The Story of Newfoundland

by Earl of Frederick Edwin Smith Birkenhead

In 1894, a misfortune of a different kind happened. On Monday, December 10th, the Commercial Bank, the Union Bank, and the Savings Bank, which had all been long established, were compelled to suspend payment. A widespread panic followed, and all business was paralysed. Workmen were dismissed wholesale, no money being available for the payment of their wages. To make the crisis graver still, the Union Bank was to have provided the interest on the Public Debt, which was payable in London on January 1st. The population feared that the crash would bring about riots and other dread occurrences. In aggravation of the risk the rumour spread that Newfoundland was about to be incorporated into the Dominion of Canada as a mere province. The Government telegraphed to the authorities in London for an immediate loan of £200,000, and requested that a warship should be despatched in view of imminent disturbances. The causes which led immediately to the failure were well stated in a Dalziel telegram to The Times:[47]

"The immediate cause of the financial crisis which has overwhelmed Newfoundland was the death of Mr Hall, a partner in the firm of Messrs Prowse, Hall & Morris, the London agents of the firms exporting fish to European markets. On his death the firm declined to meet further exchanges until an investigation of their affairs had been made. Their bills were protested, and the banks made demands on the Commercial Bank of St. John's, which was the drawer of the bills, and which, being unable to meet the demands made upon it, fell back upon its mercantile customers. These could not respond, and the bank had to suspend operations. The customers were compelled to make assignments, and nearly every business house in the colony was crippled, so interwoven are the affairs of one establishment with those of another.

"The situation was only possible under the peculiar business customs of the colony. The fishing industry here is pursued under a system of advances for vessels and equipments made by the merchants to the fishermen, who gave the catch at the end of the season in exchange. The merchants receive large advances from the only two banks doing business here, the Union Bank of Newfoundland and the Commercial Bank. By backing each other's bills the banks are enabled to carry on operations, and then at the close of the year, when the produce of the fisheries is realized, they are able to settle their overdrafts.

"The disaster happened at a most unfortunate time. If it had been postponed for another month the merchants would have realized on most of the fish, and the assets would have been far more valuable. At present, 2,000,000 dollars' worth of fishery products are stored in St. John's awaiting the means of shipment. Until financial aid from the outside world is obtained, it is impossible to place the fish on the market."

At this time the financial position of the colony was thoroughly unsound. Its population numbered roughly 200,000 persons, and its Public Debt amounted to 14,000,000 dollars, or nearly three million pounds sterling. The Ministry of the day resigned, after an unsuccessful attempt to form a coalition Government, and its successors applied for Imperial help, an application which logically involved the surrender of the Constitution. In fact, the unassisted credit of the colony seemed hopeless, for in a year or two the railway reckonings had to be met. The Government had issued bonds whereof yearly interest was to become payable on completion, amounting to almost a third of the total revenue of the colony.[48]

Such temporary measures as the nature of the crisis admitted were taken locally. The Legislature passed two Bills guaranteeing a portion of the note issue of both the Union Bank and the Commercial Bank; while a loan of 400,000 dollars was procured from the Bank of Montreal, and additional loans from the Bank of Nova Scotia and the Royal Bank of Canada: thus "the financial sceptre passed to Canada."[49] At the same time the manager and directors of the Commercial Bank were arrested on a charge of having presented a fraudulent balance sheet. Reuter's correspondent at St. John's noted that in this time of trouble the idea of union with Canada gained ground rapidly. How hopeless the position seemed to calm observers on the spot may be gathered from the following vivid extracts from a letter by The Times correspondent at St. John's:[50]

"Twelve large firms controlled the whole export trade of the colony—fish oils and fish products, valued at about 7,000,000 dollars. Of these twelve only two remain ... and these are sorely stricken. These firms occupied the whole waterside premises of St. John's, gave employment to hundreds of storekeepers, coopers, stevedores, and others, beside some thousands of unskilled labourers occupied in the handling of the fish. All these men are now without a day's work, or any means of obtaining it. The isolation of the colony, away out in the Atlantic with no neighbour, is its greatest curse. People unemployed cannot emigrate, but must swell an army of industrials depending on the Government for relief. The city is a veritable aggregation of unemployed; it is a city to let. Every business, factory, wharf, store, or shop employing labour has either suspended business or has curtailed the number of its employees to the lowest possible limit. It is not unreasonable to estimate the number unemployed here to-day at 6,000, every one of whom must be without work until spring opens."

It is not surprising to find that in this difficulty the minds of the colonists turned towards the Imperial Exchequer. But the distinction is vital between an Imperial grant in relief of a visitation of nature and a grant in relief of financial disasters which may be the result of improvidence or extravagance. The Imperial Exchequer is drawn from complex sources, and cannot be diverted to irregular purposes without injustice to large numbers of poor people. These facts were not unnaturally overlooked in Newfoundland, for in trouble the sense of proportion is apt to disappear. Thus on March 2nd, 1895, Sir W. Whiteway, the Newfoundland Premier, in a letter to The Times, said:

"We have approached Her Majesty's Government, and solicited a mere guarantee of interest to the amount of a few thousand pounds per annum for a limited period, in order to enable the colony to float its loans and tide it over the present temporary difficulties. Up to date the people of this old, loyal colony have received no response. They have been struggling against difficulties in the past, and if they still have to trust to their own inherent pluck, and to the resources of the country, they must only passively submit, although they may the more bitterly feel the heartless treatment of the Imperial Government towards them."

The touch of bitterness in Sir William Whiteway's letter was, perhaps, unreasonable. Mr Goodridge was Premier at the time of the crash, and his Government at once appealed for help to England, on the ground that if it were not forthcoming the colony would be unable to meet its obligations. A proposal was added that a Royal Commission should be appointed to inquire into the whole political and commercial position of the colony. Mr Goodridge was unable to keep his place, and his Government was followed by that of Mr Greene. The new Government at once inquired whether, if the Newfoundland Legislature acquiesced in the appointment of a Commission, financial help would be immediately forthcoming. They desired information also as to the scope of the Commission and the terms on which assistance would be given. To this the answer was inevitable, that all these points must depend upon the findings of the Commission. In fact, the Colonial Government wished for an unconditional loan and an assurrance that the Constitution of the island would not be interfered with. Mr Greene, in turn, proved unable to hold his ground, and was succeeded by Sir William Whiteway. The latter substituted for the earlier proposals a request that the Newfoundland bonds should be guaranteed by the Imperial Government; the suggested Commission being ignored. This was the request referred to in Sir William's letter. Now it is very clear that although the amount involved was relatively small, a very important principle was raised. Responsible government has its privileges and its obligations, the latter of which flow logically from the former. The Imperial Government charges itself with responsibility for the finances of a Crown colony because it directs the policy and determines the establishment on which the finances so largely depend. It is not reasonable to ask that the British taxpayer should assume responsibility for liabilities incurred by a colony with responsible government. The toga virilis has responsibilities. The case might, perhaps, be different if there were no danger that the concession of help might be drawn into a precedent. But it must never be forgotten that the aggregate public debts of the self-governing colonies at about that time exceeded £300,000,000.