What were the reasons for this disappointing result? The root of the trouble was that the road was not built solely or even mainly with a view to operating efficiency and earning power. It was the politicians' road, the promoters' road, the contractors' road, at least as much as the shareholders' road. The government had encouraged the building of unprofitable sections, such as that east of Quebec, for local or patriotic reasons. Promoters had unloaded the Portland road and later the Detroit and Port Huron road at excessive prices. The contractors, east of Toronto, had had an eye mainly to construction profits in planning the route, and heavy grades, bad rails, and poor ballast increased maintenance charges beyond all expectations. The prophecy that operating expenses would not exceed forty per cent of earnings, based on English experience, failed partly because earnings were lower, but more because operating expenses were higher, than anticipated. The company had more than its share of hard luck from commercial depression, and from loss on American paper money in the Civil War. Water competition proved serious in the east, while other railways waged traffic wars in Upper Canada. The trade of the far west, which had been the most attractive lure, did not come in any great amount for the first twenty years. Differences of gauge, lack of permanent connections at Chicago, lack of return freight, rate wars with the American roads which had been built west at the same time or later, the inferiority of Montreal to New York as of old in harbour facilities and ocean service, the failure of Portland to become a great commercial centre—all meant hope and dividends deferred. Finally, the management was working at long range: the road did not enjoy the vigilant inspection or the public support that would have attended control by Canadian interests.
The Grand Trunk did Canada good service, well worth all the public aid that was given. It would probably have given better service, and its shareholders could not have fared worse, had the plans of Galt and his associates not been interfered with, and the line been built gradually under local control.
While the building of the Grand Trunk was the main achievement of the period, it was by no means the only one. The fifties were the busiest years in the railway annals of older Canada. In 1850 there were only 66 miles of road in all the provinces. In 1860 there were 2065, of which over 1700 had been added in the Canadas alone. The Great Western and the Northern were pushed forward under the provisions of the earlier Guarantee Act; roads of more local interest were fostered by municipal rivalry. Their building brought unwonted activity in every branch of commerce. A speculative fever ran through the whole community; fortunes were made and lost in the provision trade, and land prices soared to heights undreamed of. This mood was the promoter's happy chance, and still more charters were sought. The pace quickened till exhaustion, contagious American panics, poor harvests, and the Crimean War—which first raised the price of the wheat Canada had to sell, but later raised the price of the money she had to borrow—brought collapse in 1857.
In this boom period jobbery and lobbying reigned to an extent which we rarely realize in our memory of the good old times. Railway contractors were all-powerful in the legislature, and levied toll at will. The most notable 'contractor-boss' of the day was able, dealing with the Great Western, to hold up a bill for double-tracking until assured of the contract himself; dealing with the Grand Trunk, to force from the English contractors a share in the enterprise before consenting to help their schemes through; with the Northern, to collect $100,000 as a condition of securing from the government the guarantee bonds before they had been rightly earned. Municipal officials were bribed to help bonuses through. Existing roads were blackmailed by pedlars of rival charters. Glaringly fraudulent prospectuses were issued. On a smaller scale, the excitement and the rascality which had marked the beginning of the great railway eras in the United Kingdom and the United States were reproduced in Canada.
Of the other roads completed in this period, the two which had been aided by Hincks's first Guarantee Act were most important.
The Great Western had a promising outlook. It ran through a rich country and had assured prospects of through western traffic. The road was completed from Suspension Bridge to Windsor in January 1854. An extension from Hamilton to Toronto was built in 1856, and a semi-independent line from Galt to Guelph absorbed in 1860. The Great Western came nearest of any early road to being a financial success; alone of the guaranteed roads it repaid the government loan, nearly in full. But after a brief burst of prosperity, from 1854 to 1856, it, too, was continually in difficulties. In 1856 it paid a dividend of 8 1/2 per cent, but three years later it paid nothing, and in the next decade averaged less than three per cent.
The troubles of the Great Western came chiefly from competition, actual and threatened, and uncertain traffic connections. To the north, the chartering of the Toronto, Guelph and Sarnia, amalgamated later with the Grand Trunk, cut into its best territory. An endeavour was made in 1854 to divide the remaining area, but two years later the battle was renewed, the Great Western building to Sarnia and the Grand Trunk tapping London and Detroit. Between the Great Western and Lake Erie a rival road direct from Buffalo to Detroit was threatened time and again, but was not built until after Confederation. South of Lake Erie the Lake Shore and Michigan Southern was built shortly afterwards by interests connected with the New York Central, thus threatening the traffic connections of the Great Western both east and west. To avert loss of its western trade, the Great Western sunk large sums in aiding the construction of a road from Detroit to Grand Haven, with ferry connections to Milwaukee; but this experiment did not prove a success and caused serious embarrassment.
The Northern Railway, whose promoters, as we have seen, naïvely recognized that railways and lotteries were close akin, was opened as far as Allandale in 1853, and to Collingwood in 1855. It was scamped by the contractors, poorly built, and overloaded with debt. The sanguine policy of building up a through traffic from the American West, by water to Collingwood and rail to Toronto, proved a will-o'-the-wisp. In turn the company relied on independent steamers, and set up a fleet of its own, but equally in vain so far as profit went. By 1859 the road was bankrupt. A new general manager, Frederick Cumberland, brought in a change of policy. Local traffic was sedulously cultivated, and a fair degree of prosperity followed.
Most of the lesser roads constructed looked to the municipalities rather than to the provinces for aid. The Municipal Loan Fund of 1854 was the third and last phase of Hincks's railway policy. This was an ingenious attempt to give the municipalities the prestige of provincial connection without accepting any legal responsibility. Municipalities had previously been permitted to bonus or take stock in railways and toll-roads, but their securities were unknown in the world's markets. Hincks now provided that municipalities which wished money to aid railways or other local improvements might practically pool their credit and share in the credit of the province. Provincial debentures were issued against the municipal obligations pooled in the Fund, and the proceeds of their sale given to the municipalities. A sinking fund was to be maintained, and, if need be, the province could levy through the sheriff on any defaulting town.
The municipalities made full use of their privileges. It was believed that railway investments would yield high dividends, and the more optimistic expected to see all taxes made unnecessary by the profits earned. Town vied with town in extravagant enterprises.[[3]] Not a cent brought a dividend; instead, the municipalities found themselves saddled with heavy interest payments. One after another declined to pay; Port Hope was $312,000 in arrears by 1861 and Cobourg $313,000. The provincial government had not the political courage to send in the sheriff, and accordingly it was forced at last to assume the whole burden. Prudent municipalities which had declined to borrow at eight per cent found themselves compelled to share the burdens of their reckless neighbours. Demoralization was widespread.