By Alastair Sweeny
This article from The Dorchester Review archive was first published in our second edition, Vol 1, No 2, Autumn 2011, pp. 63-66. Limited copies of the back issue are available for order, here.
AT FIRST GLANCE, THE "Pacific Scandal" — the Canadian Pacific Railway contract fiasco of the early 1870s — is the granddaddy of all Canadian scandals. It features that drunken old rascal Sir John A. Macdonald, desperately pleading with Sir Hugh Allan for more and more money for his 1874 election expenses, in return for awarding him the CPR contract. On the surface, that’s what it looks like, and that is what generations of historians have repeated ad nauseam. The real story, the background to what Macdonald himself called the "Pacific Slander," is far more gripping, one of the more fascinating events in Canadian business and political history.
The scandal involved Canada’s largest company, the Grand Trunk Railway, a British-financed line that ran from Montreal to Chicago, and Montreal to the ice-free port of Portland, Maine. Its chief solicitor, Sir George-Étienne Cartier, at the same time Minister of Militia and Chairman of the Commons Railway Committee, was at the centre of the matter.
The Grand Trunk was pretty much a Canadian public work. In the early 1870s, Cartier was engineering two new lines: the Intercolonial Railway to Halifax, and the Canadian Pacific Railway, promised by Cartier to the B.C. Confederation delegates.
Cartier and Macdonald had carefully protected the Grand Trunk and the new Canadian lines by a simple clause inserted into the British North America Act, 92.10.c, the federal power of disallowance — which let the Cabinet disallow any railway that crossed a provincial boundary or crossed into Canada from the United States.
Armed with this power, Cartier began to pull together bids from Canadians interested in building the line. He was fully aware of the possibilities of groups south of the border scheming to get control of the CPR, and some of his political friends tried flushing these groups out. One of them, Montreal steamship magnate Hugh Allan, would prove to be a major player, getting himself involved with the Americans, and then lying to their faces.
The US transcontinental roads had a ten-year head start on the CPR. The Central and Union Pacific, like the shorter main lines, made colossal profits for their shareholders, and more especially the construction companies that built them. Congress and state legislatures were liberally greased with money by the railroad barons, and they responded with generous grants and subsidies.
The most profitable lines were those that stayed in their own territory, and the railroad barons fiercely defended their turf against any competitors wanting to bleed business away from their lines. This fact of life left many US cities, states, financiers and political parties extremely frustrated, unable to break through the territories of the established players so that they could get a piece of booming western traffic.
One such city was Boston, Mass., one such state was Vermont, and one such frustrated financier was Philadelphia’s Jay Cooke, financier of the Civil War and a charter member of President Ulysses S. Grant’s Kitchen Cabinet. Boston was forever doomed to languish in a railway backwater, losing business to big cities farther south, unless it could break through to Chicago and beyond. And really, looking at a map, the best way to do that would be to cross the Canadian border, run up the Ottawa Valley and across to Northern Michigan at Sault Ste. Marie. The state of Vermont, and the Vermont Central Railway also wanted in on the scheme, since they ran small milk lines in the Eastern Townships.
US financier and promoter Jay Cooke desperately needed a fresh project to attract more capital to his Philadelphia bank. He buffed up the Northern Pacific Railway, incorporated five years earlier, and got to work to control and if possible bring down the CPR. Others who got involved in the Northern Pacific were Chicago-based Union Pacific promoters William B. Ogden and Charles Mather Smith, General George W. Cass of the Pennsylvania Railroad; Thomas A. Scott of the Philadelphia and Erie and Pennsylvania lines; and Gregory Smith of the Vermont Central. First, the Cooke partners had to eliminate the risk of losing the Ottawa Valley route to the CPR.
The one man who stood in their way was Sir George-Étienne Cartier, who intended Montreal to be the base of a transcontinental trading system, and who said to the B.C. Confederation delegates, “never will a damned American company have control of the Pacific railway.”
Satchels of cash were always available to compliant legislators on the US side of the border. The Cooke consortium felt that things could not be that different north of the line, and they were right.
They soon found allies in several eastern townships politicians like Conservative Senator Asa B. Foster and Liberal MP Lucius Seth Huntington, backer of a small line that did business with the Vermont Central. As Canadian railway historian George Stevens has noted, “nothing in Canadian railway history approaches in deviousness the story of the Vermont Central Railroad.”
The first goal of this railway ring was to defeat Sir George-Étienne Cartier in the August 1872 Dominion election, and if possible elect enough pliable MPs to ensure the defeat of the Macdonald government.
With a pliant set of legislators in Ottawa, they could tunnel under the Grand Trunk main line, run up the Ottawa Valley and conquer the west. Beginning in the spring of 1871, Jay Cooke’s agent George McMullen, black sheep son of an Ontario Methodist minister, arrived in Ottawa and Montreal, and proceeded to generate considerable interest with his satchel of greenbacks. Jay Cooke told a colleague that,
the American work has to be kept dark for the moment and there is no hint of the Northern Pacific connection, but the real plan is to cross the Canadian Pacific over to the United States at the Sault Ste. Marie through northern Michigan and Wisconsin to Duluth, then build from Pembina up to Fort Garry and by and by through the Saskatchewan into British Columbia The Act will provide for building a North Shore Road to Fort Garry merely to calm public opinion, but it will provide for consolidation with other roads, so that the Michigan portion of the Northern Pacific clear to Duluth can be blended with the Canadian Pacific and the bonds sold as such in London we will have a straight route from Duluth to Montreal. This is all confidential. The parties have now gone to Canada to get the legislation for it …
To other more naive backers in the US, Cooke intimated that he now had Sir Hugh Allan and the Macdonald government in his pocket. He did not. In fact, Allan had been warned to jettison any American backers if he wanted to run the CPR.
Cartier and Macdonald were closely tracking the machinations of the Americans, and were receiving good business intelligence through Morton, Rose and Company, the Dominion government’s financial agents in London and New York. They knew the dangers they faced from Cooke and his backers.
In this fight they were fully backed by the British government, who wanted the CPR to be the centrepiece of the imperial "All Red Route" (or "All Red Line") to the Far East, and a link to the Royal Navy’s growing strategic interest in Esquimalt Harbour and the coal fields of Nanaimo.
There has always been an air of mystery about the “Pacific Scandal” that brought down the Macdonald government in 1873.
The most common interpretation has been that Cartier, his judgment muddled by Bright’s Disease, cracked under the strain, and sold Sir Hugh Allan — whom he knew was backed by American financiers — the Presidency of the CPR and a controlling interest in its stock.
This is nonsense.
Cartier’s role in the whole affair has remained shadowy because he was in England seeking medical aid when the scandal broke, and he died before he could return to Canada.
No letters have surfaced to explain his position, apart from one written from England to Macdonald, congratulating him on having done “the right thing.”
Most of what we know about the scandal comes from the evidence gathered by a Royal Commission in late 1873, and since it lacks Cartier’s testimony, or the evidence of men like Senator Asa B. Foster and Lucius Seth Huntington — both of whom refused to testify — the report is a pile of bones without flesh and blood.
The facts speak for themselves, however.
The election of August 1872 was easily the dirtiest in Canadian history because the stakes were so high; the major one being Canada’s survival as a transcontinental nation.
Cartier was now seriously ill, and his supporters overwhelmed by a deluge of Liberal election funds, likely approaching $1 million. It was a colossal amount for those days, and unheard of in Canadian electoral history to that date.
In comparison, Allan supplied a relatively modest $360,000 in campaign funds, as was the custom for a man who relied on Royal Mail contracts to subsidize his steamship line.
But as Macdonald quickly learned, the stakes were much higher. McMullen’s cash was fertilizing Liberal opposition all over Ontario and Quebec. Cartier was very badly beaten in Montreal East; Macdonald lost scores of seats and barely hung on to power. Cooke’s agent George McMullen was of course dismayed by the result, but he was a resourceful man, and arranged to have the office of John Abbott, Sir Hugh Allan’s lawyer, burgled. The scandalous telegrams were printed on July 4, 1873, on the front pages of the Montreal Herald and Toronto Globe, to enormous shock among the populace.
The most incriminating, send by Macdonald six days before the election, read: “I must have another $10,000. Will be the last time of calling. Do not fail me. Answer today.” Macdonald was at first dismayed, but with Cartier away getting medical treatment in England, “Old Tomorrow” still had some breathing room, and decided to strike a Royal Commission.
To that body he simply expressed regret at the difficulties he faced financing Canadian party politics. As he mildly suggested to the commissioners in August 1873,
I got pecuniary assistance where I could. In Canada we have not the same organization that they have in England. We have neither a Reform Club nor a Carleton Club to manage elections, and the leaders have to undertake that for themselves. I found, as the contest went on, that it was getting more severe; representations were coming to me from all parts of Ontario that the Opposition, to use a general expression, had two dollars to our one.
A month later, Jay Cooke’s house of cards finally came tumbling down. A financial contraction in Europe was deepening, and just as Cooke was about to swing a $300 million government loan for the American branch of the Northern Pacific, reports circulated that his firm’s credit had become nearly worthless.
On September 18, his firm went bust, his bank closed its doors, and Jay Cooke, it is said, cried like a baby. The resulting “Panic of 1873” plunged North American and Europe into a severe recession. In the US, eighty-nine of the country’s 364 railroads went bankrupt, construction work halted, real estate values fell and corporate profits vanished.
The Commons met on October 23. With his supporters in disarray and his beloved colleague Cartier dead, Macdonald was obliged to resign and go into opposition.
Cartoon from Grip, an anti-Tory publication.
He did so gratefully, I feel, until happy days returned later that decade. But a new CPR agreement had to wait until 1880. Old Tomorrow was able to extract some revenge on Senator Foster. In 1877, he had a backbencher stand up and charge that,
It is a notorious fact that the information used to turn out the late government was furnished by the Hon. A.B. Foster, and everybody expected that the hon. gentleman would receive his reward for the same. And he did. The manner in which the contracts for the Georgian Bay Branch and the Canada Central Railway were let showed it ... He was the gentleman who furnished the noted letter at the time of the McMullen developments a few years ago.
Foster did not reply to the charge; his involvement with the Vermont Central soon bankrupted him; he spent some time in a Vermont prison for bad debts, and died shortly after.
As for Lucius Seth Huntington, the Liberal MP who tabled the stolen telegrams in the Commons, Conservative newspapers featured his own shady dealings on their front pages. He tried to stay involved with the Northern Pacific scheme, but more intelligent Liberals in the Alexander Mackenzie government demanded that he back away from that particularly smelly corpse. Interests friendly to the Bank of Montreal and the Hudson’s Bay Company — specifically George Stephen and his cousin, HBC Chief Factor and Member of Parliament Donald A. Smith — picked up the pieces of the CPR in 1880, and the rest is history.
Smith and Stephen were also financial backers of J.J. Hill, another Canadian, who had settled in St. Paul, Minnesota, and became head of the Great Northern Railroad, that ran in its own sphere of influence, south of the Canadian border, protecting the CPR from US lines tapping into its business border.
The Great Northern, now part of Warren Buffet’s Burlington Northern and Santa Fe, had the distinction of being the only privately funded, and successfully built, transcontinental railroad in United States history.Alastair Sweeny is a contributing editor to THE DORCHESTER REVIEW, a graduate of the University of Toronto and Trinity College, Dublin. His history of the War of 1812, Fire along the Frontier, is published by Dundurn Press. His biography of Sir G.-E. Cartier is now online. He is the author, most recently, of Thomas Mackay: The Laird of Rideau Hall and the Founding of Ottawa (University of Ottawa Press, 2022).