supporting staple exports was not crucial.

Data describing the Upper Canadian economy in the Canal Era are not complete, and the available data is suspect. It is only with the greatest of circumspection and hesitation that any general comment on the nature of the economy can be made, but when the different regional economies of British North America are compared, some conclusions are warranted.

Montreal, the Eastern Townships, and Upper Canada constitute a distinct economy. The francophone economy was a self-sufficient unit, growing at its own pace, relatively unconnected with the English-speaking economy. If one assumes, to give the staple thesis all the latitude it claims, that all growth in the measured market economy occurred by way of imported capital goods, and that all foreign exchange, however acquired, was expended on such goods, we can construct a model that represents the economic development of `Upper Canada' in the Canal Era See Appendix.

Between 1790 and 1806, the compounded annual growth rate of output (g) in this economy was 0.06. Assuming this to be the rate of growth in 1806, the investment to output ratio (s) in that year was 0.26, and the capital to output ratio (v) was 4.3. This constitutes the growth equation:

g = s/v
This equation may be written
0.06 = 0.26/4.3
for the period 1790 to 1806.

For the period 1806 to 1831, the growth rate was

0.08 = .084/1.05.
For 1831 to 1851,

0.09 = 0.11/1.2
These numbers are not out of line with similar numbers for the United States. The investment to output ratio and the capital to output ratio for 1806 are unusually high. If the growth rate had been 12%, instead of 6%, the capital output ratio would have been 2, which would have been comparable to the United States ratio. Perhaps the level of marketed output in 1790 has been overestimated.

Admitting that the numbers are only order-of-magnitude values, it may be concluded that wheat and flour exports accounted for about 50% of growth in the designated economy in 1806, about 25% in 1831, and about 20% in 1851. Additional foreign exchange was acquired in the form of immigrant's capital, Imperial civil and military expenditures, indemnities paid to Loyalists, investment in canals and railways, and other agricultural, and forest products exports. (See Appendix for details.)

When the agricultural frontier closed in Canada West (Ontario) in 1866, `wheating' stopped. Wheat production rose again in the last quarter of the century, but only briefly. Thereafter wheat was the specialty of the North West Territories (the Prairie Provinces). Wheating stopped in Ontario, but the Ontario economy continued to grow, particularly in its manufacturing sector. Wheat and flour exports were important in the early years, but the economy they supported fundamentally was not dependent on staple exports. Unlike other regions of Canada, the Montreal--Upper Canada region enjoyed a normal Canal Era. It advanced according to the stages that Adam Smith associated with a balanced economy.


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