More valid was the criticism of the remaining terms. The exemption from duties was wise, if inconsistent in a protectionist government, and the exemption from regulation of rates until ten per cent was earned had a precedent in a clause in the General Railway Act, not repealed until 1888, exempting all roads from such regulation until fifteen per cent on the capital invested had been earned. The exemption from taxation, however, was an unwarranted privilege, throwing undue burdens on homesteading settlers; and the interpretation afterwards given that the exemption on lands extended until twenty years after the patent had been issued still further increased the difficulty. Objectionable, also, was the monopoly clause, barring United States connections for ten years. It was claimed that this exemption was essential if traffic was to be secured for the Lake Superior link, and essential also if capital was to be secured from England. The Englishman, one of the heads of the road declared, hated a monopoly at home as he hated the devil, but he looked with favour on monopolies abroad. The monopoly clause, as will be seen later, for a time did more to split East and West than the Lake Superior link did to bind them together in spirit.
But enough of discussion. Action came quick. Not a day was lost in organizing and beginning work.
George Stephen was chosen president, and held the post until 1888. To him more than to any other man the ultimate success of the Canadian Pacific was due. Indomitable persistence, unquenchable faith, unyielding honour stamped his character. He was one of the greatest of Empire builders. He never despaired in the tightest corner, and never rested while a single expedient remained untried. Duncan M'Intyre became one of the two vice-presidents, and took an active part in the company's affairs until he dropped out in 1884. Richard B. Angus came back from St Paul to become vice-president and a member of the executive committee. His long banking experience and his shrewd, straightforward judgment proved a tower of strength in days of trial.
Donald A. Smith, while after 1883 a director and a member of the executive committee, took little part in the railway's affairs, though at Stephen's urging he more than once joined in going security when help was most needed. James J. Hill left the directorate and unloaded his stock at the close of 1882, because the company refused to accept his advice to omit the Lake Superior section, and because of the growing divergence of interests between the St Paul, Minneapolis and Manitoba and the Canadian Pacific. With him retired John S. Kennedy. The Baron de Reinach also withdrew at an early stage. The English directors, representing Morton, Rose and Co. of London, retired as soon as the road was completed, being replaced by representatives of Morton, Bliss and Co. of New York. E. B. Osler came in with the Ontario and Quebec in 1884. The board became more and more distinctively Canadian.
One of the first steps taken by the directors was to open offices in Winnipeg, and put two men with United States experience in charge—A. B. Stickney, later president of the Chicago Great Western, as general superintendent, and General Rosser as chief engineer. The rate of progress was not satisfactory, and early in 1882 a fortunate change was made. William C. Van Horne, at that time general superintendent of the Chicago, Milwaukee and St Paul, and still under forty, was appointed general manager with wide powers. Some years earlier, when he was president of the Southern Minnesota, the leading members of the St Paul syndicate had had an opportunity of learning his skill. He had been in railroading since fourteen, beginning as a telegraph operator on the Illinois Central, and had risen rapidly in the service of one Middle West road after another. His tireless driving force was precisely the asset the company now most needed.
The first task was to find the money necessary to build the nineteen hundred miles remaining of the main line, to build or acquire necessary branches and extensions, and to provide equipment.
The government subsidies were the first resource. The $25,000,000 cash and the 25,000,000-acre land-grant were to be paid as construction advanced. If the land-grant were put on the market at once, for sale to settlers, it would bring relatively little, in face of the competition of the free homestead land in adjoining sections. Three expedients were devised to make it available as soon as possible. An extensive campaign was begun to advertise the government free land and thus exhaust the supply along the railway line, and at the same time provide producers of freight. Bonds based on the security of the land-grant were issued to the amount of $25,000,000; $10,000,000 of this issue was sold in 1881 at 92, and varying proportions of the remainder were used as pledge for the government loans or execution of the contract. These bonds were redeemed and cancelled as the lands on which they were based were sold. Further, the Canada North-West Land Company was organized to buy five million acres for a long hold. The company included several members of the syndicate as well as some English investors to whom land appealed more than railway stocks. It found itself unable to handle this amount and the purchase was reduced to 2,200,000 acres. Sales to other companies and to individuals brought the total amount received or due from land by the end of 1885 up to $11,000,000.
Next came the contributions of the members of the syndicate and other private investors. The capital stock authorized was $100,000,000. In 1881 the members of the syndicate subscribed $5,000,000 at par. In May 1882 they allotted themselves $10,000,000 at 25. In December of the same year $30,000,000 was issued at 52 1/2 to a syndicate of New York bankers organized by W. L. Scott; this stock was eventually sold largely in Holland and in England. A final ten millions were pledged in New York and Montreal for a loan of half that sum, and later sold for about the amount of the loan. All told, sixty-five millions of stock had been issued and some thirty-one million dollars had been brought into the treasury.
Then the flow ceased. The brief gleam of prosperity which had shone over North America after the gloom of the later seventies vanished. Never had railway building been carried on so vigorously in the United States as in the years 1881-83, and the reaction was correspondingly severe. The collapse of the boom which had accompanied the first operations in Manitoba, the failure of harvest after harvest, the fading away of settlers and speculators alike, robbed all but a persistent few of faith in the Canadian North-West and in the railway whose fortunes rose or fell with it. The way of the Canadian Pacific was made particularly hard by the manoeuvres of rival companies. Some of the United States Pacific roads, awake to the seriousness of the competition threatened, attacked it in the New York market. The Grand Trunk, naturally alarmed by the incursion of the new road into its best paying territory in the East, used all the power of its influential directors and its army of shareholders in England to bar the London market.
The financial policy adopted by the Canadian Pacific was unique in the records of great railway enterprises on this continent. It was simply to rely entirely on stock issues, to endeavour to build the road without incurring any bonded debt. Not until the last year of construction, 1885, were bonds based upon the security of the road itself issued for sale. It was doubtless desirable, if possible, to avoid the reckless methods by which so many American roads had been hopelessly waterlogged by excessive bond issues. The memory of the St Paul and Pacific's six-million share capital as against its twenty-eight-million bonded indebtedness was fresh in the minds of the members of the syndicate. By keeping fixed charges low, while earning power was still uncertain, they lessened the risk of having the road pass out of the stockholders' control into a receiver's hands. Yet as bonds could have been sold more easily than stock, it increased the difficulty of finding the necessary capital. Even so, it came within an ace of succeeding.