Economic History of Canada - Confederation

Confederation

The repeal of the British Corn Laws and of preferential treatment for the British colonies led many in British North America to realize that the motherland could no longer be counted on economically. In 1854, the Canadian colonies signed Canadian-American Reciprocity Treaty with the United States to try to ensure access to the American market. This treaty was cancelled in 1866, however, leaving the colonies once again adrift.

The railways were also an important factor. The Province of Canada had again nearly bankrupted itself by promising unwise subsidies to railway companies. The Maritime colonies wanted a railroad, but as disunited as they were, building one would be all but impossible.

Both the Maritime colonies and the Province of Canada desired access to the large and unexploited western hinterland. They hoped that if these areas were developed they would become a market for their manufactured goods, and provide exports for the eastern ports.

For these reasons and others, the colonies of Nova Scotia, New Brunswick and the two Canadas agreed to merge into one Dominion in 1867. While in name it was a confederation, the new constitution, the British North America Act outlined a strongly centralized federation. The federal government had control of most of the taxation power, and was responsible for the largest expenditures, railroads, canals and the military. The provinces were given exclusive jurisdiction over what at the time seemed merely local or minor matters such as health care and education. The pledge to build the Intercolonial Railway of Canada linking the Maritimes to Quebec and Ontario was finally realized in the 1870s.

In 1871, British Columbia, which was nearing bankruptcy due to railway construction agreed to join the union in exchange for a transcontinental railroad. Prince Edward Island joined in 1873 when the national government provided $800,000 for buying out the landlords who held large blocks of island land. All all private holdings over 1,000 acres were sold to the province.